SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-16999
-----------------------
Urban Outfitters, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2003332
------------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
(Address of principal executive office) (Zip Code)
(215) 564-2313
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
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
----------- ------------
Number of Shares Outstanding
Title of Each Class of Common Stock at September 14, 2001
----------------------------------- ---------------------
Common Shares, par value, $.0001 per share 17,263,486
INDEX
-----
Page
----
PART I Financial Information
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at July 31, 2001,
January 31, 2001, and July 31, 2000 (Unaudited) 3
Condensed Consolidated Statements of Income for the three and
six months ended July 31, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statements of Shareholders' Equity for
the six months ended July 31, 2001 and 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the six
months ended July 31, 2001 and 2000 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 -14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II Other Information
-------
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
URBAN OUTFITTERS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
July 31, January 31 July 31,
2001 2001 2000
------------- -------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 10,633 $ 16,286 $ 6,846
Marketable securities 339 314 8,319
Accounts receivable, net of allowance for doubtful accounts of
$512, $500, and $509, respectively 5,526 3,444 5,922
Inventories 47,446 34,786 41,548
Prepaid expenses and other current assets 8,552 10,143 7,841
------------- ------------- -------------
Total current assets 72,496 64,973 70,476
Property and equipment, net 103,045 97,901 84,105
Other assets 6,135 5,842 5,946
------------- ------------- -------------
$ 181,676 $ 168,716 $ 160,527
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 26,360 $ 19,387 $ 22,421
Accrued expenses and other current liabilities 14,718 13,931 9,280
------------- ------------- -------------
Total current liabilities 41,078 33,318 31,701
Deferred rent 6,911 5,786 5,040
------------- ------------- -------------
Total liabilities 47,989 39,104 36,741
------------- ------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred shares; $.0001 par value, 10,000,000 shares authorized,
none issued - - -
Common shares; $.0001 par value, 50,000,000 shares authorized,
17,263,486, 17,253,486, and 17,253,486 issued and outstanding,
respectively 2 2 2
Additional paid-in capital 16,367 16,268 16,268
Retained earnings 118,417 114,109 108,341
Accumulated other comprehensive loss (1,099) (767) (825)
------------- ------------- -------------
Total shareholders' equity 133,687 129,612 123,786
------------- ------------- -------------
$ 181,676 $ 168,716 $ 160,527
============= ============= =============
See accompanying notes
3
URBAN OUTFITTERS, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
Three Months Six Months
Ended July 31, Ended July 31,
--------------------------------------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Net sales $ 80,395 $ 66,728 $ 152,229 $ 132,678
Cost of sales, including certain buying, distribution
and occupancy costs 54,451 46,880 104,725 89,563
-------------- -------------- ------------- -------------
Gross profit 25,944 19,848 47,504 43,115
Selling, general and administrative expenses 20,497 16,838 40,009 35,093
-------------- -------------- ------------- -------------
Income from operations 5,447 3,010 7,495 8,022
Other income (expense), net (141) (41) (254) 59
-------------- -------------- ------------- -------------
Income before income taxes 5,306 2,969 7,241 8,081
Income tax expense 2,149 1,232 2,933 3,354
-------------- -------------- ------------- -------------
Net income $ 3,157 $ 1,737 $ 4,308 $ 4,727
============== ============== ============= =============
Net income per common share:
Basic $ 0.18 $ 0.10 $ 0.25 $ 0.27
============== ============== ============= =============
Diluted $ 0.18 $ 0.10 $ 0.25 $ 0.27
============== ============== ============= =============
Weighted average common shares outstanding:
Basic 17,260,798 17,253,486 17,257,222 17,260,805
============== ============== ============= =============
