Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 31, 2002
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition from to
Commission File No. 0-16999
URBAN OUTFITTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Pennsylvania |
23-2003332 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| 1809 Walnut Street, Philadelphia, PA |
19103 | |
| (Address of Principal Executive Offices) |
(Zip Code) |
(215) 564-2313
Registrant’s telephone number, including area code:
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
(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) 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 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. x
17,383,086 Common Shares were outstanding at March 20, 2002
The aggregate market value of voting shares held by non-affiliates at March 20, 2002 was $215,999,870.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant’s 2002 Annual Meeting of Shareholders — Part III.
Table of Contents
| PART I |
||||
| Item 1 |
1 | |||
| Item 2 |
7 | |||
| Item 3 |
9 | |||
| Item 4 |
10 | |||
| PART II |
||||
| Item 5 |
11 | |||
| Item 6 |
12 | |||
| Item 7 |
13 | |||
| Item 7A |
21 | |||
| Item 8 |
21 | |||
| Item 9 |
21 | |||
| PART III |
||||
| Item 10 |
22 | |||
| Item 11 |
24 | |||
| Item 12 |
24 | |||
| Item 13 |
24 | |||
| PART IV |
||||
| Item 14 |
25 | |||
| F-1 | ||||
Table of Contents
PART I
Unless the context otherwise requires, all references to “Urban
Outfitters,” “the Company,” “we,” “us” or “our company” refer to Urban Outfitters, Inc., together with its direct and indirect subsidiaries. The Company operates on a fiscal year ending January 31. All
references to fiscal years of the Company refer to fiscal years ended on January 31 in those years. For example, the Company’s “Fiscal 2002” ended on January 31, 2002.
General
We are an innovative lifestyle merchandising company that operates
specialty retail stores under two distinct brands, Urban Outfitters and Anthropologie, as well as the Free People wholesale division. We have over 30 years of experience creating and managing retail stores that offer highly differentiated
collections of fashion apparel, accessories and home goods in inviting and dynamic store settings. Our core strategy of providing unified store environments that establish emotional bonds with the customer is used at both Urban Outfitters and
Anthropologie. In addition to our retail stores, we offer our products and market our brands directly to the consumer through the urbn.com and anthropologie.com web sites and the Anthropologie catalog. We have achieved compounded
annual sales growth of 19% over the past five years, resulting in sales of $349.0 million for the fiscal year ended January 31, 2002.
We opened our first store in 1970 near the University of Pennsylvania campus in Philadelphia. We were incorporated in Pennsylvania in 1976, and opened our second store in Harvard Square, Cambridge, Massachusetts in 1980. The first
Anthropologie store opened in a suburb of Philadelphia in October 1992.
Retail Segment
Urban Outfitters. Urban Outfitters targets young adults aged 18 to 30 through its unique merchandise mix and compelling store environment. We have
established a reputation with these young adults, who are culturally sophisticated, self-expressive and concerned with acceptance by their peer group. The product offering includes women’s and men’s fashion apparel, footwear and
accessories, as well as an eclectic mix of apartment wares and gifts. Apartment wares range from rugs, pillows and shower curtains to books, candles and novelties. Stores average approximately 10,000 square feet of selling space, typically carry
30,000 to 35,000 stock keeping units, or SKUs, are located in large metropolitan areas and select university communities and accommodate their customers’ propensity not only to shop, but also to congregate with their peers. We expect to open
our first enclosed mall store in the second quarter of this year. As of March 20, 2002, we operated 49 Urban Outfitters stores in the United States, Canada, the United Kingdom and Ireland, as well as the urbn.com web site. Urban
Outfitters’ sales accounted for approximately 54% of total sales for the fiscal year ended January 31, 2002.
Anthropologie. Anthropologie tailors its merchandise and inviting store environment to sophisticated and contemporary women aged 30 to 45. Anthropologie’s target customers are, for the most part,
focused on family, home and career. Our unique and eclectic product assortment includes women’s casual apparel and accessories, home furnishings and a diverse array of gifts and decorative
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items. The home furnishings range from furniture, rugs, lighting and antiques to table top items, bedding and gifts. Stores average approximately 8,500 square feet of selling space, typically
carry 20,000 to 25,000 SKUs and are located in specialty retail centers, upscale street locations and enclosed malls. As of March 20, 2002, we operated 33 Anthropologie stores in the United States, as well as the anthropologie.com web site
and the Anthropologie catalog. Anthropologie’s sales accounted for approximately 41% of total sales for the fiscal year ended January 31, 2002.
Wholesale Segment
Free People. Free People, our wholesale division,
designs, develops and markets young women’s casual apparel. Our range of tops, bottoms, sweaters and dresses are sold worldwide through approximately 1,100 better department and specialty stores, including Bloomingdale’s, Nordstrom and
Urban Outfitters. In order to further develop and support the Free People brand, we plan to open a limited number of Free People retail stores over the next several years. Free People’s sales accounted for approximately 5% of total sales for
the fiscal year ended January 31, 2002.
Store Environment
We create a unified environment in our stores that establishes an emotional bond with the customer. Every element of the environment is tailored to the aesthetic preferences of our
target customers. Through creative design, the existing retail space is modified to incorporate a mosaic of fixtures, finishes and revealed architectural details. In our stores, merchandise is integrated into a variety of creative vignettes and
displays designed to offer our customers an entire look at a distinct lifestyle. This dynamic visual merchandising and display technique provides the connection among the grandscale store design, the merchandise and the customer. Essential
components of the ambience of each store include playing music that appeals to our target customers, using unique signage and employing a staff that understands and identifies with the target customer.
Creating an individualized and tailored shopping experience for each customer is especially important in our Anthropologie stores. By providing an
inviting and pleasant shopping atmosphere and an attentive sales staff, including in-store customer care managers, we strive to create a sense of community in our Anthropologie stores that encourages our target customers to linger and spend time
exploring our stores and product offerings.
Our Urban Outfitters stores average approximately 10,000 selling square feet and
are often located in unconventional retail spaces, including a former movie theater, bank and stock exchange. Anthropologie stores average approximately 8,500 selling square feet and are typically placed in unique and non-traditional retail
locations, although five of our Anthropologie stores are located in more traditional specialty centers. We also have two Anthropologie stores in traditional enclosed shopping malls.
Buying Operations
Maintaining a constant flow of fresh, fashionable merchandise for our
retail segment is critically important to the on-going performance of the stores and the direct-to-consumer operations. We maintain our own buying organizations that select and develop products to satisfy our target customers and that provide us
with the appropriate amount of products at the correct time. Merchandise managers
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supervise several buyers and assistant buyers. These buyers stay in touch with the evolving tastes of their target customers by constantly shopping at the major trade markets, attending national
and regional trade shows and staying current with mass media influences, including music, video, film and magazines. Merchandise managers and buyers may earn a significant portion of their compensation based on their individual contribution to gross
profit.
Merchandise
Our
Urban Outfitters stores and the urbn.com web site offer a wide array of eclectic merchandise, including women’s and men’s fashion apparel, footwear and accessories, and apartment wares and gifts. Product offerings at our
Anthropologie stores, the anthropologie.com web site and the Anthropologie catalog include women’s casual apparel and accessories, as well as home furnishings and an eclectic array of gifts and decorative accessories for the home,
garden, bed and bath. Our merchandise is continuously updated to appeal to our target customers’ changing tastes and is supplied by a large number of domestic and foreign vendors, with new shipments of merchandise arriving at our stores several
times a week. The wide breadth of merchandise offered by our retail segment includes national brands, as well as exclusive private label merchandise developed and designed by Free People, Urban Outfitters and Anthropologie. This selection allows us
to offer fashionable merchandise and to differentiate our product mix from that of traditional department stores, as well as that of other specialty and direct-to-consumer retailers. Private label merchandise generally yields higher gross profit
margins than brand name merchandise, and helps to keep our product offerings fresh and unique.
The ever-changing mix of
products available to our customers allows us to adapt our merchandise to prevailing fashion trends, and, together with the inviting atmosphere of our stores, encourages our core customers to visit our stores frequently.
We seek to select price points for our merchandise that are consistent with the spending patterns of our target customers. As such, our stores carry
merchandise at a wide array of price points that may vary considerably within product categories.
Store Operations
We have organized our retail store operations into geographic areas or districts, each with a district manager. District managers are responsible for
several stores and monitor and supervise individual store managers. Each store manager is responsible for overseeing the daily operations of one of our stores. In addition to a store manager, the staff of a typical store includes a visual manager,
several departmental managers and a full- and part-time sales staff. The staff of a typical Anthropologie store also includes a customer care manager who helps tailor the shopping experience to the needs of Anthropologie’s target customers.
An essential requirement for the success of our stores is our ability to attract, train and retain talented, highly motivated
store managers, visual managers and other key employees. In addition to management training programs for both newly hired and existing employees, we have a number of retention programs that offer qualitative and quantitative performance-based
incentives to district-level managers, store-level managers and full-time sales associates.
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Catalog and Web Sites
In March 1998, Anthropologie introduced a direct-to-consumer catalog offering selected merchandise that is also available in our Anthropologie stores. During the fiscal year ended January 31, 2002, catalog circulation
was approximately 9.8 million. We believe that the Anthropologie catalog has helped us establish a reputation with Anthropologie’s target customers and has increased the number of customers who shop in our Anthropologie stores. We plan to
modestly increase the level of catalog circulation over the next few years.
Both Urban Outfitters and Anthropologie operate
Internet web sites that accept orders directly from consumers. The Anthropologie web site, anthropologie.com, debuted in December 1998. The Urban Outfitters web site, urbn.com, was launched in May 2000. Each of these sites captures the
spirit of the retail stores by offering a similar array of apparel, accessories, household and gift merchandise. As with the Anthropologie catalog, we believe that our retail web sites increase our reputation and brand recognition with our target
customers and help support the strength of our retail store operations.
Free People
Free People, our wholesale division, was established in 1984 to develop, in conjunction with Urban Outfitters, private label apparel lines of young women’s casual wear that could be
effectively sold at attractive pricing in the Urban Outfitters stores. In order to achieve minimum production lots, Free People began selling to other retailers throughout the United States. Free People’s range of tops, bottoms, sweaters and
dresses are sold worldwide through approximately 1,100 better department and specialty stores, including Bloomingdale’s, Nordstrom and Urban Outfitters. Free People currently sells its merchandise primarily under the Free People label,
as well as the bdg (formerly Bulldog) label. Monitoring the styles and products that are popular with our wholesale customers gives us insight into current fashion trends that help us better serve our retail customers.
Free People presently maintains sales and showroom facilities in New York City and Los Angeles, although we ultimately hope to open a limited
number of Free People stores in enclosed shopping malls or specialty centers. We believe these stores will help us establish and raise consumer awareness of the Free People brand, and may ultimately help us in distributing our Free People products
in department stores using a shop-within-shops sales model. We feel that the shop-within-shops model will allow for a more complete merchandising of our Free People products and will give us greater freedom in differentiating the presentation of our
products, further strengthening brand image.
In addition to selling its merchandise to specialty retailers, Free People also
provides production and design services to our retail segment. Free People has its own senior and creative management staff, but shares support services with the retail segment.
Marketing and Promotion
We believe that highly visible store locations, creative store
design, broad merchandise selection and visual presentation are key enticements for customers to enter and explore our stores and buy merchandise. Consequently, we rely on these factors, as well as the brand recognition created by our direct
marketing activities, to draw customers into our stores, rather than on traditional forms of advertising such as print, radio and television media. Marketing activities for each of our retail concepts include special event promotions and a variety
of public relations activities designed to create community awareness of our stores and products.
