UNITED STATES

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

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 20092011

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 000-22754

 

 

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.)

5000 South Broad Street, Philadelphia, PA 19112-1495
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (215) 454-5500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Exchange on Which Registered

Common Shares, $.0001 par value The NASDAQ Global Select Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by checkmark 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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by checkmark 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 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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x 

Accelerated filer  ¨

Non-accelerated filer  ¨ (Do not check if a smaller reporting company) 

Smaller reporting company  ¨

Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, was $4,219,837,641.$4,243,728,212.

The number of shares outstanding of the registrant’s common stock on March 26, 200924, 2011 was 167,729,688.162,255,448.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 10, 11, 12, 13 and 14 is incorporated by reference into Part III hereof from portions of the Proxy Statement for the registrant’s 20092011 Annual Meeting of Shareholders.

 

 

 


TABLE OF CONTENTS

 

PART I

Item 1.

 

Business

  1

Item 1A.

 

Risk Factors

  1112

Item 1B.

 

Unresolved Staff Comments

  1517

Item 2.

 

Properties

  1618

Item 3.

 

Legal Proceedings

  1920

Item 4.

 

Submission of Matters to a Vote of Security Holders(Removed and Reserved)

  1920
PART II

Item 5.

 

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

  2021

Item 6.

 

Selected Financial Data

  2224

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  2325

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  3639

Item 8.

 

Financial Statements and Supplementary Data

  3740

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  3740

Item 9A.

 

Controls and Procedures

  3741

Item 9B.

 

Other Information

  41
PART III

Item 10.

 

Directors, Executive Officers and Corporate Governance

  4144

Item 11.

 

Executive Compensation

  4347

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

  4347

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  4347

Item 14.

 

Principal Accountant Fees and Services

  4347
PART IV

Item 15.

 

Exhibits and Financial Statement Schedules

  4448
 

Signatures

  4651

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  F-1


This filing with the United States Securities and Exchange Commission (“SEC”) 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,” “plan,” “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, lowered levels of consumer confidence and higher levels of unemployment, and continuation of lowered levels of consumer spending resulting from the continuing worldwide economic downturn, 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, the closing of any of our distribution centers, our ability to protect our intellectual property rights, risks associated with internet sales, response to new store concepts, potential difficulty liquidating certain marketable security investments and other risks identified in our filings with the SEC.SEC, including those set forth in item 1A of this Form 10-K. We disclaim 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.

Unless the context otherwise requires, all references to “Urban Outfitters,” the “Company,” “we,” “us,” “our” or “our company” refer to Urban Outfitters, Inc., together with its subsidiaries.

PART I

Item 1. Business

General

We are a leading lifestyle specialty retail company that operates under the Urban Outfitters, Anthropologie, Free People, Terrain, Leifsdottir and TerrainBHLDN brands. We also operate a wholesale segment under the Free People and Leifsdottir brands. We have over 3840 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 is to provide unified store environments that establish emotional bonds with the customer. In addition to our retail stores, we offer our products and market our brands directly to the consumer through our e-commerce web sites,www.urbanoutfitters.com,www.anthropologie.com, www.freepeople.com and,www.urbanoutfitters.co.uk,www.urbanoutfitters.de,www.urbanoutfitters.fr, www.anthropologie.eu, www.leifsdottir.com,www.shopterrain.comand www.bhldn.comand also through our Urban Outfitters, Anthropologie and Free People catalogs. We have achieved compounded annual sales growth of approximately 27%16% over the past five years, with sales of approximately $1.8$2.3 billion in fiscal 2009.2011.

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. We started doing business in Europe in June 1998, with our first European store

located in London. We opened our first Free People store in the Garden State Plaza Mall in Paramus, New Jersey in November 2002. We opened our first Terrain garden center in Glen Mills, Pennsylvania in April 2008. We opened our first European Anthropologie store in London in October 2009. In February 2011, we launched BHLDN, a sophisticated and inspired retail brand with a primary focus on all bridal event offerings.

In 1984 we established the Free People wholesale division to develop, in conjunction with Urban Outfitters, private label apparel lines of young women’s casual wear that could be effectively sold at attractive prices in Urban Outfitters stores. During the second quarter of fiscalIn 2009, we launched Leifsdottir, thea sophisticated wholesale division of our Anthropologie brand.

