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 OCTOBER 31, 1999
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 or 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
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
OF COMMON STOCK AT NOVEMBER 22, 1999
------------------ ----------------------------
Common shares, par value, $.0001 per share 17,619,241
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
PAGE
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets at October 31, 1999,
January 31, 1999 and October 31, 1998 (Unaudited) 2
Condensed Consolidated Statements of Income for the three and
nine months ended October 31, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the nine months ended October 31, 1999
and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended October 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6 - 9
ITEM 2 Management's Discussion and Analysis of Financial 10 - 16
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
1
<PAGE>
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31, OCTOBER 31,
1999 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,306 $ 25,165 $ 24,036
Marketable securities 8,371 13,032 11,258
Accounts receivable, net of allowance for doubtful
accounts of $563, $603 and $827 at October 31, 1999,
January 31, 1999 and October 31, 1998, respectively 8,914 4,824 6,939
Inventory 32,527 21,881 26,500
Prepaid expenses and other current assets 15,501 6,653 6,758
--------- --------- ---------
Total current assets 72,619 71,555 75,491
Property and equipment, less accumulated depreciation and amortization 62,589 43,066 37,393
Marketable securities 13,785 12,218 11,033
Other assets 7,763 6,524 5,599
--------- --------- ---------
$ 156,756 $ 133,363 $ 129,516
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,688 $ 14,763 $ 17,471
Accrued expenses and other current liabilities 13,945 9,265 8,295
--------- --------- ---------
Total current liabilities 33,633 24,028 25,766
Accrued rent and other liabilities 4,495 4,041 3,781
--------- --------- ---------
Total liabilities 38,128 28,069 29,547
--------- --------- ---------
Shareholders' equity:
Preferred shares; $.0001 par, 10,000,000 authorized, none issued -- -- --
Common shares; $.0001 par, 50,000,000 shares authorized, 17,619,241
issued at October 31, 1999, 17,639,754 issued at January 31, 1999, and
17,617,754 issued at October 31, 1998, respectively 2 2 2
Additional paid-in capital 20,876 20,825 20,517
Retained earnings 98,082 84,934 79,749
Accumulated other comprehensive income (332) (467) (299)
--------- --------- ---------
Total shareholders' equity 118,628 105,294 99,969
--------- --------- ---------
$ 156,756 $ 133,363 $ 129,516
========= ========= =========
</TABLE>
See accompanying notes
2
<PAGE>
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 75,384 $ 60,462 $ 201,350 $ 147,914
Cost of sales, including certain buying,
distribution and occupancy costs 46,716 37,506 124,959 94,123
------------ ------------ ------------ ------------
Gross profit 28,668 22,956 76,391 53,791
Selling, general and administrative expenses 17,145 14,849 48,225 37,135
------------ ------------ ------------ ------------
Income from operations 11,523 8,107 28,166 16,656
Other income (expense), net (388) 426 (2,856) 1,268
------------ ------------ ------------ ------------
Income before income taxes 11,135 8,533 25,310 17,924
Income tax expense 5,035 3,498 12,162 7,349
------------ ------------ ------------ ------------
Net income $ 6,100 $ 5,035 $ 13,148 $ 10,575
============ ============ ============ ============
Net income per common share:
Basic $ 0.35 $ 0.28 $ 0.75 $ 0.60
============ ============ ============ ============
Diluted $ 0.34 $ 0.28 $ 0.74 $ 0.59
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 17,594,467 17,702,030 17,516,687 17,726,533
============ ============ ============ ============
Diluted 17,965,089 17,873,003 17,862,669 17,969,232
============ ============ ============ ============
</TABLE>
See accompanying notes
3
<PAGE>
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Shares
------------------------------------------- Accumulated
Comprehensive Number Additional Other
Income of Par Paid-In Retained Comprehensive