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Suppliers
To serve our target customers and to recognize changes in fashion trends and seasonality, we purchase merchandise from numerous foreign and domestic vendors. During our most recently completed fiscal year, we did
business with approximately 1,900 vendors. No single vendor accounted for more than 10% of merchandise purchased during that time. While certain of our vendors have limited financial resources and production capabilities, we do not believe that the
loss of any one vendor would have a material effect on our business.
Company Operations
Distribution. The majority of merchandise purchased by both our retail and our wholesale businesses is shipped directly to our distribution center in Lancaster County,
Pennsylvania. We own the facility, which has an advanced computerized materials handling system, and is approximately 60 miles from our home offices in Philadelphia. The current 191,000 square foot structure is expected to provide the majority of
United States distribution and direct-to-consumer fulfillment capability, at least through fiscal 2004.
We utilize a
distribution facility in Reno, Nevada operated by a third-party. This facility services our stores in the western United States at a favorable freight cost per unit, and provides a faster turnaround from selected vendors. Future expansion of
distribution capabilities in the western United States is anticipated due to our growing retail store network. In addition, we utilize a portion of the Toronto Urban Outfitters store as a distribution facility in Canada, and have a distribution
center in Essex, England to service our current and near-term needs for stores in the United Kingdom and Ireland.
Management
Information Systems. Very early in our growth, we recognized the need for high-quality information in order to manage merchandise planning/buying, inventory management and control functions. We invested in a retail software package that we
believe meets our processing and reporting requirements and will continue to do so in the foreseeable future. We utilize point-of-sale register systems connected by a frame relay network to our home offices. These systems provide for register
efficiencies, timely customer checkout and instant back office access to register information, as well as for nightly polling of sales and inventory, transmittal of data and price changes. Our direct-to-consumer operations, including the
Anthropologie catalog and two retail web sites, maintain separate software systems which manage the merchandise and customer information for the in-house call center order processing and fulfillment functions. To manage its needs, Free People uses a
separate software system for customer service, order entry and allocations, production planning and inventory management. We have contracted with a nationally-recognized company to provide disaster-recovery services with respect to our key systems.
Competition
The
specialty retail and direct-to-consumer businesses and the wholesale apparel business are highly competitive. Our retail stores compete on the basis of, among other things, the location of our stores, the breadth, quality, style, and availability of
merchandise, the level of customer service offered and merchandise price. Although we feel the eclectic mix of products offered in our retail stores helps differentiate us, it also means that both Urban Outfitters and Anthropologie stores compete
against a wide variety of smaller, independent specialty stores as well as department stores and national
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specialty chains. Our Anthropologie stores also face competition from small boutiques that offer an individualized shopping experience similar to the one we provide to our target customers.
Along with certain retail segment factors noted above, other key competitive factors for our direct-to-consumer operations
include the success or effectiveness of customer mailing lists, response rates, catalog presentation, merchandise delivery and web site design and availability. Our direct-to-consumer operations compete against numerous catalogs and web sites, which
may have greater circulation and web traffic.
Free People competes with numerous wholesale companies based on the quality,
fashion and price of our wholesale product offerings. Many of our wholesale business competitors’ products have wider distribution than ours. In addition, certain of our retail and wholesale competitors have greater name recognition and
financial and other resources than we do.
Trademarks and Service Marks
We are the registered owner in the United States of certain service marks and trademarks, including “Urban Outfitters,” “Anthropologie,” “Urban Renewal,”
“Free People,” “Co-Operative,” “Ecote,” “Slant,” “Fink,” “Lisa L.,” “Lip Gloss,” “Shag,” “365 Days” and “Stapleford.” Each mark is renewable
indefinitely, contingent upon continued use at the time of renewal. In addition, we currently have pending registration applications with the U.S. Patent and Trademark Office covering certain other marks. We also own marks that have been registered
in foreign countries, and have applications for marks pending in additional foreign countries as well.
We regard our marks as
important to our business due to their name recognition with our customers. In order to more effectively protect them from infringement and to defend against claims of infringement, we established a separate subsidiary whose primary purpose is to
maintain and manage existing and future marks, thereby increasing their value to our operating companies. We are not aware of any claims of infringement or challenges to our right to use any of our marks in the United States.
Employees
We employ approximately
3,000 people, approximately 53% of whom are full-time employees. The number of part-time employees fluctuates depending on seasonal needs. Of our total employees, 3% work at Free People and the remaining 97% work in the retail segment. None of our
employees is covered by a collective bargaining agreement, and we believe that our relations with our employees are excellent.
Financial Information
about Operations
See Note 12: Segment Reporting in the Company’s Consolidated Financial Statements for information.
Seasonality
See Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Quarterly Results for information.
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Our United States based home offices are located in
Philadelphia, Pennsylvania and occupy approximately 26,000 square feet at 1809 Walnut Street, immediately adjacent to the Anthropologie store at 1801 Walnut Street, and approximately 22,000 square feet at 235 South 17th Street. The
direct-to-consumer order processing call center is also located in Philadelphia and occupies approximately 2,800 square feet at 1700 Sansom Street. Our home office in the United Kingdom is located in London and occupies approximately 2,000 square
feet of space below the store at 36-38 Kensington High Street. Our home offices and call center facilities are leased properties with varying lease term expirations through 2011.
All of the Urban Outfitters and Anthropologie stores are leased. Our 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 each of our existing retail stores, listed generally in the order that they were opened. Total estimated selling square feet under lease at January 31, 2002, including stores not yet opened, by Urban
Outfitters and Anthropologie was approximately 503,000 and 291,000, respectively. The average store selling square feet is approximately 10,000 for Urban Outfitters and approximately 8,500 for Anthropologie. Selling square feet can sometimes change
due to floor moves, use of staircases, cash register configuration and other factors.
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Urban Outfitters Stores
| LOCATION |
LOCATION |
LOCATION |
LOCATION | |||
| North America |
UK and Ireland | |||||
| Philadelphia, PA 110 South 36th Street |
Pasadena, CA 139 W. Colorado Blvd. |
Lawrence, KS 1013 Massachusetts Street |
London, England 36-38 Kensington High Street | |||
| Cambridge, MA 11 J.F. Kennedy Street |
Chicago, IL 935 N. Rush Street |
East Lansing, MI 119 E. Grand River Ave. |
Dublin, Ireland 4 Cecilia St. & 7th Fownes St. | |||
| Philadelphia, PA 1627 Walnut Street |
Portland, OR 2320 N.W. Westover Road |
Miami, FL 5701 SW 72nd St., #146 |
Glasgow, Scotland 157 Buchanan Street | |||
| New York, NY 628 Broadway |
Austin, TX 2406 Guadalupe Street |
Seattle, WA 1507 5th Avenue |
||||
| Washington, DC 3111 M Street, N.W. |
Tempe, AZ 545 South Mill Ave. |
Tucson, AZ 901 E. University Blvd. |
||||
| New York, NY 374 Avenue of Americas |
Houston, TX 2501 University Blvd. |
Santa Barbara, CA 624 State Street |
||||
| Madison, WI 604 State Street |
Montreal, PQ 1246 Ste. Catherine Street, W. |
New York, NY 72nd & Broadway |
||||
| Ann Arbor, MI 231 S. State Street |
Toronto, ON 235 Yonge Street |
Evanston, IL 921 Church Street |
||||
| Boston, MA 361 Newbury Street |
Miami Beach, FL 653 Collins Avenue |
Providence, RI 285 Thayer Street |
||||
| Minneapolis, MN 3006 Hennepin Ave., S. |
Boulder, CO 934 Pearl Street |
Dallas, TX 5331 E. Mockingbird Lane |
||||
| Seattle, WA 401 Broadway, East |
Bloomington, IN 530 E. Kirkwood Avenue |
New Haven, CT 43 Broadway |
||||
| Berkeley, CA 2590 Bancroft Way |
San Diego, CA 665 Fifth Avenue |
Cincinnati, OH 2510 Ohio Avenue |
||||
| Santa Monica, CA 1440 Third Street Promenade |
Columbus, OH 1782 N. High Street |
New York, NY 526 Avenue of the Americas |
||||
| San Francisco, CA 80 Powell Street |
New York, NY 162 2nd Avenue |
Tampa, FL 1600 E. 8th Avenue, Suite A-121 |
||||
| Costa Mesa, CA 2930 Bristol Street |
Los Angeles, CA 7650 Melrose Avenue |
|||||
| Chicago, IL 2352 N. Clark Street |
Burlington, VT 81 Church Street |
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Anthropologie Stores
| LOCATION |
LOCATION |
LOCATION | ||
| Wayne, PA 201 W. Lancaster Ave. |
Boston, MA 799 Boylston Street |
Scottsdale, AZ 15210 N. Scottsdale Road | ||
| Rockville, MD 11500 Rockville Pike |
Birmingham, MI 214 West Maple Road |
Cincinnati, OH 2643 Edmonson Road | ||
| Westport, CT 1365 Post Road, East |
Santa Barbara, CA 901 State Street |
West Palm Beach, FL 700 South Rosemary Avenue | ||
| Greenvale, NY 9 Northern Blvd. |
Chestnut Hill, MA 300 Boylston Street |
Miami Beach, FL 1108 Lincoln Road | ||
| New York, NY (SoHo) 375 West Broadway |
New York, NY 85 Fifth Avenue |
Minneapolis, MN 4999 France Avenue South | ||
| Santa Monica, CA 1402 Third Street Promenade |
Atlanta, GA 3393 Peachtree Road, N.E. |
Houston, TX 4066 Westheimer Road | ||
| Newport Beach, CA 823 Newport Center Drive |
Philadelphia, PA 1801 Walnut Street |
Kansas City, MO 531 Nichols Road | ||
| Chicago, IL 1120 N. State Street |
Seattle, WA 1509 Fifth Avenue |
Columbus, OH 4235 The Strand | ||
| Highland Park, IL 1780 Green Bay Road |
Tampa, FL 705 S. Dakota Avenue |
Salt Lake City, UT 116 South Rio Grande Street | ||
| Beverly Hills, CA 320 N. Beverly Drive |
Greenwich, CT 480 W. Putnam Avenue |
Woodcliff Lake, NJ (opened 2/1/02) 379 Chestnut Ridge Road | ||
| Seattle, WA 2520 N.E. University Village, #120 |
San Francisco, CA 880 Market Street |
Los Angeles, CA (opened 3/18/02) 6301 W. 3rd Street, Suite J |
We own a 191,000 square foot distribution center in Lancaster County,
Pennsylvania. We utilize a distribution facility in Reno, Nevada operated by a third-party. For more information on our distribution center properties, see Item 1: Business—Company Operations—Distribution.
Free People operates showrooms in New York City and Los Angeles, which are leased through 2004 and 2007, respectively.
We believe that our facilities are well maintained, in good operating condition and adequate for our current needs.
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.
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No matters were
submitted to a vote of security holders during the fourth quarter of Fiscal 2002, 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 from Part III, Item 10 of this Form 10-K.
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PART II
Our common shares are traded on the Nasdaq National Market under the symbol “URBN.” The following table sets forth for the periods indicated below the reported high and low sale prices for our common shares as reported on the
Nasdaq National Market.
Market Information
| High |
Low | |||||
| Fiscal 2001 |
||||||
| Quarter ended April 30, 2000 |
$ |
15.13 |
$ |
10.25 | ||
| Quarter ended July 31, 2000 |
|
12.48 |
|
8.56 | ||
| Quarter ended October 31, 2000 |
|
11.00 |
|
7.50 | ||
| Quarter ended January 31, 2001 |
|
9.75 |
|
6.44 | ||
| Fiscal 2002 |
||||||
| Quarter ended April 30, 2001 |
$ |
13.78 |
$ |
8.52 | ||
| Quarter ended July 31, 2001 |
|
16.20 |
|
10.31 | ||
| Quarter ended October 31, 2001 |
|
17.25 |
|
10.07 | ||
| Quarter ended January 31, 2002 |
|
26.64 |
|
12.54 | ||
Holders
On March 20, 2002, the Company had approximately 2,700 beneficial holders of its common shares.