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 20092011 ended on January 31, 2009.2011.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with, or furnished to, the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our investor relations web site,www.urbanoutfittersinc.com, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. We will voluntarily provide electronic or paper copies (other than exhibits) of our filings free of charge upon written request. You may also obtain any materials we file with, or furnish to, the SEC on its web site atwww.sec.gov.

Retail SegmentStores

Urban Outfitters. Urban Outfitters targets young adults aged 18 to 3028 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 9,5009,200 square feet of selling space, and typically carry an estimated 35,00045,000 to 40,00050,000 stock keeping units (“SKUs”). Our stores are located in large metropolitan areas, select university communities, specialty centers and enclosed malls. Our stores accommodate our customers’ propensity not only to shop, but also to congregate with their peers. In fiscal 2009, we circulated approximately 12 million Urban Outfitters catalogs in an effort to expand our distribution channels and increase brand awareness. We plan to maintain our circulation of approximately 12 million catalogs in fiscal 2010 and will continue to invest in web marketing initiatives. As of January 31, 2009,2011, we operated 142176 Urban Outfitters stores in North America and Europe, as well as thewww.urbanoutfitters.comandwww.urbanoutfitters.co.ukfour web sites and the Urban Outfitters catalog. We plan to open approximately 1619 Urban Outfitters stores globally in fiscal 2010.2012. Urban Outfitters’ North American and European store sales accounted for approximately 35.9%31.8% and 6.2%5.3% of consolidated net sales, respectively, for fiscal 2009.2011.

Anthropologie. Anthropologie tailors its merchandise and inviting store environment to sophisticated and contemporary women aged 3028 to 45. Anthropologie’s unique and eclectic product assortment includes women’s casual apparel and accessories, shoes, home furnishings and a diverse array of gifts and decorative items. The home furnishings range from furniture, rugs, lighting and antiques to table top items, bedding and gifts. Stores average approximately 7,4007,300 square feet of selling space, typically carry an estimated 40,000 to 45,000 SKUs and are located in specialty retail centers, upscale street locations and enclosed malls. During fiscal 2009, we circulated approximately 21.5 million catalogs and plan to decrease circulation to approximately 18.4 million catalogs in fiscal 2010. We plan to replace reduced circulation expenditures with investments in web marketing initiatives. As of January 31, 2009,2011, we operated 121153 Anthropologie stores in the United States,North America and Europe, as well as the

www.anthropologie.comtwo web sitesites and the Anthropologie catalog. We plan to open approximately 1617 Anthropologie stores globally in fiscal 2010 including our first Anthropologie store in Europe.2012. Anthropologie’s North American and European store sales accounted for approximately 35.0%35.1% and 0.8% of consolidated net sales, respectively, for fiscal 2009.2011.

Free People.People. Our Free People retail stores primarily offer Free People branded merchandise targeted to young contemporary women aged 25 to 30. Free People offers a unique merchandise mix of casual women’s apparel, shoes, accessories and gifts. Free People retail stores average approximately 1,400 square feet of selling space, carry up to 5,00018,000 SKUs and are located in enclosed malls, upscale street locations and specialty retail centers. The retail channels of Free People expose both our wholesale accounts and retail customers to the full Free People product assortment and store environment. During fiscal 2009, we circulated approximately 6.7 million catalogs and plan to expand circulation to approximately 7.4 million catalogs in fiscal 2010. As of January 31, 2009,2011, we operated 3042 Free People stores in the United States, as well as thewww.freepeople.coma web site and the Free People catalog. We plan to open approximately 914 new Free People stores in fiscal 2010.2012. Free People retail store sales accounted for approximately 1.8%2.3% of our consolidated net sales for fiscal 2009.2011.