Quarter Year-To-Date Shares Value Capital Earnings Income Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1999 17,639,754 $ 2 $ 20,825 $ 84,934 $ (467) $ 105,294
Net income $ 6,100 $ 13,148 -- -- -- 13,148 -- 13,148
Foreign currency translation
adjustments, net 222 135 -- -- -- -- 135 135
-------- --------
Comprehensive income $ 6,322 $ 13,283
======== ========
Exercise of stock options 351,032 -- 5,045 -- -- 5,045
Purchase and retirement of
common stock (371,545) -- (4,994) -- -- (4,994)
---------- ---- -------- --------- ------- ----------
Balance at October 31, 1999 17,619,241 $ 2 $ 20,876 $ 98,082 $ (332) $ 118,628
========== ===== ======== ======== ====== =========
Balance at February 1, 1998 17,649,360 $ 2 $ 21,482 $ 69,174 $ -- $ 90,658
Net income $ 5,035 $ 10,575 -- -- -- 10,575 -- 10,575
Foreign currency translation
adjustments, net 12 (299) -- -- -- -- (299) (299)
-------- --------
Comprehensive income $ 5,047 $ 10,276
======== ========
Exercise of stock options 135,594 -- 1,289 -- -- 1,289
Purchase and retirement
of common stock (167,200) -- (2,254) -- -- (2,254)
--------- ----- -------- -------- ------- -----------
Balance at October 31, 1998 17,617,754 $ 2 $ 20,517 $ 79,749 $ (299) $ 99,969
========== ===== ======== ======== ======= ==========
</TABLE>
See accompanying notes
4
<PAGE>
URBAN OUTFITTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,148 $ 10,575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,894 3,982
Changes in assets and liabilities:
Increase in receivables (4,090) (2,442)
Increase in inventory (10,646) (9,372)
Increase in prepaid expenses and other assets (1,937) (3,021)
Increase in payables, accrued expenses
and other liabilities 10,059 12,781
-------- --------
Net cash provided by operating activities 12,428 12,503
-------- --------
Cash flows from investing activities:
Capital expenditures (25,158) (14,482)
Purchase of marketable securities (12,159) (8,355)
Sales and maturities of marketable securities 14,994 8,922
Other assets (8,150) --
-------- --------
Net cash used in investing activities (30,473) (13,915)
-------- --------
Cash flows from financing activities:
Exercise of stock options 5,045 1,289
Purchase and retirement of common stock (4,994) (2,254)
-------- --------
Net cash provided by (used in) financing activities 51 (965)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 135 (299)
-------- --------
Decrease in cash and cash equivalents (17,859) (2,676)
Cash and cash equivalents at beginning of period 25,165 26,712
-------- --------
Cash and cash equivalents at end of period $ 7,306 $ 24,036
======== ========
</TABLE>
See accompanying notes
5
<PAGE>
URBAN OUTFITTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. 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, 1999, filed with the Securities and
Exchange Commission on April 21, 1999.
Certain prior period amounts have been reclassified to conform to the current
year's presentation.
2. Marketable Securities
Marketable securities are classified as follows:
<TABLE>
<CAPTION>
October 31, 1999 January 31, 1999 October 31, 1998
---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Current portion
Held-to-maturity ............ $ 6,374 $ 9,206 $ 9,391
Available-for-sale .......... 1,997 3,826 1,867
------- ------- -------
8,371 13,032 11,258
------- ------- -------
Noncurrent portion
Held-to-maturity ............ 13,785 12,218 11,033
------- ------- -------
Total marketable securities .... $22,156 $25,250 $22,291
======= ======= =======
</TABLE>
The difference between the fair market value and amortized cost of marketable
securities is immaterial.
6
<PAGE>
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.
4. Segment Reporting
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 52 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and web site. Sales from
this retail segment account for approximately 90% of total consolidated sales.
The remainder is derived from a wholesale division that manufactures and
distributes apparel to the retail segment and to over 1,300 better specialty
stores 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
pretax 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. Intersegment sales are immaterial. The Company accounts for
intersegment sales and transfers as if the sales and transfers were made to
third parties making similar volume purchases.