Dividends
The Company’s current line of credit facility prohibits the payment of cash dividends on its common shares. The
Company has not paid any cash dividends since its inital public offering and does not anticipate paying any cash dividends on its common shares in the foreseeable future.
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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 is derived from the
consolidated financial statements of the Company. The data presented below should be read in conjunction with the consolidated financial statements of the Company, and the related notes thereto, which appear elsewhere in this report.
| Fiscal Year Ended January 31, | |||||||||||||||
| 2002 |
2001 |
2000 |
1999 |
1998 | |||||||||||
| (in thousands, except share amounts and per share data) | |||||||||||||||
| Income Statement Data: |
|||||||||||||||
| Net sales |
$ |
348,958 |
$ |
295,333 |
$ |
278,113 |
$ |
209,865 |
$ |
173,260 | |||||
| Gross profit |
|
113,647 |
|
95,331 |
|
104,654 |
|
78,810 |
|
60,090 | |||||
| Income from operations |
|
25,498 |
|
17,878 |
|
37,565 |
|
25,117 |
|
22,062 | |||||
| Net income |
|
15,007 |
|
10,495 |
|
18,680 |
|
15,760 |
|
13,880 | |||||
| Net income per common share—basic |
$ |
0.87 |
$ |
0.61 |
$ |
1.07 |
$ |
0.89 |
$ |
0.79 | |||||
| Weighted average common shares outstanding—basic |
|
17,268,615 |
|
17,257,186 |
|
17,531,971 |
|
17,702,922 |
|
17,576,203 | |||||
| Net income per common share—diluted |
$ |
0.86 |
$ |
0.61 |
$ |
1.05 |
$ |
0.88 |
$ |
0.78 | |||||
| Weighted average common shares outstanding—diluted |
|
17,438,457 |
|
17,274,830 |
|
17,844,356 |
|
17,929,109 |
|
17,843,873 | |||||
| Balance Sheet Data: |
|||||||||||||||
| Working capital |
$ |
41,319 |
$ |
31,655 |
$ |
38,006 |
$ |
47,342 |
$ |
52,133 | |||||
| Total assets |
|
195,102 |
|
168,716 |
|
153,501 |
|
133,363 |
|
107,424 | |||||
| Total liabilities |
|
49,214 |
|
39,104 |
|
32,585 |
|
28,069 |
|
16,766 | |||||
| Long-term debt, excluding current maturities |
|
— |
|
— |
|
— |
|
— |
|
— | |||||
| Total shareholders’ equity |
|
145,888 |
|
129,612 |
|
120,916 |
|
105,294 |
|
90,658 | |||||
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Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our historical results of operations and of our liquidity and capital resources should be read in conjunction with our consolidated financial statements and
their related notes included elsewhere in this report.
General
Our fiscal year ends on January 31. All references in this discussion to our fiscal years refer to the fiscal years ended on January 31 in those years. For example, our fiscal 2002 ended
on January 31, 2002. The comparable store net sales data presented in this discussion is 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.
We operate two business segments—a lifestyle merchandising retailing segment and a wholesale apparel business that we refer to as Free
People. The retailing segment operates through retail stores and direct-to-consumer, including a catalog and two web sites. The two retail concepts are Urban Outfitters, which we refer to as Urban Retail, and Anthropologie. Urban Retail had 49
stores open at January 31, 2002 and 42 at January 31, 2001. Anthropologie had 31 stores open at January 31, 2002 and 26 at January 31, 2001. We have plans to open approximately 12 to 14 stores during this fiscal year, of which two had opened as of
March 20, 2002. Our goal thereafter is to increase net sales 20-25% per year through a combination of increasing selling square footage, growing comparable store sales and continuing the growth of our direct-to-consumer and wholesale
operations.
We have wholly-owned subsidiaries that operate Urban Retail stores in London and Glasgow, in Dublin and in Montreal
and Toronto, which are included in the store numbers given above. The results of operations and financial position for these stores are included in our retail operations segment results. We may open additional stores outside the United States,
though none are planned in this fiscal year.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. These generally accepted accounting
principles require 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.
Our significant accounting
policies are described in Note 2 to our consolidated financial statements. We believe that the following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and
results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Inventories
We value our inventories, which consist
primarily of general consumer merchandise held for sale, at the lower of cost or market. The cost is determined on the first-in, first-out method and includes the
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cost of merchandise and freight. A periodic review of inventory quantities on hand is performed in order to determine if inventory is properly stated at the lower of cost or market. Factors
related to current inventories such as future consumer demand and fashion trends, current aging, current and anticipated retail markdowns or wholesale discounts, and class or type of inventory are analyzed to determine estimated net realizable
values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. Any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventories
and our reported operating results.
Long-Lived Assets
Our long-lived assets consist principally of store leasehold improvements and are included in the “Property and Equipment” line item in our consolidated balance sheets included
in this report. These long-lived assets are recorded at cost and are amortized using the straight-line method over the lesser of the applicable store lease term or the estimated useful life of the leasehold improvements. The typical initial lease
term for our stores is ten years. In assessing potential impairment of these assets, we will periodically evaluate the historical and forecasted operating results and cash flows on a store-by-store basis. Newly-opened stores may take time to
generate positive operating and cash flow results. Factors such as store type (e.g., mall versus free-standing), store location (e.g., urban area versus college campus or suburb), current marketplace awareness of the Urban Outfitters and
Anthropologie brands, local customer demographic data and current fashion trends are all considered in determining the time frame required for a store to achieve positive financial results. If economic conditions are substantially different from our
expectations, the carrying value of certain of our long-lived assets may become impaired.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in
each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation of property and
equipment and valuation of inventories, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income. Actual results could differ from this assessment if adequate taxable income is not generated in future periods. To the extent we believe that recovery is not more likely than not, we must
establish valuation allowances. To the extent we establish valuation allowances or increase the allowances in a period, we must include an expense within the tax provision in the statement of operations.
We have valuation allowances of $1.7 million as of January 31, 2002, due to uncertainties related to our ability to utilize the net operating loss carry
forwards of certain foreign subsidiaries and capital loss carry forwards related to our prior investments in MXG Media, Inc. In the future, if enough evidence of our ability to generate sufficient future taxable income in these foreign jurisdictions
or realize off-setting capital gains becomes apparent, we would be required to reduce our valuation allowances, resulting in a reduction in income tax expense in the consolidated statement of operations. On a quarterly basis, management evaluates
and assesses the realizability of deferred tax assets and adjusts valuation allowances if required.
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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 change in certain income statement data from period to
period.
| Fiscal Year Ended January 31, |
|||||||||
| 2002 |
2001 |
2000 |
|||||||
| As a Percentage of Net Sales: |
|||||||||
| Net sales |
100.0 |
% |
100.0 |
% |
100.0 |
% | |||
| Cost of sales, including certain buying, distribution and occupancy costs |
67.4 |
|
67.7 |
|
62.4 |
| |||
| |
|
|
|
|
| ||||
| Gross profit |
32.6 |
|
32.3 |
|
37.6 |
| |||
| Selling, general and administrative expenses |
25.3 |
|
26.2 |
|
24.1 |
| |||
| |
|
|
|
|
| ||||
| Income from operations |
7.3 |
|
6.1 |
|
13.5 |
| |||
| Other income (expense), net |
(0.1 |
) |
— |
|
(1.0 |
) | |||
| |
|
|
|
|
| ||||
| Income before income taxes |
7.2 |
|
6.1 |
|
12.5 |
| |||
| Income tax expense |
2.9 |
|
2.5 |
|
5.8 |
| |||
| |
|
|
|
|
| ||||
| Net income |
4.3 |
% |
3.6 |
% |
6.7 |
% | |||
| |
|
|
|
|
| ||||
| Period over Period Change: |
|||||||||
| Net sales |
18.2 |
% |
6.2 |
% |
32.5 |
% | |||
| Gross profit |
19.2 |
% |
(8.9 |
%) |
32.8 |
% | |||
| Income from operations |
42.6 |
% |
(52.4 |
%) |
49.6 |
% | |||
| Net income |
43.0 |
% |
(43.8 |
%) |
18.5 |
% | |||
Fiscal 2002 Compared to Fiscal 2001
Net sales in fiscal 2002 increased by 18.2% to $349.0 million from $295.3 million in the prior fiscal year. The $53.7 million increase was attributable to a $56.0 million or 20.4%
increase in retail segment sales, offset in part by a $2.3 million or 11.4% decline in Free People’s wholesale sales, excluding sales to Urban Retail and Anthropologie. Noncomparable and new store net sales increases of $46.3 million,
comparable store sales increases of $6.5 million or 2.8%, and direct-to-consumer sales increases of $3.2 million or 14.5% accounted for the retail segment increase. Comparable store sale increases were comprised of 0.5% for Urban Retail and 6.8% for
Anthropologie.
The increase in net sales attributable to noncomparable and new stores was caused by the opening of 12 new
stores in fiscal 2002 and 11 new stores in fiscal 2001 (net of one store closing). 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 in fiscal 2002. In addition, direct-to-consumer sales increased as a result of an increase in customer response rates to the Anthropologie catalog and web site and the Urban Retail web site. The decline in Free
People wholesale sales in the first half of the year was due to a lackluster response to our spring and summer 2001 fashion offerings combined with production problems associated with a factory we no longer utilize. Additionally, a weaker wholesale
market environment in the latter half of fiscal 2002
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compared to fiscal 2001 resulted in decreased trade show attendance as well as a decline in our fall and holiday 2001 regular price merchandise reorders. The reduction in Free People in-season
wholesale sales was offset in part by an increase in off-price sales to liquidate prior season merchandise.
Gross profit
margins increased to 32.6% of sales in fiscal 2002 compared to 32.3% of sales in fiscal 2001. Decreased markdowns in the retail segment were sufficient to offset the effects of an increase in occupancy costs of 1.0% of sales, arising primarily from
noncomparable and new stores, and the reduction in Free People’s gross margin of 0.8% of sales, caused by the off-price liquidation of excess inventories. Total inventories at January 31, 2002 increased by 18.1%, including an increase in
comparable store inventories of 9.3%, primarily due to an increase in the average cost per unit and an increase in the number of units per store to support sales trends.
Selling, general and administrative expenses as a percentage of sales decreased to 25.3% for fiscal 2002 versus 26.2% for fiscal 2001. An increase in direct-to-consumer response rates
helped leverage catalog and web site production costs for direct-to-consumer marketing activities and was the primary reason for our operating expense percentage improvement of 0.9% of sales, despite an 8% decrease in catalog circulation during
fiscal 2002. We also experienced comparable store efficiencies primarily related to the generation of incremental sales without incremental payroll costs that, when combined with the direct-to-consumer operating cost leveraging, more than offset the
impact of the less efficient noncomparable and new stores.
Accordingly, our operating margins increased to 7.3% of sales for
fiscal 2002 compared to 6.1% of sales for fiscal 2001. Our goal is to improve operating margins to at least 10% of sales over time.
Our effective tax rate decreased to 40.5% in fiscal 2002 from 41.0% in fiscal 2001 primarily due to a reduction in state and local tax rates. See Note 8 of Notes to our consolidated financial statements, included elsewhere in this report,
for a reconciliation of the statutory federal income tax rate to our effective tax rate.
Fiscal 2001 Compared to Fiscal 2000
Net sales in fiscal 2001 increased by 6.2% to $295.3 million from $278.1 million in the prior fiscal year. The $17.2 million increase was
primarily attributable to an $18.9 million or 7.4% increase in retail segment sales, offset in part by a $1.7 million or 7.7% decrease in Free People’s wholesale sales, excluding sales to Urban Retail and Anthropologie. Noncomparable and new
store net sales increased by $29.4 million. In addition, direct-to-consumer net sales increased by $4.7 million due to increased customer demand from the Anthropologie catalog and web site resulting from a 44% increase in catalog circulation and the
introduction of the Urban Retail web site in 2001. These increases more than offset a decrease of $15.2 million or 7.4% in comparable store net sales, comprised of a 9.2% decrease for Urban Retail and a 3.1% decrease for Anthropologie.