Terrain.Terrain. Our Terrain concept was released as our fourth brand in fiscal 2008 and we opened our first store in Glen Mills, Pennsylvania, Terrain at Styers’, in April 2008. Our new concept is designed to appeal to men and women interested in a creative, sophisticated outdoor living and gardening experience. Terrain creates a compelling shopping environment through its large and free standing site, inspired by the ‘greenhouse’. Sites will be large and free standing.‘greenhouse.’ Merchandise includes lifestyle home and garden products combined with antiques, live plants, flowers, wellness products and flowers.accessories. Our Terrain garden center operates approximately 20,000 square feet of enclosed selling space as well as approximately two acres of outdoor seasonal selling space used for live plants, accessories and outdoor furniture. Terrain also offers a variety of landscape and design service solutions. Terrain also operates a web site. Terrain retail sales accounted for less than 1% of our consolidated net sales for fiscal 2009.2011. We planwill continue to open one newevaluate locations for future Terrain garden centercenters in fiscal 2010.2012.

Catalogs and Web SitesDirect-to-Consumer

Anthropologie offers a direct-to-consumer catalog that markets select merchandise, most of which is also available in our Anthropologie stores. During fiscal 2009, Anthropologie2011, we circulated approximately 21.517.6 million catalogs. We believe thecatalogs and plan to increase circulation to approximately 23.2 million catalogs in fiscal 2012.

Our Anthropologie European customers are offered a direct-to-consumer catalog has been instrumentalthat markets selected merchandise, most of which is also offered at our Anthropologie stores located in helping to build the Anthropologie brand identity with our target customers.Europe. The catalog was recently launched in September 2010 and we circulated approximately 126,000 catalogs in Europe during fiscal 2011. We plan to decrease circulation tocirculate approximately 18.4 million595,000 catalogs in Europe during fiscal 2010, and replace reduced circulation expenditures with investments in web marketing.2012. We expectanticipate the number of catalogs circulated to begrow consistent overwith the next few years.anticipated demand from our European Anthropologie customers.

Anthropologie operates a web sitewww.anthropologie.com,,which accepts orders directly from customers. The web site captures the spirit of the store by offering a similar yet broader array of apparel, accessories and household and gift merchandise as found in the stores. As with our catalog, we believe that the

Anthropologie also operates a web site increases Anthropologie’s reputationtargeting our European customers. The web site was launched in March 2010. The web site captures the spirit of our European stores by offering a similar yet broader selection of merchandise as found in the stores. Fulfillment is currently provided by a third-party distribution center located in the United Kingdom. During the second quarter of fiscal 2012 we anticipate opening self-owned and brand recognition with its target customersoperated fulfillment and helps support the traffic of Anthropologie’s store operations.distribution centers in Rushden, England.

In March 2003,

Urban Outfitters introducedoffers a direct-to-consumer catalog offering select merchandise, most of which is also available in our Urban Outfitters stores. During fiscal 2009,2011, we circulated approximately 14.2 million Urban Outfitters catalogs and plan to increase our circulation to approximately 15.4 million catalogs in fiscal 2012.

Our Urban Outfitters European customers are offered a direct-to-consumer catalog that markets selected merchandise, most of which is also offered at our Urban Outfitters stores located in Europe. The catalog was recently launched in November 2010 and we circulated approximately 12 million catalogs. We believe the catalog has expanded our distribution channels and increased brand awareness.200,000 catalogs in Europe during fiscal 2011. We plan to maintain circulation ofcirculate approximately 12 million800,000 catalogs in Europe during fiscal 2010 and continue to further invest in web marketing initiatives.2012. We expectanticipate the number of catalogs circulated to begrow consistent overwith the next few years.

anticipated demand from our European Urban Outfitters alsocustomers.

Urban Outfitters operates a web site thatsitethat accepts orders directly from customers. The web site,www.urbanoutfitters.com, was launched in May 2000. The web site captures the spirit of the store by offering a similar yet broader selection of merchandise as found in the stores. As with the

Urban Outfitters catalog, we believe thealso operates three web site increases the reputation and recognition of the brand with its target customers, as well as helps to support the traffic of Urban Outfitters’ store operations.