7
<PAGE>
4. Segment Reporting (continued)
Both the retail and wholesale segments are highly diversified. No customer
comprises more than 10% of sales. Foreign operations are immaterial relative to
the overall Company.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES
Retail operations ..................... $ 67,254 $ 53,168 $ 182,423 $ 130,955
Wholesale operations .................. 9,357 8,599 21,715 20,264
Intersegment elimination .............. (1,227) (1,305) (2,788) (3,305)
--------- --------- --------- ---------
Total net sales ....................... $ 75,384 $ 60,462 $ 201,350 $ 147,914
========= ========= ========= =========
INCOME FROM OPERATIONS
Retail operations ..................... $ 10,808 $ 7,778 $ 28,266 $ 16,534
Wholesale operations .................. 1,158 721 2,019 1,406
--------- --------- --------- ---------
Total segment operating income ........ 11,966 8,499 30,285 17,940
Corporate and other general expenses .. (443) (392) (2,119) (1,284)
--------- --------- --------- ---------
Total income from operations .......... $ 11,523 $ 8,107 $ 28,166 $ 16,656
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
October 31, 1999 January 31, 1999 October 31, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
NET FIXED ASSETS
Retail operations.............................. $ 61,460 $ 42,230 $ 36,573
Wholesale operations........................... 1,128 835 819
Corporate...................................... 1 1 1
-------- -------- --------
Total net fixed assets......................... $ 62,589 $ 43,066 $ 37,393
======== ======== ========
INVENTORY
Retail operations.............................. $ 31,580 $ 19,397 $ 24,448
Wholesale operations........................... 947 2,484 2,052
-------- -------- --------
Total inventory................................ $ 32,527 $ 21,881 $ 26,500
======== ======== ========
</TABLE>
8
<PAGE>
5. Investment in MXG Media, Inc.
At October 31, 1998, the Company's net investment in MXG Media, Inc. (MXG,
formerly HMB Publishing, Inc.) was $3.2 million. MXG publishes a "magalog" and
operates a web site - www.mxgonline.com - that caters to teenage girls. Since
October 31, 1998, the Company advanced $8.8 million in bridge and other
financing to fund MXG's expansion. Additionally, the Company recognized net
charges to earnings of $853 thousand for the current quarter and $4.4 million
for the nine months ended October 31, 1999 to record required accounting
reserves for the Company's portion of MXG's operating losses. The net charge of
$853 thousand for the current quarter included a gross charge of $2.9 million
related to required reserves for MXG's operating losses, offset by a $2 million
recovery of advances more fully explained below.
Pursuant to an agreement dated October 31, 1999, MXG received an additional
equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest. The $7.6 million amount received was recorded
in other current assets at October 31, 1999. The balance of the Company's
investment has been fully reserved, and no further investments are planned at
this time. Accordingly, no additional charges to earnings for MXG operating
losses are expected to be recognized in future periods by the Company.
6. Common Stock Purchase and Retirement
In a series of open market transactions during the quarter ended April 30, 1999,
the Company purchased and retired 371,545 shares of its common stock at a cost
of $5.0 million. These purchases were made pursuant to a resolution adopted by
the Board of Directors in 1995 that authorizes the Company to purchase, from
time to time, up to 800,000 shares of the Company's common stock. As of October
31, 1999, up to 261,255 additional shares are authorized for purchase under this
resolution.
9
<PAGE>
PART I
FINANCIAL INFORMATION (CONTINUED)
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. Anyone, or all, of the following factors could cause actual
financial results to differ materially from those financial results mentioned in
the forward-looking statements: industry competition factors, unavailability of
suitable retail space for expansion, timing of store openings, difficulty in
predicting and responding to fashion trend shifts, seasonal fluctuations in
gross sales, the departure of one or more key senior managers and other risks
identified in filings with the Securities and Exchange Commission.
Thus far this fiscal year, the Company opened four new Urban Retail stores and
two new Anthropologie stores. Management plans to open approximately five new
stores during the remainder of the fiscal year.