The increase in net sales attributable to noncomparable and new stores was caused by the opening of 11 new stores in fiscal 2001 (net of one
store closing) and 12 new stores in fiscal 2000. In fiscal 2001, we experienced a decrease in comparable store sales primarily as a result of a lackluster response to our product offerings. Consequently, we experienced lower average sales prices,
primarily resulting from a higher proportion of markdowns. The Free People wholesale sales decrease was due to a reduction in purchases by certain catalog customers.
Gross profit margins decreased to 32.3% of sales in fiscal 2001 from 37.6% of sales in fiscal 2000. Retail clearance markdowns to move seasonal merchandise reduced gross margins as a
16
Table of Contents
percentage of sales by 2.4% for the year. The impact on occupancy costs as a percentage of sales due to the negative comparable store sales results and increased percentage occupancy costs of
noncomparable and new stores accounted for the majority of the remaining margin decline. Total inventories at January 31, 2001 increased by 29.5%, principally attributable to new store requirements. Comparable store inventory levels were flat.
Selling, general and administrative expenses increased to 26.2% of sales in fiscal 2001 from 24.1% of sales in fiscal 2000 due
principally to noncomparable and new stores with lower average sales volumes which, consequently, have higher proportionate expenses than comparable stores. The decrease in comparable store sales in fiscal 2001 also caused selling, general and
administrative expenses for these stores to increase when measured as a percentage of sales. In addition, Anthropologie direct-to-consumer operations experienced an increase in operating expense percentages due to the deleveraging of catalog
production costs caused by reduced customer response rates and increased catalog circulation. These increases in selling, general and administrative expenses as a percentage of sales were partially offset by a reduction in catalog fulfillment costs
due to the elimination of third-party service fulfillment providers in July 1999. We also incurred start up costs for the design, production and administration of the Urban Retail e-commerce web site that was launched in May 2000.
Other income (expense) for fiscal 2000 includes a net charge to earnings of $4.4 million to reserve for our portion of operating losses
related to our minority investment in MXG Media, Inc. Income tax expense for fiscal 2000 does not include a tax benefit related to this reserve which, in part, has caused an increase in our effective income tax rate.
Liquidity and Capital Resources
During the last
three years, we have satisfied our cash requirements through cash flow from operations, accumulated cash and the sales of marketable securities. Our primary uses of cash have been to open new stores, purchase inventories and purchase our common
shares. We have also continued to invest in direct-to-consumer efforts and in our United Kingdom and Ireland subsidiaries. In addition to the above sources of cash, sources of cash included the net proceeds from the exercise of certain employee
stock options in fiscal 2002 and fiscal 2000. We expect to incur additional capital expenditures in support of our store expansion program. Accumulated cash and future cash from operations, as well as available credit under our line of credit
facility, assuming renewal or replacement, are expected to fund such expansion-related uses of cash for at least the next year.
We entered into a new $25 million line of credit facility with one of our banks on September 12, 2001. This new credit facility, which replaced our former $16.2 million discretionary line of credit with the bank, is a one-year committed
line of credit to fund working capital requirements and letters of credit. The new line of credit contains sublimits for letters of credit and European subsidiary borrowings. Cash advances bear interest at LIBOR plus 1.25% to 1.75% based on our
achievement of prescribed adjusted debt ratios. The agreement subjects us to various restrictive covenants, including maintenance of certain financial ratios and covenants such as fixed charge coverage, adjusted debt and minimum tangible net worth
and limits our capital expenditures and share repurchases while prohibiting the payments of cash dividends on our common shares. At January 31, 2002, we were in compliance with all covenants under this facility. There were no short-term or long-term
borrowings
17
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outstanding at January 31, 2002 or at January 31, 2001. Outstanding letters of credit totaled $9.4 million and $8.0 million at January 31, 2002 and January 31, 2001, respectively. We plan to
renew the current line of credit on or before its expiration on September 11, 2002, however, there can be no assurance that we will be able to renew or replace the line of credit.
Based on fiscal 2002 operating trends and the operating model that management has planned for fiscal 2003, we do not believe it will be necessary to borrow short-term or long-term funds.
In the event, however, that there is a serious decline in sales for any reason or a significant increase in store expansion plans, we may be required to use our available line of credit for cash borrowings to fund operations. There can be no
assurance that, based upon existing covenants or financial covenants contained in any renewed or replacement line of credit, that such borrowings would be available.
We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and the
availability of capital resources. The tables noted below present a summary of these obligations and commitments:
Contractual Obligations:
| Total Obligations |
Payments Due by Period (in thousands) | ||||||||||||||
| Description |
Less Than One Year |
One to Three Years |
Four to Five Years |
After Five Years | |||||||||||
| Operating leases(1) |
$ |
320,793 |
$ |
35,696 |
$ |
71,310 |
$ |
64,841 |
$ |
148,946 | |||||
| Capital leases(2) |
|
678 |
|
183 |
|
440 |
|
55 |
|
— | |||||
| |
|
|
|
|
|
|
|
|
| ||||||
| Total contractual cash obligations |
$ |
321,471 |
$ |
35,879 |
$ |
71,750 |
$ |
64,896 |
$ |
148,946 | |||||
| |
|
|
|
|
|
|
|
|
| ||||||
(1) |
Includes store operating leases, which generally provide for payment of direct operating costs in addition to rent. These obligation amounts include future minimum lease
payments and exclude such direct operating costs. |
(2) |
At January 31, 2002, the Company had entered into a capital lease for computer equipment with a cost of approximately $660 which will be recorded in the first quarter of Fiscal
2003 upon receipt of the related equipment in accordance with the contract. |
Commercial Commitments(1):
| Amount of Commitment Per Period (in thousands) | |||||||||||||||
| Description |
Total Amounts Committed |
Less Than One Year |
One to Three Years |
Four to Five Years |
After Five Years | ||||||||||
| Lines of credit(2) |
$ |
9,400 |
$ |
9,400 |
$ |
— |
$ |
— |
$ |
— | |||||
| Standby letters of credit |
|
163 |
|
163 |
|
— |
|
— |
|
— | |||||
| |
|
|
|
|
|
|
|
|
| ||||||
| Total commercial commitments |
$ |
9,563 |
$ |
9,563 |
$ |
— |
$ |
— |
$ |
— | |||||
| |
|
|
|
|
|
|
|
|
| ||||||
(1) |
Excludes purchase orders for merchandise and supplies in the normal course of business which are liquidated within 12 months. |
(2) |
Consists solely of outstanding letter of credit commitments. |
18
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Other Matters
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), which establishes a single accounting model, based on the framework established in SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and resolves significant implementation issues related to SFAS No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles Board
Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The adoption of SFAS No. 144 on
February 1, 2002 did not have an impact on our financial condition or results of operations.
In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was required to be adopted in fiscal 2002. We have a short-term foreign currency forward exchange contract to manage
exposures related to our Canadian dollar denominated investments and anticipated cash flow that we renew quarterly. The amounts of the contracts and related gains and losses have not been material. The adoption of SFAS No. 133 on February 1, 2001
did not have a significant effect on our financial condition or results of operations.
MXG Media, Inc.
As of January 31, 2000, we had invested approximately $2.0 million in Series B Convertible Preferred Stock and $2.4 million in convertible debentures of
MXG Media, Inc. (“MXG”). MXG incurred losses from its inception, and, in accordance with the equity method of accounting, we recorded charges to earnings of $4.4 million for our portion of operating losses related to the minority interest
in MXG during fiscal 2000. These charges in fiscal 2000 fully reserved for our investment, and we made no additional investments in fiscal 2001 in MXG. On September 13, 2000, MXG ceased operations and filed a petition for relief under Chapter 7 of
the United States Bankruptcy Code. MXG had been unsuccessful in attempts to raise additional capital. We do not expect to recover any material portion of our investment in MXG.
Forward-Looking Statements
This Securities and Exchange Commission filing is being made
pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Certain matters contained in this filing may constitute forward-looking statements. When used in this Form 10-K, the words
“project,” “believe,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. 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: the difficulty in predicting and responding to shifts in fashion trends, changes in
the level of competitive pricing and promotional activity and other industry factors, overall economic and market conditions and the resultant impact on consumer spending patterns, including any effects of terrorist acts or war, availability of
suitable retail space for expansion, timing of store openings, seasonal fluctuations in gross sales, the departure of one or more key senior managers, import risks, including potential disruptions and changes in duties, tariffs and quotas and other
risks identified in filings with the Securities and Exchange Commission. The Company disclaims any intent or obligation to update forward-looking statements even if experience
19
Table of Contents
or future changes make it clear that actual results may differ materially from any projected results expressed or implied therein.
Seasonality and Quarterly Results
While we have been profitable in each of our last 48
operating quarters, our operating results are subject to seasonal fluctuations. Our 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 our 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 our results of operations. While our comparable store sales trend has thus far exceeded our low single digit plan, our 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.
Our 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 our operations or by the size and timing of
catalog mailings and web site traffic for our direct-to-consumer 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 our 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.
| Fiscal 2002 Quarter Ended |
||||||||||||||||
| April 30, 2001 |
July 31, 2001 |
Oct. 31, 2001 |
Jan. 31, 2002 |
|||||||||||||
| (dollars in thousands, except per share data) |
||||||||||||||||
| Net sale |
$ |
71,834 |
|
$ |
80,395 |
|
$ |
92,859 |
|
$ |
103,870 |
| ||||
| Gross profit |
|
21,560 |
|
|
25,944 |
|
|
31,244 |
|
|
34,899 |
| ||||
| Net income |
|
1,151 |
|
|
3,157 |
|
|
4,928 |
|
|
5,771 |
| ||||
| Net income per share—basic |
$ |
0.07 |
|
$ |
0.18 |
|
$ |
0.29 |
|
$ |
0.33 |
| ||||
| Net income per share—diluted |
$ |
0.07 |
|
$ |
0.18 |
|
$ |
0.28 |
|
$ |
0.33 |
| ||||
| As a Percentage of Fiscal Year: |
||||||||||||||||
| Net sales |
|
20 |
% |
|
23 |
% |
|
27 |
% |
|
30 |
% | ||||
| Net income |
|
8 |
% |
|
21 |
% |
|
33 |
% |
|
38 |
% | ||||
| Fiscal 2001 Quarter Ended |
||||||||||||||||
| April 30, 2000 |
July 31, 2000 |
Oct. 31, 2000 |
Jan. 31, 2001 |
|||||||||||||
| (dollars in thousands, except per share data) |
||||||||||||||||
| Net sales |
$ |
65,950 |
|
$ |
66,728 |
|
$ |
77,091 |
|
$ |
85,564 |
| ||||
| Gross profit |
|
23,266 |
|
|
19,847 |
|
|
24,534 |
|
|
27,684 |
| ||||
| Net income |
|
2,990 |
|
|
1,737 |
|
|
2,361 |
|
|
3,407 |
| ||||
| Net income pre share—basic |
$ |
0.17 |
|
$ |
0.10 |
|
$ |
0.14 |
|
$ |
0.20 |
| ||||
| Net income per share—diluted |
$ |
0.17 |
|
$ |
0.10 |
|
$ |
0.14 |
|
$ |
0.20 |
| ||||
| As a Percentage of Fiscal Year: |
||||||||||||||||
| Net sales |
|
22 |
% |
|
23 |
% |
|
26 |
% |
|
29 |
% | ||||
| Net income |
|
28 |
% |
|
17 |
% |
|
23 |
% |
|
32 |
% | ||||
20
Table of Contents
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 Europe.