Diluted 17,338,819 17,254,799 17,308,818 17,269,745
============== ============== ============= =============
See accompanying notes
4
URBAN OUTFITTERS, INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Comprehensive Income Common Shares
---------------------- --------------------
Accumulated
Additional Other
Year-to- Number of Par Paid-in Retained Comprehensive
Quarter Date Shares Value Capital Earnings Loss Total
--------- ---------- ------------- ------- ------------ ----------- ----------------- ------------
Balances at February 1, 2001 17,253,486 $ 2 $ 16,268 $ 114,109 $ (767) $ 129,612
Net Income $ 3,157 $ 4,308 4,308 4,308
Foreign currency translation
adjustments, net (87) (357) (357) (357)
Change in unrealized net losses
on marketable securities 7 25 25 25
--------- ----------
Comprehensive income $ 3,077 $ 3,976
========= ==========
Exercise of stock options 10,000 99 99
------------- ------- ------------ ----------- ----------------- ------------
Balances at July 31, 2001 17,263,486 $ 2 $ 16,367 $ 118,417 $ (1,099) $ 133,687
============= ======= ============ =========== ================= ============
Balances at February 1, 2000 17,358,186 $ 2 $ 17,680 $ 103,614 $ (380) $ 120,916
Net Income $ 1,737 $ 4,727 4,727 4,727
Foreign currency translation
adjustments, net (221) (356) (356) (356)
Change in unrealized net losses
on marketable securities (89) (89) (89) (89)
--------- ----------
Comprehensive income $ 1,427 $ 4,282
========= ==========
Purchases and retirements
of common shares (104,700) (1,412) (1,412)
------------- ------- ------------ ----------- ----------------- ------------
Balances at July 31, 2000 17,253,486 $ 2 $ 16,268 $ 108,341 $ (825) $ 123,786
============= ======= ============ =========== ================= ============
See accompanying notes
5
URBAN OUTFITTERS, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended July 31,
-----------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 4,308 $ 4,727
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,412 5,347
Changes in assets and liabilities:
Increase in receivables (2,087) (1,097)
Increase in inventories (12,696) (14,680)
Decrease in prepaid expenses and other assets 1,272 2,604
Increase in payables, accrued expenses and other liabilities 8,958 4,156
---------- ----------
Net cash provided by operating activities 7,167 1,057
---------- ----------
Cash flows from investing activities:
Capital expenditures (12,820) (16,481)
Purchases of marketable securities - (500)
Sales and maturities of marketable securities - 11,811
---------- ----------
Net cash used in investing activities (12,820) (5,170)
---------- ----------
Cash flows from financing activities:
Exercise of stock options 99 -
Purchases and retirement of common stock - (1,412)
---------- ----------
Net cash provided by (used in) financing activities 99 (1,412)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (99) (356)
---------- ----------
Decrease in cash and cash equivalents (5,653) (5,881)
Cash and cash equivalents at beginning of period 16,286 12,727
---------- ----------
Cash and cash equivalents at end of period $ 10,633 $ 6,846
========== ==========
See accompanying notes
6
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three and six months ended July
31, 2001 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2001, filed with the Securities and
Exchange Commission on April 16, 2001.
Certain prior period amounts have been reclassified to conform to the
current year's presentation.
2. Marketable Securities
Marketable securities are classified as follows:
July 31, 2001 January 31, 2001 July 31, 2000
------------- ---------------- -------------
(in thousands)
Current
Available-for-sale............................... $ 339 $ 314 $ 8,319
------ ------ -------
Total marketable securities......................... $ 339 $ 314 $ 8,319
====== ====== =======
The difference between the fair market value and amortized cost of
marketable securities is not material.
3. Net Income Per Share
The difference between the number of weighted average common shares
outstanding used for basic net income per share and the number used for dilutive
net income per share represents the share effect of dilutive stock options.
Options to purchase 1,361,700 and 1,031,000 shares were outstanding at July
31, 2001 and 2000, respectively, but were not included in the computation of EPS
because their effect would be antidilutive.
4. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 77 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and two web sites. Sales
from this retail segment account for over 90% of total consolidated sales for
the fiscal year ended January 31, 2001. The remainder is derived from a
wholesale division that manufactures and distributes apparel to the retail
segment and to approximately 1,300 better specialty stores worldwide.
7
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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,
accounts receivable 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 not material relative
to the overall Company.
Three months ended Six months ended
July 31, July 31,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
Retail operations ......................................... $ 75,790 $ 61,681 $ 143,218 $ 121,287
Wholesale operations ...................................... 6,620 6,264 11,860 13,754
Intersegment elimination .................................. (2,015) (1,217) (2,849) (2,363)
--------- --------- --------- ---------
Total net sales ........................................... $ 80,395 $ 66,728 $ 152,229 $ 132,678
========= ========= ========= =========
Income from operations
Retail operations ......................................... $ 5,686 $ 2,507 $ 8,569 $ 6,695
Wholesale operations ...................................... 1,087 1,321 1,043 2,958
Intersegment elimination .................................. (445) (258) (609) (520)
--------- --------- --------- ---------
Total segment operating income ............................ 6,328 3,570 9,003 9,133
General corporate expenses ................................ (881) (560) (1,508) (1,111)
--------- --------- --------- ---------
Total income from operations .............................. $ 5,447 $ 3,010 $ 7,495 $ 8,022
========= ========= ========= =========
July 31, 2001 January 31, 2001 July 31, 2000
------------- ---------------- -------------
Property and equipment, net
Retail operations ....................................... $102,112 $ 96,890 $ 83,067
Wholesale operations .................................... 932 1,010 1,037
Corporate ............................................... 1 1 1
-------- -------- --------
Total property and equipment, net ....................... $103,045 $ 97,901 $ 84,105
======== ======== ========
Inventories
Retail operations ....................................... $ 43,232 $ 31,845 $ 38,983
Wholesale operations .................................... 4,214 2,941 2,565
-------- -------- --------
Total inventories ....................................... $ 47,446 $ 34,786 $ 41,548
======== ======== ========
8
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Common Stock Purchase and Retirement
In February 2000, the Company purchased and retired 104,700 shares of its
common stock at a cost of $1.4 million, in open market transactions, pursuant to
a Board resolution adopted in January 2000. This resolution authorizes the
Company to purchase up to 1,000,000 shares of the Company's common stock, from
time-to-time, based on prevailing market conditions. As of July 31, 2001, up to
880,500 additional shares are authorized for purchase under the January 2000
buy-back plan.
6. Recent Accounting Pronouncements
In July 2000, the Emerging Issues Task Force issued No. 00-10, "Accounting
for Shipping and Handling Fees and Costs" ("EITF 00-10"). Under the provisions
of EITF 00-10, amounts billed to a customer in a sale transaction related to
shipping and handling should be classified as revenue. As required, the Company
adopted EITF 00-10 in its consolidated financial statements during the fourth
quarter of Fiscal 2001 and has restated all comparative prior period financial
statements.
In its financial statements, the Company includes shipping and handling
revenues in net sales and shipping and handling costs in cost of sales.
Previously, the Company had offset shipping and handling revenues earned from
its direct response (catalog and e-commerce) activities against shipping and
handling costs incurred within cost of sales. Additionally, revenues earned from
delivery transactions generated by retail stores were offset against store level
costs within selling, general and administrative expenses. 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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which is required to be adopted in
Fiscal 2002. The Company currently enters into short-term foreign currency
forward exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of the contracts
and related gains and losses have not been material. The adoption of SFAS No.
133 on February 1, 2001 did not have a significant effect on the financial
position or results of operations of the Company.