RESULTS OF OPERATIONS
The Company's operating years end on January 31 and include twelve periods
ending on the last day of the calendar month. For example, fiscal year 2000 ("FY
2000") will end on January 31, 2000. This discussion of results of operations
covers the third quarter and the first nine months of FY 2000 and FY 1999.
10
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
distribution and occupancy costs 62.0% 62.0% 62.1% 63.6%
----- ----- ----- -----
Gross profit 38.0% 38.0% 37.9% 36.4%
Selling, general and administrative expenses 22.7% 24.6% 23.9% 25.1%
----- ----- ----- -----
Income from operations 15.3% 13.4% 14.0% 11.3%
Other income (expense), net (0.5%) 0.7% (1.4%) 0.9%
----- ----- ----- -----
Income before income taxes 14.8% 14.1% 12.6% 12.2%
Income tax expense 6.7% 5.8% 6.1% 5.0%
----- ----- ----- -----
Net income 8.1% 8.3% 6.5% 7.2%
===== ===== ===== =====
</TABLE>
THIRD QUARTER ENDED OCTOBER 31, 1999 COMPARED
TO THE THIRD QUARTER ENDED OCTOBER 31, 1998
Net sales increased during the third quarter ended October 31, 1999 to $75.4
million, up 25.0% from $60.5 million for the same quarter last year. The $14.9
million increase over the prior year's third quarter was the result of new and
noncomparable stores' sales increases of $8.3 million, an 8% comparable store
sales increase that contributed $3.8 million, Anthropologie direct response
sales increases (catalog and web site) of $2.0 million and a $0.8 million
increase from the Wholesale segment.
Gross profit as a percentage of sales for the third quarter ended October 31,
1999 was unchanged versus the same quarter last year. Higher initial markups in
the retail segment combined with improved Wholesale results were offset by
higher occupancy costs versus the same quarter last year.
Selling, general and administrative expenses for the quarter ended October 31,
1999 expressed as a percentage of sales decreased to 22.7% compared to 24.6% for
the same quarter last year. The comparable store sales gains combined with
increases in Anthropologie direct response and Wholesale sales gains, resulted
in the leveraging of operating expenses.
Accordingly, operating income for the quarter increased by 42% in dollars and
from 13.4 % of sales in FY 1999 to 15.3% this year.
At October 31, 1998, the Company's net investment in MXG Media, Inc. (MXG,
formerly HMB Publishing, Inc.) was $3.2 million. MXG publishes a "magalog" and
operates a web site - www.mxgonline.com - that caters to teenage girls. Since
October 31, 1998, the Company advanced $8.8 million in bridge and other
financing to fund MXG's expansion. Additionally, the Company recognized net
charges to earnings of $853 thousand for the current quarter and $4.4 million
for the nine months ended October 31, 1999 to record required accounting
reserves for the Company's portion of MXG's operating losses. The net charge of
$853 thousand for the current quarter included a gross charge of $2.9 million
related to required reserves for MXG's operating losses, offset by a $2 million
recovery of advances more fully explained below.
Pursuant to an agreement dated October 31, 1999, MXG received an additional
equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest. The $7.6 million amount received was recorded
in other current assets at October 31, 1999. The balance of the Company's
investment has been fully reserved, and no further investments are planned at
this time. Accordingly, no additional charges to earnings for MXG operating
losses are expected to be recognized in future periods by the Company.
11
<PAGE>
NINE MONTHS ENDED OCTOBER 31, 1999
COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 1998
Net sales increased during the nine months ended October 31, 1999 to $201.4
million, up 36.2% from $147.9 million for the same period last year. The $53.5
million increase over the prior year's first nine months was the result of new
and noncomparable stores' sales increases of $28.2 million, a 14% comparable
store sales increase that contributed $16.4 million, Anthropologie direct sales
increase of $6.9 million, and a $2.0 million increase in Wholesale segment
sales.