As explained in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Matters—Recent Accounting Pronouncements, the market
risk is further limited by the Company’s purchase of foreign currency forward exchange contracts.
The Company’s
exposure to market risk for changes in interest rates relates to its cash and cash equivalents. As of January 31, 2002, the Company’s cash and cash equivalents consisted primarily of funds invested in money market accounts, which bear interest
at a variable rate, and short-term corporate demand notes. Due to the average maturity and conservative nature of the Company’s investment portfolio, we believe a sudden change in interest rates would not have a material effect on the value of
our investment portfolio. As the interest rates on predominantly all of our cash equivalents are variable, a change in interest rates earned on the cash and cash equivalents would impact interest income and expense along with cash flows, but would
not impact the fair market value of the related underlying instruments.
The information required
by this Item is incorporated by reference from Pages F-1 through F-19.
Disclosure
None.
21
Table of Contents
PART III
The following
table sets forth the name, age and position of each of our directors and executive officers:
| Name |
Age |
Position | ||
| Richard A. Hayne(1) |
54 |
Chairman of the Board of Directors and President | ||
| Stephen A. Feldman |
54 |
Chief Financial Officer | ||
| Glen A. Bodzy |
49 |
General Counsel and Secretary | ||
| Kenneth R. Bull |
39 |
Treasurer | ||
| Glen T. Senk |
45 |
President, Anthropologie, Inc. | ||
| Tedford G. Marlow |
50 |
President, Urban Outfitters Retail Division | ||
| David C. Frankel |
35 |
President, Free People | ||
| Scott A. Belair(2)(3) |
54 |
Director | ||
| Harry S. Cherken, Jr. |
52 |
Director | ||
| Kenneth K. Cleeland(2) |
61 |
Director | ||
| Joel S. Lawson III(2)(3) |
54 |
Director | ||
| Burton M. Sapiro |
75 |
Director |
(1) |
Member of the Nominating Committee. |
(2) |
Member of the Audit Committee. |
(3) |
Member of the Compensation Committee. |
Mr. Hayne co-founded Urban Outfitters in 1970 and has been Chairman of the Board of Directors and President since our incorporation in 1976.
Mr. Feldman became Chief Financial Officer of Urban Outfitters in June 1998 and also served as Treasurer from June 1998 to May 1999. From January 1996 to June 1998, Mr. Feldman served as Executive Vice President and
Chief Financial Officer of One Price Clothing Stores, a national chain of off-price retail women’s and children’s specialty stores. Previously, for the period from January 1995 to January 1996, Mr. Feldman served as Chief Financial Officer
and Treasurer of One Price Clothing Stores.
Mr. Bodzy joined Urban Outfitters as its General Counsel in December 1997 and was
appointed Secretary in February 1999. Prior to joining the company, Mr. Bodzy was Vice President, General Counsel and Secretary of Service Merchandise Company, Inc. where he was responsible for legal affairs, the store development program and
various other corporate areas.
Mr. Bull joined Urban Outfitters in April 1999 and was appointed Treasurer in May 1999. Prior to
joining the company, 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.
22
Table of Contents
Mr. Senk has served as President of Anthropologie, Inc. since April 1994. Prior to joining the
company, 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. Marlow has served as President of the Urban Outfitters Retail Division since joining the company in July 2001. Prior to joining the company, for the
period from September 2000 to July 2001, Mr. Marlow served as Executive Vice President of Merchandising, Product Development, Production and Marketing at Chicos FAS, Inc. Previously, he was Senior Vice President at Saks Fifth Avenue from November
1998 to September 2000, where he was responsible for all Saks Fifth Avenue private brand product development. From January 1995 to November 1998, Mr. Marlow served as President and Chief Executive Officer of Henri Bendel, a division of The Limited,
Inc.
Mr. Frankel has served as President of Free People since May 2001. Prior to joining the company, for the period from
January 1999 to January 2001, Mr. Frankel served as President of CK Apparel Corp., the licensee for Calvin Klein Menswear in the United States. From August 1996 to January 1999, Mr. Frankel was the Executive Vice President of St. John’s Knits,
Inc., where he oversaw multiple product divisions, new business development, international business and certain administrative functions.
Mr. Belair co-founded Urban Outfitters in 1970 and has been a director since its incorporation in 1976. He has served as Principal of The ZAC Group, a financial consulting services firm, during the last eleven years.
Previously, he was a managing director of Drexel Burnham Lambert Incorporated. Mr. Belair is a director and President of Balfour MacLaine Corporation.
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 served as a Managing Partner of that firm from February 1996 to
January 2000.
Mr. Cleeland, a director since 1998, served as Chief Financial Officer and Treasurer of Urban Outfitters 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 November 2001, been
Executive Director of M&A International Inc., a global organization of merger and acquisition advisory firms. From 1980 until November 2001, Mr. Lawson was Chief Executive Officer of Howard, Lawson & Co., a Philadelphia-based investment
banking and corporate finance firm. Howard, Lawson & Co. became an indirect, wholly-owned subsidiary of FleetBoston Financial Corporation on March 1, 2001.
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.
23
Table of Contents
Messrs. Cleeland and Sapiro have advised us that they do not plan to seek re-election to our
Board of Directors after their terms of office expire at our next annual meeting. We are seeking to replace these directors.
Section
16(a) Beneficial Ownership Compliance
Information required by this item is incorporated herein by
reference from the Company’s Proxy Statement for the 2002 Annual Meeting of Shareholders.
Information required by this item is
incorporated herein by reference from the Company’s Proxy Statement for the 2002 Annual Meeting of Shareholders.
Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 2002 Annual Meeting of Shareholders.
Information required
by this item is incorporated herein by reference from the Company’s Proxy Statement for the 2002 Annual Meeting of Shareholders.
24
Table of Contents
PART IV
(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 Schedule
None
All 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. | |
| 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. | |
| 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.
| |
| 10.8 |
2000 Stock Incentive Plan is incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-8 filed on June 6, 2000. | |
| 10.9 |
Credit Agreement, dated September 12, 2001, between the Company and First Union National Bank is incorporated by reference to Exhibit 10.9 of the Company’s Quarterly
Report on Form 10-Q for the Quarterly period ended October 31, 2001. | |
| 21.1* |
List of Subsidiaries. | |
| 23.1* |
Consent of Arthur Andersen LLP. | |
| 99.1* |
Letter Regarding Arthur Andersen LLP. |
* |
Filed herewith |
(b) Reports on Form 8-K: No current reports on Form 8-K were filed during the last quarter of Fiscal 2002.
25
Table of Contents
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 | ||
| /s/ RICHARD A. HAYNE Richard A. Hayne (Principal Executive Officer) |
Chairman of the Board, President and Director |
March 20, 2002 | ||
| /s/ STEPHEN A. FELDMAN Stephen A. Feldman (Principal Financial Officer) |
Chief Financial Officer |
March 20, 2002 | ||
| /s/ KENNETH R. BULL Kenneth R. Bull (Principal Accounting Officer) |
Treasurer |
March 20, 2002 | ||
| /s/ SCOTT A. BELAIR Scott A. Belair |
Director |
March 20, 2002 | ||
| /s/ HARRY S. CHERKEN, JR. Harry S. Cherken, Jr. |
Director |
March 20, 2002 | ||
| /s/ KENNETH K. CLEELAND Kenneth K. Cleeland |
Director |
March 20, 2002 | ||
| /s/ JOEL S. LAWSON III Joel S. Lawson III |
Director |
March 20, 2002 | ||
| /s/ BURTON M. SAPIRO Burton M. Sapiro |
Director |
March 20, 2002 |
Table of Contents
URBAN OUTFITTERS, INC.
| Page | ||
| Report of Independent Public Accountants |
F-2 | |
| Consolidated Balance Sheets at January 31, 2002 and January 31, 2001 |
F-3 | |
| Consolidated Statements of Income for the fiscal years ended January 31, 2002, 2001 and 2000 |
F-4 | |
| Consolidated Statements of Shareholders’ Equity for the fiscal years ended January 31, 2002, 2001 and 2000 |
F-5 | |
| Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2002, 2001 and 2000 |
F-6 | |
| Notes to Consolidated Financial Statements |
F-7 |
F-1
Table of Contents
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Urban Outfitters, Inc.:
We have audited the accompanying consolidated balance
sheets of Urban Outfitters, Inc. (a Pennsylvania corporation) and subsidiaries as of January 31, 2002 and 2001, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period
ended January 31, 2002. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Urban Outfitters, Inc. and subsidiaries as of January 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2002, in conformity with accounting principles
generally accepted in the United States.
/S/ |
ARTHUR ANDERSEN LLP |
Philadelphia, Pennsylvania
March 6, 2002
F-2
Table of Contents
URBAN OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| January 31, |
||||||||
| 2002 |
2001 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
28,251 |
|
$ |
16,286 |
| ||
| Marketable securities |
|
32 |
|
|
314 |
| ||
| Accounts receivable, net of allowances of $562 and $500, respectively |
|
4,129 |
|
|
3,444 |
| ||
| Inventories |
|
41,086 |
|
|
34,786 |
| ||
| Prepaid expenses and other current assets |
|
5,870 |
|
|
7,302 |
| ||
| Deferred taxes |
|
2,781 |
|
|
2,841 |
| ||
| |
|
|
|
|
| |||
| Total current assets |
|
82,149 |
|
|
64,973 |
| ||
| Property and equipment, net |
|
105,505 |
|
|
97,901 |
| ||
| Deferred income taxes and other assets |
|
7,448 |
|
|
5,842 |
| ||
| |
|
|
|
|
| |||
| $ |
195,102 |
|
$ |
168,716 |
| |||
| |
|
|
|
|
| |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
20,838 |
|
$ |
19,387 |
| ||
| Accrued compensation |
|
3,928 |
|
|
1,775 |
| ||
| Accrued expenses and other current liabilities |
|
16,064 |
|
|
12,156 |
| ||
| |
|
|
|
|
| |||
| Total current liabilities |
|
40,830 |
|
|
33,318 |
| ||
| Deferred rent |
|
8,384 |
|
|
5,786 |
| ||
| |
|
|
|
|
| |||
| Total liabilities |
|
49,214 |
|
|
39,104 |
| ||
| |
|
|
|
|
| |||
| Commitments and contingencies (see Note 11) |
||||||||
| Shareholders’ equity: |
||||||||
| Preferred shares; $.0001 par value, 10,000,000 authorized, none issued |
|
— |
|
|
— |
| ||
| Common shares; $.0001 par value, 50,000,000 shares authorized, 17,352,886 and 17,253,486 issued and outstanding,
respectively |
|
2 |
|
|
2 |
| ||
| Additional paid-in capital |
|
17,872 |
|
|
16,268 |
| ||
| Retained earnings |
|
129,116 |
|
|
114,109 |
| ||
| Accumulated other comprehensive loss |
|
(1,102 |
) |
|
(767 |
) | ||
| |
|
|
|
|
| |||
| Total shareholders’ equity |
|
145,888 |
|
|
129,612 |
| ||
| |
|
|
|
|
| |||
| $ |
195,102 |
|
$ |
168,716 |
| |||
| |
|
|
|
|
| |||
The accompanying notes are an integral part of these statements.