7. Commitments and Contingencies
The Company is party to various legal proceedings arising from normal
business activities. Management believes that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
8. Subsequent Events
On September 12, 2001, the Company entered into a new $25 million line of
credit facility with one of its banks. The new credit facility, which replaces
the Company's 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 LIBOR plus 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 while
prohibiting the payments of cash dividends on common stock. The Company also
continues
9
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
to maintain an additional $10 million discretionary line of credit with another
bank, which expires on December 31, 2001. Combined line of credit facilities now
aggregate $35 million to facilitate letter of credit transactions and cash
borrowings. As of and during the six months ended July 31, 2001, there were no
borrowings. Outstanding letters of credit totaled $11.2 million, $8.0 million
and $11.6 million at July 31, 2001, January 31, 2001 and July 31, 2000,
respectively. The fair value of these letters of credit is estimated to be the
same as the contract values.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
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. 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
or future changes make it clear that actual results may differ materially from
any projected results expressed or implied therein.
Thus far this fiscal year, the Company has opened six new Urban Retail
stores and three new Anthropologie stores. Management plans to open
approximately two or three additional stores during the fiscal year.
RESULTS OF OPERATIONS
The Company's fiscal year ends on January 31. All references in this
discussion to fiscal years of the company refer to the fiscal years ended on
January 31 in those years. For example, the Company's "Fiscal 2002" ("FY 2002")
will end on January 31, 2002. This discussion of results of operations addresses
the second quarter and first six months of FY 2002 and FY 2001.
The following table sets forth, for the periods indicated, the percentage
of the Company's net sales represented by certain income statement data. The
following discussion should be read in conjunction with the table that follows:
Three months ended Six months ended
July 31, July 31,
2001 2000 2001 2000
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
Distribution and occupancy costs 67.7 % 70.3% 68.8 % 67.5%
------- ------ ------ ------
Gross profit 32.3 % 29.7% 31.2 % 32.5%
Selling, general and administrative expenses 25.5 % 25.2% 26.3 % 26.4%
------- ------ ------ ------
Income from operations 6.8 % 4.5% 4.9 % 6.1%
Other income (expense), net (0.2%) (0.1%) (0.2%) 0.1%
------- ------ ------ ------
Income before income taxes 6.6 % 4.4% 4.7 % 6.2%
Income tax expense 2.7 % 1.8% 1.9 % 2.6%
------- ------ ------ ------
Net income 3.9 % 2.6% 2.8 % 3.6%
======= ====== ======= ======
THREE MONTHS ENDED JULY 31, 2001 COMPARED TO THREE MONTHS ENDED
JULY 31, 2000
Net sales increased during the second quarter ended July 31, 2001 to $80.4
million, up 20.5% from $66.7 million for the same quarter last year. The $13.7
million increase over the prior year's second quarter was primarily the result
of new and noncomparable store sales increases of $11.6 million, comparable
store sales increases of $1.6 million or 2.8%
11
and direct response sales increases of $0.9 million or 26.5%. These increases
were offset by a Wholesale segment sales decrease of $0.4 million or 8.8%. The
2.8% increase in comparable store sales was the direct result of strengthened
customer response to the Company's fashion offerings, especially in the women's
apparel and accessory categories. Direct response sales increased as a result of
an increase in sales generated by the Urban web site, which launched in May of
last year, and increased response to the Anthropologie catalog and web site. The
decline in Wholesale sales as compared to last year was due to a decrease in
sales of Summer goods which more than offset an increase in sales of Fall goods.
The Company's gross profit margin, expressed as a percentage of sales,
increased to 32.3% from 29.7% for the comparable period last year. Decreased
markdown requirements at the retail stores resulted in a 330 basis point
improvement in gross profit margin. This improvement more than offset the
increase in occupancy costs attributable to the impact of noncomparable and new
stores.
Selling, general and administrative expenses, expressed as a percentage of
sales, remained relatively flat for the quarter ended July 31, 2001 versus the
same quarter last year as improvements in comparable store and direct response
operating expenses were offset by the higher costs of noncomparable and new
stores.
Net income for the quarter ended July 31, 2001 increased by 82.0% to $3.2
million versus $1.7 million for the comparable quarter last year.