In August 2006, Urban Outfitters launched a web sitesites targeting our European customers. The web site,www.urbanoutfitters.co.uk, capturessites capture the spirit of our European stores by offering a similar yet broader selection of merchandise as found in the stores. Fulfillment is currently provided fromby a third-party distribution center located in the United Kingdom. We believeexpect to be operational at our fulfillment and distribution centers in Rushden, England during the web site increases the reputation and recognitionsecond quarter of the brand with its European target customers as well as helps to support our Urban Outfitters’ European store operations.fiscal 2012.

In October 2005, Free People introducedoffers a direct-to-consumer catalog offering select merchandise most of which is also available in our Free People stores. During fiscal 2009 Free People2011, we circulated approximately 6.77.6 million catalogs. We believe this catalog has expanded our distribution channelscatalogs and increased brand awareness. We plan to expand circulation to approximately 7.48.8 million catalogs duringin fiscal 2010 and intend to increase the level of catalog circulation over the next few years.2012.

Free People also operates a web site that accepts orders directly from customers. The web site,www.freepeople.com, was launched in September 2004. The web site exposes consumers to the product assortment found at Free People retail stores as well as all of the Free People wholesale offerings. As with the Free People catalog, we believe that the

Terrain operates a web site increases Free People’s reputation and brand recognition withthat accepts orders directly from customers. The web site was launched in September 2009. The web site exposes consumers to a portion of the product assortment found at the Terrain retail store.

Leifsdottir operates a web site that accepts orders directly from consumers. The web site was launched in February 2010. The web site exposes consumers to all product offerings from the Leifsdottir concept.

BHLDN launched its targetwebsite on February 14, 2011. The website accepts orders directly from customers and helps supportexposes consumers to all product offerings from the traffic of Free People’sBHLDN concept. A retail store operations.is planned to open during fiscal 2012.

Increases in our catalog circulation are driven by our evaluation of the response rate to each individual catalog. Based upon that evaluation, we adjust the frequency and circulation of our catalog portfolio as needed. In addition, we evaluate the buying pattern of our direct-to-consumer customers to determine thosewhich customers who respond to our catalog mailings. We also utilize the services of list rental companies to identify potential customers that will receive future catalogs.

We believe that our web sites increase the reputation and recognition of our brands with our target customers and help support the strength of our stores’ operations. We plan on increasing our spending on investments in web marketing in fiscal 2012 for all of our brands. These increases will be based on our daily evaluation of the customer’s response rate to our marketing investments.

Direct-to-consumer sales for all brands combined were approximately 14.9%19.1% of consolidated net sales for fiscal 2009.2011.

Wholesale SegmentOperations

The Free People 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 prices in Urban Outfitters stores. In order to achieve minimum production lots, Free People wholesale began selling to other retailers throughout the United States. During fiscal 2011, Free People’s range of tops, bottoms, sweaters and dresses were sold worldwide through approximately 1,8001,400 better department and specialty stores, including Bloomingdale’s, Nordstrom, Lord & Taylor, Belk, Urban Outfitters and its own Free People stores. Free People currently sells its merchandise under ourFree Peopleand other labels. We also distribute our Free People products in certain department stores using a shop-within-shop sales model. We believe that the shop-within-shop model allows for a more complete merchandising of our Free People products and will give us greater freedom in differentiating the presentation of our products and further strengthening of our brand image. We monitor the styles and products that are popular with our wholesale customers to give us insight into current fashion trends, which help us better serve our retail customers. Free People presently maintains wholesale sales and showroom facilities in New York City, Los Angeles and Chicago. Free People wholesale sales accounted for approximately 5.8%4.9% of consolidated net sales for fiscal 2009.2011.

In addition to selling its merchandise to specialty retailers, Free People wholesale also shares production sourcing with our retail segment. Free People employs its own senior and creative management staff, but shares business support services with the retail segment.

During the second quarter ofThe Leifsdottir wholesale division was established in fiscal 2009, we launched Leifsdottir, the Anthropologie brand’s wholesale division.2009. Leifsdottir designs, develops and markets sophisticated women’s contemporary apparel including dresses, tops, bottoms, as well as shoes and bottoms.accessories. Leifsdottir is sold through luxury department stores including Bloomingdale’s, Nordstrom, Neiman Marcus and Bergdorf Goodman, select specialty stores and our own Anthropologie stores. We also distribute our Leifsdottir products in certain department stores using a shop-within-shop sales model. We believe that the shop-within-shop model allows for a more complete merchandising of our Leifsdottir products and will give us greater freedom in differentiating the presentation of our products and further strengthening our brand image. Leifsdottir presently maintains a wholesale sales and showroom facility in New York City, New York.City. Leifsdottir wholesale sales accounted for less than 1% of total consolidated net sales for fiscal 2009.2011.