F-3
Table of Contents
URBAN OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
| Fiscal Year Ended January 31, |
||||||||||||
| 2002 |
2001 |
2000 |
||||||||||
| Net sales |
$ |
348,958 |
|
$ |
295,333 |
|
$ |
278,113 |
| |||
| Cost of sales, including certain buying, distribution and occupancy costs |
|
235,311 |
|
|
200,002 |
|
|
173,459 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Gross profit |
|
113,647 |
|
|
95,331 |
|
|
104,654 |
| |||
| Selling, general and administrative expenses |
|
88,149 |
|
|
77,453 |
|
|
67,089 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Income from operations |
|
25,498 |
|
|
17,878 |
|
|
37,565 |
| |||
| Interest income |
|
318 |
|
|
481 |
|
|
1,791 |
| |||
| Other expenses, net |
|
(594 |
) |
|
(572 |
) |
|
(4,507 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Income before income taxes |
|
25,222 |
|
|
17,787 |
|
|
34,849 |
| |||
| Income tax expense |
|
10,215 |
|
|
7,292 |
|
|
16,169 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net income |
$ |
15,007 |
|
$ |
10,495 |
|
$ |
18,680 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net income per common share: |
||||||||||||
| Basic |
$ |
0.87 |
|
$ |
0.61 |
|
$ |
1.07 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Diluted |
$ |
0.86 |
|
$ |
0.61 |
|
$ |
1.05 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Weighted average common shares outstanding: |
||||||||||||
| Basic |
|
17,268,615 |
|
|
17,257,186 |
|
|
17,531,971 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Diluted |
|
17,438,457 |
|
|
17,274,830 |
|
|
17,844,356 |
| |||
| |
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of
these statements.
F-4
Table of Contents
URBAN OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
| Comprehensive Income (Loss) |
Common Shares |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total |
||||||||||||||||||||
| Number of Shares |
Par Value |
||||||||||||||||||||||||
| Balances at January 31, 1999 |
17,639,754 |
|
$ |
2 |
$ |
20,825 |
|
$ |
84,934 |
$ |
(467 |
) |
$ |
105,294 |
| ||||||||||
| Net income |
$ |
18,680 |
|
— |
|
|
— |
|
— |
|
|
18,680 |
|
— |
|
|
18,680 |
| |||||||
| Foreign currency translation |
|
87 |
|
— |
|
|
— |
|
— |
|
|
— |
|
87 |
|
|
87 |
| |||||||
| |
|
|
|||||||||||||||||||||||
| Comprehensive income |
$ |
18,767 |
|
||||||||||||||||||||||
| |
|
|
|||||||||||||||||||||||
| Exercise of stock options |
366,032 |
|
|
— |
|
3,947 |
|
|
— |
|
— |
|
|
3,947 |
| ||||||||||
| Tax effect of exercises |
— |
|
|
— |
|
1,623 |
|
|
— |
|
— |
|
|
1,623 |
| ||||||||||
| Purchases and retirement of common shares |
(647,600 |
) |
|
— |
|
(8,715 |
) |
|
— |
|
— |
|
|
(8,715 |
) | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Balances at January 31, 2000 |
17,358,186 |
|
|
2 |
|
17,680 |
|
|
103,614 |
|
(380 |
) |
|
120,916 |
| ||||||||||
| Net income |
$ |
10,495 |
|
— |
|
|
— |
|
— |
|
|
10,495 |
|
— |
|
|
10,495 |
| |||||||
| Foreign currency translation |
|
(362 |
) |
— |
|
|
— |
|
— |
|
|
— |
|
(362 |
) |
|
(362 |
) | |||||||
| Unrealized losses on marketable securities, net |
|
(25 |
) |
— |
|
|
— |
|
— |
|
|
— |
|
(25 |
) |
|
(25 |
) | |||||||
| |
|
|
|||||||||||||||||||||||
| Comprehensive income |
$ |
10,108 |
|
||||||||||||||||||||||
| |
|
|
|||||||||||||||||||||||
| Purchases and retirement of common shares |
(104,700 |
) |
|
— |
|
(1,412 |
) |
|
— |
|
— |
|
|
(1,412 |
) | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Balances at January 31, 2001 |
17,253,486 |
|
|
2 |
|
16,268 |
|
|
114,109 |
|
(767 |
) |
|
129,612 |
| ||||||||||
| Net income |
$ |
15,007 |
|
— |
|
|
— |
|
— |
|
|
15,007 |
|
— |
|
|
15,007 |
| |||||||
| Foreign currency translation |
|
(360 |
) |
— |
|
|
— |
|
— |
|
|
— |
|
(360 |
) |
|
(360 |
) | |||||||
| Unrealized losses on marketable securities, net |
|
25 |
|
— |
|
|
— |
|
— |
|
|
— |
|
25 |
|
|
25 |
| |||||||
| |
|
|
|||||||||||||||||||||||
| Comprehensive income |
$ |
14,672 |
|
||||||||||||||||||||||
| |
|
|
|||||||||||||||||||||||
| Exercise of stock options |
99,400 |
|
|
— |
|
1,281 |
|
|
— |
|
— |
|
|
1,281 |
| ||||||||||
| Tax effect of exercises |
— |
|
|
— |
|
323 |
|
|
— |
|
— |
|
|
323 |
| ||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Balances at January 31, 2002 |
17,352,886 |
|
$ |
2 |
$ |
17,872 |
|
$ |
129,116 |
$ |
(1,102 |
) |
$ |
145,888 |
| ||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
The accompanying notes are an integral part of these statements.
F-5
Table of Contents
URBAN OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Fiscal Year Ended January 31, |
||||||||||||
| 2002 |
2001 |
2000 |
||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ |
15,007 |
|
$ |
10,495 |
|
$ |
18,680 |
| |||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
|
15,462 |
|
|
11,997 |
|
|
8,667 |
| |||
| Provision for losses of MXG Media, Inc. |
|
— |
|
|
— |
|
|
4,354 |
| |||
| Provision for deferred income taxes |
|
(1,274 |
) |
|
199 |
|
|
(3,702 |
) | |||
| Tax benefit of stock option exercises |
|
323 |
|
|
— |
|
|
1,623 |
| |||
| Reserve for (recovery of) bad debts |
|
62 |
|
|
(18 |
) |
|
(85 |
) | |||
| Changes in assets and liabilities: |
||||||||||||
| (Increase) decrease in receivables |
|
(753 |
) |
|
1,399 |
|
|
84 |
| |||
| Increase in inventories |
|
(6,348 |
) |
|
(7,918 |
) |
|
(4,987 |
) | |||
| Decrease (increase) in prepaid expenses and other assets |
|
1,120 |
|
|
207 |
|
|
(3,266 |
) | |||
| Increase in payables, accrued expenses and other liabilities |
|
9,141 |
|
|
6,519 |
|
|
4,516 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash provided by operating activities |
|
32,740 |
|
|
22,880 |
|
|
25,884 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash flows from investing activities: |
||||||||||||
| Capital expenditures |
|
(22,309 |
) |
|
(36,877 |
) |
|
(38,149 |
) | |||
| Purchases of marketable securities available-for-sale |
|
— |
|
|
(600 |
) |
|
(6,872 |
) | |||
| Sales of marketable securities available-for-sale |
|
307 |
|
|
19,930 |
|
|
5,411 |
| |||
| Purchases of marketable securities held-to-maturity |
|
— |
|
|
— |
|
|
(5,287 |
) | |||
| Maturities of marketable securities held-to-maturity |
|
— |
|
|
— |
|
|
11,856 |
| |||
| Advances to MXG Media, Inc. |
|
— |
|
|
— |
|
|
(8,150 |
) | |||
| Repayment of advances by MXG Media, Inc. |
|
— |
|
|
— |
|
|
7,550 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in investing activities |
|
(22,002 |
) |
|
(17,547 |
) |
|
(33,641 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Cash flows from financing activities: |
||||||||||||
| Exercise of stock options |
|
1,281 |
|
|
— |
|
|
3,947 |
| |||
| Purchases and retirement of common stock |
|
— |
|
|
(1,412 |
) |
|
(8,715 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash provided by (used in) financing activities |
|
1,281 |
|
|
(1,412 |
) |
|
(4,768 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Effect of exchange rate changes on cash and cash equivalents |
|
(54 |
) |
|
(362 |
) |
|
87 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Increase (decrease) in cash and cash equivalents |
|
11,965 |
|
|
3,559 |
|
|
(12,438 |
) | |||
| Cash and cash equivalents at beginning of period |
|
16,286 |
|
|
12,727 |
|
|
25,165 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash and cash equivalents at end of period |
$ |
28,251 |
|
$ |
16,286 |
|
$ |
12,727 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Supplemental cash flow information: |
||||||||||||
| Cash paid during the year for: |
||||||||||||
| Interest |
$ |
— |
|
$ |
9 |
|
$ |
7 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Income taxes |
$ |
9,417 |
|
$ |
6,930 |
|
$ |
18,423 |
| |||
| |
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these statements.
F-6
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Nature of Business
Urban Outfitters, Inc. (the
“Company” or “Urban Outfitters”), which was founded in 1970 and originally operated by a predecessor partnership, was incorporated in the state of Pennsylvania in 1976. The principal business activity of the Company is the
operation of a general consumer product retail business through retail stores, a catalog and two web sites. As of January 31, 2002 and 2001, the Company operated 80 and 68 stores, respectively. Stores located in the United States totaled 75 as of
January 31, 2002 and 64 as of January 31, 2001, while operations in Europe and Canada included 5 and 4 stores as of the same respective dates. In addition, the Company engages in the wholesale distribution of apparel to approximately 1,100 better
specialty retailers worldwide.
2. Summary of Significant Accounting Policies
Fiscal Year-End
The
Company operates on a fiscal year ending January 31 of each year. All references to fiscal years of the Company refer to the fiscal years ended on January 31 in those years. For example, the Company’s “Fiscal 2002” ended on January
31, 2002.
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 accounting principles generally accepted in the United States 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. At January 31, 2002, cash and cash equivalents included
cash on hand, cash in banks, money market accounts and short-term corporate demand notes and municipal bonds.
Marketable
Securities
The Company’s debt 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 intent and ability to hold to maturity and are carried at amortized cost. Interest on these securities as well as amortization of discounts and premiums is included
in interest income. Available-for-sale securities represent 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 or are carried at fair
value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders’ equity, net of applicable taxes, until realized. Unrealized gains and losses, net of the
F-7
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. Marketable securities at January 31, 2002 and January 31, 2001 were $32 and $314, respectively.
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 and includes 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 39 years for buildings, 5 years for furniture and fixtures, the lesser of the lease term or useful life for leasehold improvements and 3 to 10 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 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, 2002.
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-to-consumer 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 card sales to customers
are initially recorded as liabilities and recognized as sales upon redemption for merchandise.
Shipping and Handling Fees
and Costs
The Company includes shipping and handling revenues in net sales and shipping and handling costs in cost of
sales. The Company’s shipping and handling revenues consist of amounts billed to customers for shipping and handling merchandise. Shipping and handling costs include shipping supplies, related labor costs and third-party shipping costs.
Advertising
The Company expenses the costs of advertising when the advertising occurs, except for direct-to-consumer advertising, which is capitalized and amortized over its expected period of future benefit. Advertising costs
reported as prepaid expenses were $1,063 and $1,100 as of January 31, 2002 and 2001, respectively. Advertising expenses were $8,141, $9,171 and $6,309 for Fiscal 2002, 2001 and 2000, respectively.
F-8
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Start-up Costs
The Company expenses as incurred all start-up and organization costs, including travel, training, recruiting, salaries and other operating costs.
Web Site Development Costs
The Company capitalizes applicable costs incurred during the application and infrastructure development stage and expenses costs incurred during the planning and operating stage. During Fiscal 2002 and 2001, the Company did not capitalize
any internal-use software development costs because substantially all costs were incurred during the planning stage, and costs incurred during the application and infrastructure development stage were not material. The Company expended an immaterial
amount for these costs in Fiscal 2000 which were expensed as incurred.
Income Taxes
The Company applies Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” which principally utilizes a
balance sheet approach to provide 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. The Company files a consolidated Federal income tax return.
Net Income Per Share
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, after giving effect to the potential dilution from the exercise of securities,
such as stock options, into shares of common stock as if those securities were exercised (see Note 10).