SIX MONTHS ENDED JULY 31, 2001 COMPARED TO THE SIX MONTHS ENDED
JULY 31, 2000
Net sales increased during the six months ended July 31, 2001 to $152.2
million, up 14.7% from $132.7 million for the same period last year. The $19.5
million increase over the prior year's first six months was the result of new
and noncomparable store sales increases of $21.3 million and direct response
sales increases of $1.5 million or 17.0%. These increases more than offset the
1.0% comparable store sales decrease of $0.9 million and the 20.9% decrease in
Wholesale segment sales of $2.4 million. The 1.0% comparable store sales
decrease was attributable to a more modest response to the Company's Spring
lines versus the same period in the prior year. Direct response sales increased
as a result of an increase in response to the Anthropologie catalog and web site
and the Urban web site, which launched in May of last year. The decline in
Wholesale sales was attributable to lower sales of Spring and Summer goods due
to a lackluster response to the Company's fashion offerings and production
problems with the Spring line, offset, in part, by an increase in Fall shipments
compared to last year.
The Company's gross profit margin for the six months ended July 31, 2001,
expressed as a percentage of sales, decreased to 31.2% from 32.5% for the
comparable period last year. This decrease was primarily attributable to the
impact of noncomparable and new store occupancy costs which more than offset
improvements in margin related to a reduction in clearance markdowns at the
retail stores.
Selling, general and administrative expenses, expressed as a percentage of
sales, remained relatively flat for the first six months ended July 31, 2001
versus the comparable period last year. The Company's cost control efforts
continued to reduce operating expense levels which helped to offset the impact
of increased costs for new and noncomparable stores.
Net income for the six months ended July 31, 2001 decreased by 8.9% to $4.3
million versus $4.7 million for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities were $11.0 million at July
31, 2001, as compared to $16.6 million at January 31, 2001 and $15.2 million at
July 31, 2000. The Company's net working capital was $31.4 million at July 31,
2001, as compared to $31.7 million at January 31, 2001 and $38.8 million at July
31, 2000. The decrease in cash, cash equivalents and marketable securities at
July 31, 2001 from year end principally reflects the increase in funding
12
FY 2002's capital expenditures, primarily for new store construction and
purchases of inventories for new stores. Cash requirements for these activities
more than offset other cash generated from operations.
Total inventories at July 31, 2001 increased by $5.9 million or 14.2%
versus the comparable period end last year, principally attributable to the
increase in the number of retail stores. Comparable in-store inventories,
reflecting a lower level of carryover goods, decreased by 5.0% versus the prior
year. Wholesale inventories increased primarily due to earlier receipts of Fall
merchandise.
Management expects that capital expenditures for the current year will be
approximately $27.5 million. Existing cash and investments at July 31, 2001,
together with cash from future operations and available credit under the
Company's line of credit facilities are expected to be sufficient to meet the
Company's cash needs through January 31, 2003.
Accrued expenses and other current liabilities increased to $14.7 million
as of July 31, 2001 from $9.3 million at July 31, 2000. The increase in the
components of accrued expenses and other current liabilities (which includes
accrued incentive and other compensation, accrued benefits and accrued income
taxes) is primarily attributable to additional stores and incentive compensation
accruals associated with improved profitability.
On September 12, 2001, the Company entered into a new $25 million line of
credit facility with one of its banks. The new credit facility, which replaces
the Company's 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 LIBOR plus 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 while
prohibiting the payments of cash dividends on common stock. The Company also
continues to maintain an additional $10 million discretionary line of credit
with another bank, which expires on December 31, 2001. Combined line of credit
facilities now aggregate $35 million to facilitate letter of credit transactions
and cash borrowings. As of and during the six months ended July 31, 2001, there
were no borrowings. Outstanding letters of credit totaled $11.2 million, $8.0
million and $11.6 million at July 31, 2001, January 31, 2001 and July 31, 2000,
respectively. The fair value of these letters of credit is estimated to be the
same as the contract values.