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, much of 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 store design, the merchandise and the customer. Essential components of the ambience of each store may include playing music that appeals to our target customers, using unique signage and employing a staff that understands and identifies with the target customer.

Anthropologie considers it important to create an individualized and tailored store shopping experience for each customer. By providing an inviting and pleasant shopping atmosphere and an attentive sales staff, including, in many stores, 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. Anthropologie stores are often placed in unique and non-traditional retail locations. A majority of our Anthropologie stores opened during fiscal 20092011 were located in specialty retail centers, upscale street locations and enclosed shopping malls. We plan to implement a similaran Anthropologie location expansion strategy in fiscal 2010.2012 similar to our strategy in fiscal 2011.

Our Urban Outfitters stores are often located in unconventional retail spaces, including a former movie theater, a bank and a stock exchange. A majority of our Urban Outfitters stores that opened in fiscal 20092011 were located in upscale street locations, specialty retail centers and enclosed shopping malls. We plan to implement a similaran Urban Outfitters location expansion strategy in fiscal 2010.2012 similar to our strategy in fiscal 2011.

Our Free People retail stores opened to date are primarily located in enclosed shopping malls, specialty retail centers and upscale street locations. We plan to implement a similar Free People location expansion strategy in fiscal 2010.2012 similar to our strategy in fiscal 2011.

Our Terrain garden center is a free-standing location on ten acres of land with street-front view and access. We plan to open oneevaluate future Terrain location utilizing alocations of similar venue type in fiscal 2010.2012.

Buying Operations

Maintaining a constant flow of fashionable merchandise for our retail segment is critically important to the ongoing performance of our stores and direct-to-consumer operations. We maintain our own buying groups that select and develop products to satisfy our target customers and provide us with the appropriate amount and timing of products. Merchandise managers may supervise several buyers and assistant buyers. Our buyers stay in touch with the evolving tastes of their target customers by shopping at major trade markets, attending national and regional trade shows and staying current with mass media influences, including internet, music, video, film, magazines and pop culture.

Merchandise

Our Urban Outfitters stores, web sites and catalogs 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 in our Anthropologie stores, web site and catalogs include women’s casual apparel and accessories, shoes, as well as home furnishings and an eclectic array of gifts and decorative accessories for the home, garden, bed and bath. Our Free People retail stores, web site and catalog offer a showcase for casual apparel, shoes, accessories and gifts, primarily developed and

designed by our Free People wholesale division. Our Terrain garden center offers lifestyle home and garden products combined with antiques, live plants, flowers, wellness products and flowers.accessories. 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 almost daily.

The wide breadth of merchandise offered by our retail segment includes national third-party brands, as well as exclusive merchandise developed and designed internally by our brands. 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. Merchandise designed and developed by our brands generally yields higher gross profit margins than third-party branded merchandise, and helps to keep our product offerings current 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 arrayrange of price points that may vary considerably within product categories.

Store Operations

We have organized our retail store operations by brand 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 Urban Outfitters, Anthropologie and Terrain store includes a visual manager, several department managers and a full and part-time sales and visual staff. The staff of a typical Anthropologie store may also include a customer care manager who helps tailor the shopping experience to the needs of Anthropologie’s target customers. A Terrain garden center may also include merchandise care and maintenance staff. Our Free People retail stores include a store manager, a visual coordinator and full and part-time sales staff. A Terrain garden center may also include merchandise care and maintenance staff.

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.