Accounting for
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of Accounting Principles
Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” In 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, “Accounting for Stock-Based Compensation,” which established a fair value based
method of accounting for stock-based compensation plans. The Company has adopted the disclosure requirements of SFAS No. 123 (see Note 9).
Accumulated Other Comprehensive Income (Loss)
Comprehensive income is
comprised of two subsets—net income and other comprehensive income (loss). Amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments and unrealized losses on marketable securities. The foreign
currency translation adjustments are not adjusted for income taxes since these adjustments relate to indefinite investments in non-U.S. subsidiaries. At January 31, 2002, accumulated other comprehensive income (loss) consists of foreign currency
translation adjustments.
F-9
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. Transaction gains and losses are included in operating results and were not material in Fiscal 2002, 2001 or 2000.
Fair Value of Financial Instruments
The Company’s financial instruments consist
primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Management believes that the carrying value of these assets and liabilities are representative of their respective fair values due to the
short-term nature of those instruments (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, 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. The Company maintains cash accounts that, at times, may exceed federally insured
limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant risks on its cash accounts.
Derivative Instruments and Hedging Activities
In June 1998, FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was required to be adopted in 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 on February 1, 2001 did not have a significant effect on the financial position or results of operations of the Company.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” which establishes a single accounting model, based on the framework established in SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,” and resolves significant implementation issues related to SFAS No. 121. SFAS No. 144 supercedes SFAS No. 121 and APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of a Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently
F-10
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Occurring Events and Transactions.” The Company is required to adopt SFAS No. 144 for the fiscal year ending January 31, 2003, however, early application is permitted. The adoption of SFAS
No. 144 on February 1, 2002 had no impact on the financial position or results of operations of the Company.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to
the current year presentation.
3. Inventories
Inventories are summarized as follows:
| January 31, | ||||||
| 2002 |
2001 | |||||
| Work-in-process |
$ |
406 |
$ |
592 | ||
| Finished goods |
|
40,680 |
|
34,194 | ||
| |
|
|
| |||
| Total |
$ |
41,086 |
$ |
34,786 | ||
| |
|
|
| |||
4. Property and Equipment
Property and equipment is summarized as follows:
| January 31, |
||||||||
| 2002 |
2001 |
|||||||
| Land |
$ |
543 |
|
$ |
543 |
| ||
| Building |
|
3,383 |
|
|
3,383 |
| ||
| Furniture and fixtures |
|
35,963 |
|
|
32,527 |
| ||
| Leasehold improvements |
|
108,278 |
|
|
89,120 |
| ||
| Other operating equipment |
|
7,910 |
|
|
7,484 |
| ||
| Construction in progress |
|
7,280 |
|
|
7,330 |
| ||
| |
|
|
|
|
| |||
| |
163,357 |
|
|
140,387 |
| |||
| Accumulated depreciation and amortization |
|
(57,852 |
) |
|
(42,486 |
) | ||
| |
|
|
|
|
| |||
| Total |
$ |
105,505 |
|
$ |
97,901 |
| ||
| |
|
|
|
|
| |||
Depreciation and amortization expense for property and equipment for Fiscal 2002, 2001 and 2000 was
$15,434, $11,795 and $8,097, respectively.
5. Investment in MXG Media, Inc.
As of January 31, 2000, the Company had invested approximately $2,000 in Series B Convertible Preferred Stock and $2,400 in convertible debentures of
MXG Media, Inc. (“MXG”). MXG incurred losses from its inception, and, in accordance with the equity method of accounting, the Company recorded charges to earnings as other expense in the consolidated statement of operations of $4,400 for
its portion of operating losses related to the minority interest in MXG during Fiscal 2000. These charges in Fiscal 2000 fully reserved for the Company’s investment, and the Company made no further investments in MXG.
F-11
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On September 13, 2000, MXG ceased operations and filed a petition for relief under
Chapter 7 of the United States Bankruptcy Code. MXG had been unsuccessful in attempts to raise additional capital. The Company does not expect to recover any material portion of its investment in MXG.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| January 31, | ||||||
| 2002 |
2001 | |||||
| Accrued sales taxes |
$ |
1,058 |
$ |
748 | ||
| Accrued rents and related taxes |
|
2,712 |
|
1,609 | ||
| Gift certificates and merchandise credits |
|
2,134 |
|
2,168 | ||
| Accruals for construction |
|
3,315 |
|
2,297 | ||
| Accrued income taxes |
|
4,144 |
|
2,480 | ||
| Other current liabilities |
|
2,701 |
|
2,854 | ||
| |
|
|
| |||
| Total |
$ |
16,064 |
$ |
12,156 | ||
| |
|
|
| |||
7. Line of Credit Facility
On September 12, 2001, the Company entered into a new $25 million line of credit facility (the “Line”) with one of its banks. The Line, which
replaced the Company’s $16.2 million discretionary line of credit with the bank, is a one-year committed line of credit to fund working capital requirements and letters of credit. The Line contains sublimits for letters of credit and European
subsidiary borrowings. Cash advances bear interest at LIBOR plus 1.25% to 1.75% based on the Company’s achievement of prescribed adjusted debt ratios. The agreement subjects the Company to various restrictive covenants, including maintenance of
certain financial ratios such as a fixed charge coverage ratio, adjusted debt ratio and minimum tangible net worth and limits the Company’s capital expenditures and share repurchases and prohibits the payment of cash dividends on common stock.
At January 31, 2002, the Company was in compliance with all covenants under this facility. There were no borrowings outstanding at January 31, 2002 or at January 31, 2001. Outstanding letters of credit and standby letters of credit were
$9.4 million and $0.2 million at January 31, 2002, respectively.
8. Income Taxes
The components of income before income taxes are as follows:
| Fiscal Year Ended January 31, | |||||||||||
| 2002 |
2001 |
2000 | |||||||||
| Domestic |
$ |
25,705 |
|
$ |
18,328 |
|
$ |
34,520 | |||
| Foreign |
|
(483 |
) |
|
(541 |
) |
|
329 | |||
| |
|
|
|
|
|
|
| ||||
| $ |
25,222 |
|
$ |
17,787 |
|
$ |
34,849 | ||||
| |
|
|
|
|
|
|
| ||||
F-12
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The components of the provision for income taxes are as follows:
| Fiscal Year Ended January 31, |
||||||||||||
| 2002 |
2001 |
2000 |
||||||||||
| Current: |
||||||||||||
| Federal |
$ |
9,694 |
|
$ |
6,303 |
|
$ |
14,104 |
| |||
| State |
|
1,632 |
|
|
675 |
|
|
5,061 |
| |||
| Foreign |
|
163 |
|
|
115 |
|
|
706 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| |
11,489 |
|
|
7,093 |
|
|
19,871 |
| ||||
| Deferred: |
||||||||||||
| Federal |
|
(789 |
) |
|
(77 |
) |
|
(3,865 |
) | |||
| State |
|
(495 |
) |
|
728 |
|
|
(1,406 |
) | |||
| Foreign |
|
(28 |
) |
|
(327 |
) |
|
(249 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| |
(1,312 |
) |
|
324 |
|
|
(5,520 |
) | ||||
| Change in valuation allowances |
|
38 |
|
|
(125 |
) |
|
1,818 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| $ |
10,215 |
|
$ |
7,292 |
|
$ |
16,169 |
| ||||
| |
|
|
|
|
|
|
|
| ||||
The effective tax rate was different than the statutory U.S. federal income tax
rate for the following reasons:
| Fiscal Year Ended January 31, |
|||||||||
| 2002 |
2001 |
2000 |
|||||||
| Expected provision at federal statutory rate |
35.0 |
% |
35.0 |
% |
35.0 |
% | |||
| State and local income taxes, net of federal tax benefit |
3.2 |
|
6.8 |
|
6.6 |
| |||
| Expenses relating to provision for foreign net operating losses, investment in MXG Media, Inc. and other |
2.3 |
|
(0.8 |
) |
4.4 |
| |||
| |
|
|
|
|
| ||||
| Effective rate |
40.5 |
% |
41.0 |
% |
46.0 |
% | |||
| |
|
|
|
|
| ||||
F-13
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The significant components of deferred tax assets and liabilities at January 31,
2002 and 2001 are as follows:
| 2002 |
2001 |
|||||||
| Deferred tax liability: |
||||||||
| Prepaid expenses |
$ |
(260 |
) |
$ |
(342 |
) | ||
| Deferred tax assets: |
||||||||
| Depreciation and deferred rent |
|
6,337 |
|
|
5,487 |
| ||
| Inventory |
|
2,462 |
|
|
2,814 |
| ||
| Provision for investment in MXG Media, Inc. |
|
893 |
|
|
883 |
| ||
| Accounts receivable |
|
309 |
|
|
368 |
| ||
| Net operating loss carryforwards |
|
1,273 |
|
|
810 |
| ||
| Accrued salaries and benefits, and other |
|
318 |
|
|
— |
| ||
| |
|
|
|
|
| |||
| Gross deferred tax assets, before valuation allowances |
|
11,332 |
|
|
10,020 |
| ||
| Valuation allowances |
|
(1,731 |
) |
|
(1,693 |
) | ||
| |
|
|
|
|
| |||
| Net deferred tax assets |
$ |
9,601 |
|
$ |
8,327 |
| ||
| |
|
|
|
|
| |||
At January 31, 2002, certain non-U.S. subsidiaries of the Company had net
operating loss carryforwards for tax purposes of approximately $2,781 that do not expire and certain U.S. subsidiaries had state net operating loss carryforwards for tax purposes of approximately $8,148 that expire from 2004 through 2021. At January
31, 2002, the Company had a full valuation allowance for the foreign net operating loss carryforwards. At January 31, 2002, the Company had no valuation reserve for the state net operating loss carryforwards as management believes it is more likely
than not that the tax benefit of these carryforwards will be realized. At January 31, 2002 and 2001, the noncurrent portion of deferred tax assets aggregated $6,820 and $5,486, respectively.
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 $2,326 as of January 31, 2002.
These earnings are deemed to be permanently reinvested to finance growth programs.
9. Stock Option Plans
The Company’s 2000 Stock Incentive Plan (the “2000 Plan”) authorizes up to an aggregate of 1,250,000 common shares, which can
be granted as restricted shares, incentive stock options or nonqualified stock options. In addition, incentive stock options or nonqualified stock options can be granted under the 1997 Stock Option Plan (the “1997 Plan”) which authorizes
up to an aggregate of 1,250,000 common shares. The vesting periods for the 1997 Plan and the 2000 Plan can range from one to ten years. The 1997 Plan replaced the previous 1987, 1992 and 1993 Plans (the “superceded plans”) which were
precluded from making additional grants due either to expiration or insufficient available shares. Individual grants outstanding under certain of the superceded plans, however, have expiration dates, which extend into the year 2007. At January 31,
2002, 682,500 and 201,200 shares of common stock were available for grant under the 2000 Plan and the 1997 Plan, respectively.