OTHER MATTERS
Subsequent Events
On September 11, 2001, acts of terrorism occurred in the United States. As
a result of these events, a majority of the Company's retail stores either did
not open or were closed early on that day. As of September 14, 2001, the date of
the filing of this Form 10-Q, five out of the Company's seven stores located in
New York City remain temporarily closed. Management of the Company is not aware
of any physical damage to its stores and believes that the remaining unopened
stores will be allowed to open for operations shortly. These closings have
adversely affected the Company's sales. Management of the Company is unable to
determine the long-term impact, if any, of these events on the Company's sales.
Recent Accounting Pronouncements
In July 2000, the Emerging Issues Task Force issued No. 00-10, "Accounting
for Shipping and Handling Fees and Costs" ("EITF 00-10"). Under the provisions
of EITF 00-10, amounts billed to a customer in a sale transaction related to
shipping and handling should be classified as revenue. As required, the Company
adopted EITF 00-10 in its consolidated financial statements during the fourth
quarter of Fiscal 2001 and has restated all comparative prior period financial
statements.
13
In its financial statements, the Company includes shipping and handling
revenues in net sales and shipping and handling costs in cost of sales.
Previously, the Company had offset shipping and handling revenues earned from
its direct response (catalog and e-commerce) activities against shipping and
handling costs incurred within cost of sales. Additionally, revenues earned from
delivery transactions generated by retail stores were offset against store level
costs within selling, general and administrative expenses. 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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which is required to be adopted in
Fiscal 2002. The Company currently enters into short-term foreign currency
forward exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of the contracts
and related gains and losses have not been material. The adoption of SFAS No.
133 on February 1, 2001 did not have a significant effect on the financial
position or results of operations of the Company.
Seasonality and Quarterly Results
While Urban Outfitters has been profitable in each of its last 46 operating
quarters, its operating results are subject to seasonal fluctuations. The
Company's results of operations in any one fiscal quarter are not necessarily
indicative of the results of operations that can be expected for any other
fiscal quarter or for the full fiscal year. The Company's highest sales levels
have historically occurred during the five-month period from August 1 to
December 31 of each year (the "Back-to-School" and Holiday periods). Sales
generated during these periods have traditionally had a significant impact on
the Company's results of operations.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of expenses incurred in connection
with, and sales contributed by, new stores, store expansions and the integration
of new stores into the operations of the Company or by the size and timing of
mailings and web site traffic for the Company's direct response operations.
Fluctuations in the bookings and shipments of Wholesale merchandise between
quarters can also have positive or negative effects on earnings during the
quarters.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to the following types of market risks -
fluctuations in the purchase price of merchandise, as well as other goods and
services; the value of foreign currencies in relation to the U.S. dollar; and
changes in interest rates. Due to the Company's inventory turn and its
historical ability to pass through the impact of any generalized changes in its
cost of goods to its customers through pricing adjustments, commodity and other
product risks are not expected to be material. The Company purchases
substantially all its merchandise in U.S. dollars, including a portion of the
goods for its stores located in Canada and Europe. As explained in the section
above on "Recent Accounting Pronouncements," market risks are further limited by
the Company's purchase of foreign currency forward exchange contracts.
Since the Company has not been a borrower thus far this year, its exposure
to interest rate fluctuations has been limited to the impact on its holdings.
The impact of a hypothetical two percent increase or decrease in prevailing
interest rates would not materially affect the Company's consolidated financial
position or results of operations.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
15
Pursuant to the requirements 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.
(Registrant)
By: /s/ Richard A. Hayne
-------------------------------
Richard A. Hayne
Chairman of the Board of
Directors
By: /s/ Stephen A. Feldman
------------------------------
Stephen A. Feldman
Chief Financial Officer
Dated: September 14, 2001
16