Gross profit as a percentage of sales increased by 1.5% during the nine months
ended October 31, 1999 compared to the same prior year period. The gross profit
improvement was due to: (1) higher initial markups in the retail segment; (2)
leveraging of store occupancy costs based on comparable store sales; and (3)
distribution efficiencies.
Selling, general and administrative expenses during the nine months ended
October 31, 1999 were $48.2 million, up $11.1 million or 30.0% from the same
period in the prior year. These dollar increases were attributed principally to
newly opened stores; the cost of moving catalog fulfillment in-house; and
additions to corporate overhead structure to support an increased rate of store
expansion. The comparable store sales gains resulted in leveraging of selling,
general and administrative expenses which decreased from 25.1% of sales during
the nine months ended October 31, 1998 to 23.9% of sales during the same period
this year.
12
<PAGE>
Income from operations during the nine months ended October 31, 1999 was $28.2
million, up 69.1% from the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities were $29.5 million at October
31, 1999, as compared to $50.4 million at January 31, 1999 and $46.3 million at
October 31, 1998. The Company's net working capital was $39.0 million at October
31, 1999, as compared to $47.5 million at January 31, 1999 and $49.7 million at
October 31, 1998. The decrease in cash, cash equivalents and marketable
securities on October 31, 1999 from year end reflects the funding of FY 2000's
increased level of capital expenditures (primarily for new store construction),
the increase in inventory for new stores and the seasonal building of inventory
in existing stores. Cash requirements for these activities, combined with $5.0
million expended to repurchase 371,545 shares of the Company's common stock and
additional investments in and bridge loans to MXG, more than offset cash
generated from earnings.
Total inventories at October 31, 1999 increased by 22.7% versus the comparable
quarter end last year, principally attributable to new store requirements.
Comparable store inventories at the end of the period were flat compared to the
same date last year. Catalog inventories increased substantially due to the
expanded circulation and demand, while Wholesale inventories decreased by 54.0%,
reflecting a lower level of prior season inventory.
The Company expects that capital expenditures for the current year, including
amounts expended for stores anticipated to open in FY 2001, will be
approximately $33.0 million. The Company believes that existing cash and
investments at October 31, 1999, as well as cash from future operations, and the
$7.6 repayment on November 1, 1999 of the bridge loan by MXG, will be sufficient
to meet the Company's cash needs through January 31, 2001.
Accrued expenses and other current liabilities increased to $13.9 million as of
October 31, 1999 from $8.3 million at October 31, 1998. 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, the strong comparable
store sales performance and improved profitability.
The Company has a $16.2 million revolving line of credit available to facilitate
letter of credit transactions and cash advances. As of and during the nine
months ended October 31, 1999, there were no outstanding borrowings. Outstanding
letters of credit totaled $7.1 million, $4.1 million and $3.9 million at October
31, 1999, January 31, 1999 and October 31, 1998, respectively. The fair value of
these letters of credit is estimated to be the same as the contract values.
13
<PAGE>
OTHER MATTERS
Outlook
While the Company has exceeded its planned rate of comparable store sales
increases during the first three quarters of the fiscal year, management's plan
for the fourth quarter continues to be moderate comparable store sales growth.
Year 2000
The Company does not generally sell products that must be brought into Year 2000
compliance. However, the Company does rely upon many vendors and suppliers for
their products and services. The Company has conducted a comprehensive review of
its computer systems to identify the systems that could be affected by the "Year
2000" issue. The Company has also reviewed and continues to monitor the
implemented changes or planned changes of its major suppliers that management
believes could be affected by the Year 2000 date. Based on the review, the
Company's major information technology systems ("IT") that would be adversely
affected by Year 2000 issues have been upgraded or replaced through the normal
course of business. Internal resources are being used in a timely manner to
evaluate, modify and test the Company's other systems that were not scheduled to
be upgraded or replaced through the normal course of business. The upgrades of
the Company's core merchandising and financial system, Wholesale accounting and
control systems, catalog fulfillment system, warehousing management system and
store register system have been completed, and testing of these upgrades
continues. In addition, the Company is in the process of completing the
inventory and assessment of its non- information technology systems ("non-IT"),
including those with embedded processor chips -- heating, ventilation and
air-conditioning systems, elevators, etc. The Company continues to evaluate key
vendor preparedness by conducting interviews, obtaining updated compliance
representation letters and, if deemed necessary, conducting additional
comprehensive tests. While most vendors have completed their compliance work,
ongoing Company efforts are required.