F-14
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Information regarding these option plans is as follows:
| Fiscal 2002 |
Fiscal 2001 |
Fiscal 2000 | ||||||||||||||||
| Fixed Options |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price | ||||||||||||
| Options outstanding at beginning of year |
1,454,000 |
|
$ |
14.92 |
1,494,800 |
|
$ |
15.31 |
1,702,500 |
|
$ |
12.63 | ||||||
| Options granted |
540,000 |
|
|
12.18 |
242,000 |
|
|
9.36 |
334,500 |
|
|
21.71 | ||||||
| Options exercised |
(99,400 |
) |
|
12.89 |
— |
|
|
— |
(366,032 |
) |
|
10.78 | ||||||
| Options canceled |
(80,200 |
) |
|
23.62 |
(282,800 |
) |
|
12.01 |
(176,168 |
) |
|
11.35 | ||||||
| |
|
|
|
|
|
|||||||||||||
| Options outstanding at end of year |
1,814,400 |
|
|
13.83 |
1,454,000 |
|
|
14.92 |
1,494,800 |
|
|
15.31 | ||||||
| |
|
|
|
|
|
|||||||||||||
| Options exercisable at end of year |
708,900 |
|
|
14.80 |
610,600 |
|
|
15.27 |
442,233 |
|
|
13.34 | ||||||
| |
|
|
|
|
|
|||||||||||||
| Weighted average fair value of grants per share |
$7.08 |
|
$5.85 |
|
$13.20 |
|
||||||||||||
| |
|
|
|
|
|
|||||||||||||
The following table summarizes information concerning currently outstanding and
exercisable options as of January 31, 2002:
| Options Outstanding |
Options Exercisable | |||||||||||
| Range of Exercise Prices |
Amount Outstanding |
Wtd. Avg. Remaining Contractual Life |
Wtd. Avg Exercise Price |
Amount Outstanding |
Wtd. Avg. Exercise Price | |||||||
| $ 7.03—$ 8.19 |
27,000 |
8.9 |
$ |
7.31 |
5,000 |
$ |
7.26 | |||||
| 8.63— 10.50 |
220,900 |
7.1 |
|
9.21 |
105,700 |
|
9.50 | |||||
| 11.13— 13.44 |
714,000 |
7.2 |
|
11.83 |
214,000 |
|
11.62 | |||||
| 14.00— 16.50 |
613,000 |
6.9 |
|
14.75 |
199,400 |
|
14.80 | |||||
| 16.75— 19.09 |
85,000 |
6.3 |
|
17.17 |
69,000 |
|
16.99 | |||||
| 20.88 |
40,000 |
4.3 |
|
20.88 |
40,000 |
|
20.88 | |||||
| 26.19— 26.97 |
114,500 |
7.3 |
|
26.63 |
75,800 |
|
26.45 | |||||
| |
|
|||||||||||
| 1,814,400 |
|
13.83 |
708,900 |
|
14.80 | |||||||
| |
|
|||||||||||
The Company applies APB No. 25, “Accounting for Stock Issued to
Employees,” and related 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. 123, “Accounting for Stock-Based Compensation,”
F-15
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the Company’s net income and net income per common share would have been reduced in Fiscal 2002, 2001 and 2000 as follows:
| Fiscal Year Ended January 31, | |||||||||
| 2002 |
2001 |
2000 | |||||||
| Net income—as reported |
$ |
15,007 |
$ |
10,495 |
$ |
18,680 | |||
| Net income—pro forma |
|
13,611 |
|
8,806 |
|
16,460 | |||
| Net income per share—basic—as reported |
|
0.87 |
|
0.61 |
|
1.07 | |||
| Net income per share—diluted—as reported |
|
0.86 |
|
0.61 |
|
1.05 | |||
| Net income per share—basic—pro forma |
|
0.79 |
|
0.51 |
|
0.94 | |||
| Net income per share—diluted—pro forma |
|
0.78 |
|
0.51 |
|
0.92 | |||
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 2002 |
Fiscal 2001 |
Fiscal 2000 |
|||||||
| Expected life |
6.5 years |
|
7.1 years |
|
6.7 years |
| |||
| Risk-free interest rate |
5.2 |
% |
6.2 |
% |
5.7 |
% | |||
| Volatility |
55.4 |
% |
53.1 |
% |
53.8 |
% | |||
| Dividend rate |
0 |
% |
0 |
% |
0 |
% |
10. Net Income Per Share
The following is a reconciliation of the weighted average shares outstanding used for the computation of basic and diluted earnings per share
(“EPS”).
| Fiscal Year Ended January 31, | ||||||
| 2002 |
2001 |
2000 | ||||
| Basic weighted average shares outstanding |
17,268,615 |
17,257,186 |
17,531,971 | |||
| Effect of dilutive options |
169,842 |
17,644 |
312,385 | |||
| |
|
| ||||
| Diluted weighted average shares outstanding |
17,438,457 |
17,274,830 |
17,844,356 | |||
| |
|
| ||||
Options to purchase 114,500 shares ranging in price from $26.19 to $26.97 were outstanding as of January
31, 2002, options to purchase 1,426,500 shares ranging in price from $8.27 to $27.56 were outstanding as of January 31, 2001, and options to purchase 235,500 shares ranging in price from $20.88 to $27.56 were outstanding as of January 31, 2000, but
were not included in the computation of diluted EPS for the respective fiscal years because the options’ exercise prices were greater than the average market price of the common shares.
F-16
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. Commitments and Contingencies
Leases
The Company
leases its stores under noncancelable operating leases. Additionally, certain office equipment is leased under noncancelable capital leases. The following is a schedule by year of the future minimum lease payments for operating leases with original
terms in excess of one year:
| Fiscal Year |
|||
| 2003 |
$ |
35,879 | |
| 2004 |
|
36,247 | |
| 2005 |
|
35,503 | |
| 2006 |
|
33,643 | |
| 2007 |
|
31,253 | |
| Thereafter |
|
148,946 | |
| |
| ||
| Total minimum lease payments |
$ |
321,471 | |
| |
| ||
Amounts noted above include commitments for five executed leases for stores not
opened as of January 31, 2002. At January 31, 2002, the Company had entered into a capital lease for equipment with a cost of approximately $660, which will be recorded in the first quarter of Fiscal 2003 upon receipt of the related equipment in
accordance with the contract.
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, | |||||||||
| 2002 |
2001 |
2000 | |||||||
| Minimum rentals |
$ |
32,704 |
$ |
25,651 |
$ |
18,591 | |||
| Contingent rentals |
|
216 |
|
173 |
|
441 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
32,920 |
$ |
25,824 |
$ |
19,032 | |||
| |
|
|
|
|
| ||||
Benefit Plan
The Urban Outfitters 401(k) Savings Plan (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 $285, $258 and $142 for Fiscal 2002, 2001 and 2000, respectively.
F-17
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Contingencies
The Company is party to various legal proceedings arising from normal business activities. Although the amount of any liability that could arise with respect to currently pending actions
cannot be accurately predicted, 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.
12. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general merchandise through 80 stores operating under the retail names “Urban Outfitters” and “Anthropologie,” and through a catalog and two web sites. Sales
from this retail segment accounted for over 90% of total consolidated sales for Fiscal 2002, 2001 and 2000. The remainder is derived from a wholesale division that manufactures and distributes apparel to the retail segment and to approximately 1,100
better specialty retailers 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 general corporate assets, which principally consist of cash and cash equivalents,
marketable securities and other assets. The Company accounts for intersegment sales and transfers as if the sales and transfers were made to third parties making similar volume purchases.
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.
F-18
Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The accounting policies of the operating segments are the same as the policies
described in Note 2, “Summary of Significant Accounting Policies.” A summary of the information about the Company’s operations by segment is as follows:
| Fiscal Year |
||||||||||||
| 2002 |
2001 |
2000 |
||||||||||
| Net sales |
||||||||||||
| Retail operations |
$ |
330,691 |
|
$ |
274,724 |
|
$ |
255,782 |
| |||
| Wholesale operations |
|
24,391 |
|
|
26,114 |
|
|
25,718 |
| |||
| Intersegment elimination |
|
(6,124 |
) |
|
(5,505 |
) |
|
(3,387 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Total net sales |
$ |
348,958 |
|
$ |
295,333 |
|
$ |
278,113 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Income from operations |
||||||||||||
| Retail operations |
$ |
27,961 |
|
$ |
17,466 |
|
$ |
36,092 |
| |||
| Wholesale operations |
|
1,403 |
|
|
4,065 |
|
|
4,063 |
| |||
| Intersegment elimination |
|
(1,290 |
) |
|
(1,170 |
) |
|
(683 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Total segment operating income |
|
28,074 |
|
|
20,361 |
|
|
39,472 |
| |||
| General corporate expenses |
|
(2,576 |
) |
|
(2,483 |
) |
|
(1,907 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Total income from operations |
$ |
25,498 |
|
$ |
17,878 |
|
$ |
37,565 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Depreciation and amortization expense |
||||||||||||
| Retail operations |
$ |
15,295 |
|
$ |
11,794 |
|
$ |
8,473 |
| |||
| Wholesale operations |
|
166 |
|
|
202 |
|
|
193 |
| |||
| Corporate |
|
1 |
|
|
1 |
|
|
1 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total depreciation and amortization expense |
$ |
15,462 |
|
$ |
11,997 |
|
$ |
8,667 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Inventory |
||||||||||||
| Retail operations |
$ |
39,014 |
|
$ |
31,845 |
|
$ |
25,217 |
| |||
| Wholesale operations |
|
2,072 |
|
|
2,941 |
|
|
1,651 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total inventory |
$ |
41,086 |
|
$ |
34,786 |
|
$ |
26,868 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Property and equipment, net |
||||||||||||
| Retail operations |
$ |
104,655 |
|
$ |
96,890 |
|
$ |
71,805 |
| |||
| Wholesale operations |
|
849 |
|
|
1,010 |
|
|
1,013 |
| |||
| Corporate |
|
1 |
|
|
1 |
|
|
1 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Property and equipment, net |
$ |
105,505 |
|
$ |
97,901 |
|
$ |
72,819 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Capital expenditures |
||||||||||||
| Retail operations |
$ |
22,275 |
|
$ |
36,697 |
|
$ |
37,797 |
| |||
| Wholesale operations |
|
34 |
|
|
180 |
|
|
352 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total capital expenditures |
$ |
22,309 |
|
$ |
36,877 |
|
$ |
38,149 |
| |||
| |
|
|
|
|
|
|
|
| ||||
F-19
Exhibit 21.1
LIST OF
SUBSIDIARIES
| 1. |
Urban Outfitters, Inc., a Pennsylvania corporation | |
| 2. |
Inter-Urban, Inc., a Delaware corporation | |
| 3. |
UO Fenwick, Inc., a Delaware corporation | |
| 4. |
U.O.D., Inc., a Delaware corporation | |
| 5. |
Anthropologie, Inc., a Pennsylvania corporation | |
| 6. |
Urban Outfitters Wholesale, Inc., a Pennsylvania corporation | |
| 7. |
Urban Outfitters (UK) Limited, a United Kingdom corporation | |
| 8. |
Urban Outfitters Canada, Inc., a Canadian corporation | |
| 9. |
Urban Outfitters Ireland Limited, an Irish corporation | |
| 10. |
Urban Outfitters West LLC, a California limited liability company | |
| 11. |
Urban Outfitters Direct LLC, a Pennsylvania limited liability company | |
| 12. |
Anthropologie Direct LLC, a Pennsylvania limited liability company | |
| 13. |
U.O.D. Secondary, Inc., a Delaware corporation | |
| 14. |
UOGC, Inc., a Florida corporation | |
| 15. |
Urban Outfitters (Delaware), Inc., a Delaware corporation | |
| 16. |
Anthropologie (Delaware), Inc., a Delaware corporation |
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby
consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-75522, 333-33603, 33-84333 and 333-38648.
| /s/ ARTHUR ANDERSEN LLP | ||||||||
Philadelphia, Pennsylvania
March 21, 2002
Exhibit 99.1
URBAN OUTFITTERS,
INC.
1809 Walnut Street
Philadelphia, PA 19103
March 22, 2002
Securities and Exchange
Commission
SEC Headquarters
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
Pursuant to the requirements under Temporary Note 3T to Article 3 of Regulation S-X, Urban Outfitters, Inc. (the "Company") hereby states that, in connection with its audit of the Company's consolidated financial statements as of and for the period ended January 31, 2002, Arthur Andersen LLP ("Andersen") represented to the Company that Andersen's audit was subject to Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit and that there was availability of national office consultation. Andersen also stated that the availability of personnel at foreign affiliates of Andersen was not relevant to its audit of the Company.
| Very truly yours, | |
| /s/ Stephen A. Feldman Chief Financial Officer |