The Company's Year 2000 compliance evaluation program is substantially complete.
The incremental costs associated with these major system upgrades and/or
replacements, as well as internal efforts to evaluate, modify and test the
Company's other systems to ensure Year 2000 compliance, have not been of a
material nature to the Company.
There can be no guarantee, however, that the Company's efforts will prevent Year
2000 issues from having a material adverse impact on its results of operations,
financial condition and cash flows. The possible consequences to the Company if
its business partners are not fully Year 2000 compliant (including banking
systems, communications, other public utilities and the transportation industry)
include temporary store closings and delays in the receipt of key merchandise
categories. Accordingly, the Company continues to refine its contingency plans
to mitigate the potential disruptions that may result from the Year 2000 issue.
Such plans include earlier receipt of key merchandise categories, preparing
alternative merchandise delivery
14
<PAGE>
methodologies, securing alternative suppliers, etc. These contingency plans to
manage identified IT and non-IT areas of high risk will be reviewed and tested,
as appropriate, over the remainder of the year.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133") which is required to be adopted in
fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No.
133 effective February 1, 2001. The Company currently enters into short-term
foreign currency forward exchange contracts to manage exposures related to its
Canadian dollar denominated investments and anticipated cash flow. The amounts
of the contracts and related gains and losses have not been material. The
adoption of SFAS No. 133 is not expected to have a significant effect on the
financial position or results of operations of the Company.
Market Risks
The Company is exposed to the following types of market risks - fluctuations in
the purchase price of merchandise, as well as other goods and services; the
value of foreign currencies in relation to the U.S. dollar; and changes in
interest rates. Due to the Company's inventory turn and its historical ability
to pass through the impact of any generalized changes in its cost of goods to
its customers through pricing adjustments, commodity and other product risks are
not expected to be material. The Company purchases substantially all its
merchandise in U.S. dollars, including a portion of the goods for its stores
located in Canada and the United Kingdom. As explained in the section above on
"Recent Accounting Pronouncements," the market risk is further limited by the
Company's purchase of foreign currency forward exchange contracts.
Since the Company has not been a borrower, its exposure to interest rate
fluctuations is limited to the impact on its marketable securities portfolio.
This exposure is minimized by the limited investment maturities and "put"
options available to the Company. 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.
15
<PAGE>
Seasonality and Quarterly Results
While Urban Outfitters has been profitable in each of its last 39 operating
quarters, its operating results are subject to seasonal fluctuations. The
Company's highest sales levels have historically occurred during the five-month
period from August 1 to December 31 of each year (the "Back- to-School" and
Holiday periods). Sales generated during these periods have traditionally had a
significant impact on the Company's results of operations. Any decreases in
sales for these periods or in the availability of working capital needed in the
months preceding these periods could have a material adverse effect on the
Company's results of operations. The Company's results of operations in any one
fiscal quarter are not necessarily indicative of the results of operations that
can be expected for any other fiscal quarter or for the full fiscal year.
The Company's results of operations may also fluctuate from quarter to quarter
as a result of the amount and timing of expenses incurred in connection with,
and sales contributed by, new stores, store expansions and the integration of
new stores into the operations of the Company or by the size and timing of
mailings of the Company's Anthropologie catalog. Fluctuations in the bookings
and shipments of Wholesale products between quarters can also have positive or
negative effects on earnings during the quarters.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
17
<PAGE>
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: November 24, 1999
18
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<PERIOD-END> OCT-31-1999
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0
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