Marketing and Promotion

We believe we have highly effective marketing tools in our catalogs and websites. We refresh this media as frequently as daily to reflect the most cutting edge changes in fashion and culture. We also 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 store concepts include special event promotions and a variety of public relations activities designed to create community awareness of our stores and products. We also are increasingly active in the burgeoning arena of social media and blogs. We believe that the traditional method of a one-way communication to customers is no longer enough. We believe that by starting a conversation and interacting directly with our customers, most notably via Facebook and Twitter, we are more effective at understanding and serving their fashion needs. We also believe that our blogs continue this conversation. Not only do we communicate what inspires us; it allows our customers to tell us what inspires them. This fosters our relationships with our customers and encourages them to continue shopping with us.

Suppliers

To serve our target customers and to recognize changes in fashion trends and seasonality, we purchase merchandise from numerous foreign and domestic vendors. To the extent that our vendors are located overseas or rely on overseas sources for a large portion of their merchandise, any event causing a disruption of imports, such as the imposition of import restrictions, financial or political instability in any of the countries in which goods we purchase are manufactured, or trade restrictions in the form of tariffs or quotas, or both, could adversely affect our business. During fiscal 2009,2011, we did business with approximately 7,7003,300 vendors. No single vendor accounted for more than 10.0% 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. A significant portion of merchandise purchased by our retail businesses is shipped directly to our 191,000 square foot distribution center in Lancaster County, Pennsylvania, which we own. In fiscal 2010 we completed construction on an additional 100,000 square feet of distribution space at this facility, bringing it to 291,000 square feet in size. This facility has an advanced computerized materials handling system and is approximately 65 miles from our home offices in Philadelphia. In March 2009 we began construction on an additional 100,000 square feet of distribution space at our Lancaster County, Pennsylvania distribution facility. We expect this expansion to be substantially complete in fiscal 2010.

In March 2005, we executedWe lease a long-term operating lease to utilize an additional 459,000 square foot fulfillment center located in Trenton, South Carolina. Currently, this facility houses the majority of merchandise distributed by our wholesale and direct-to-consumer channels. This building significantly expanded our fulfillment capacity and provides us with future opportunities for additional growth as it becomes necessary. This facility also utilizes a state-of-the-art and fully functional tilt tray sorter. The property currently accommodates all direct-to-consumer fulfillment related functions, including inventory warehousing, receiving, customer contact operations and customer shipping. We believe this space and equipment allows us to maximize our fulfillment efficiency. We can expand this space as it pertains to the additional growth requirements of both our retail and wholesale businesses.

In fiscal 2008 we executed a long-term lease to utilize 175,500 square foota distribution center in Reno, Nevada, effectively relocating, expanding and bringing our west coast distribution service in-house. In March 2009 we executed an amendment to our long-term lease for an additional 39,000 square feet at this distribution center.center bringing it to 214,500 square feet in size. This facility services our stores in the western United States at a favorable freight cost per unit, and provides faster turnaround from selected vendors. In addition, we have

We plan to purchase land to construct a 468,000 square foot fulfillment center in Reno, Nevada. This center will significantly increase our fulfillment capacity and provide us with opportunities for additional growth.

Our European stores and direct-to-consumer channel currently utilizes a third party distribution center in Essex, England,England. In June 2010 we leased and began construction on a 98,000 square foot distribution center and a 142,000 square foot fulfillment center in Rushden, England. We anticipate transitioning all of our European distribution and fulfillment operations to these facilities during the second quarter of fiscal 2012. Our distribution facility will support our entire European store base and will have a state-of-the-art materials handling system. Our fulfillment facility, which is operated by a third party, to servicewill support our current and near-term needsentire European direct-to-consumer channel, will have an advanced cross belt sorter. We believe both of these facilities will support our European growth for stores and direct-to-consumer operations in Europe.the next several years as well as add operational efficiencies when fully operational.

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 met our processing and reporting requirements. We utilize point-of-sale register systems connected by a digital subscriber line (DSL) 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 daily updates of sales, inventory data and price changes. Our direct-to-consumer operations, which include the Anthropologie, Free People and Urban Outfitters catalogs and the Anthropologie, Free People, Urban Outfitters, Leifsdottir, Terrain and BHLDN retail web sites, maintain separate software systems that manage the merchandise and customer information for our in-house customer contact center and fulfillment functions. We launched a new, more functional web platform during fiscal 2008 that has expanded capacity for additional traffic and sales through the web. The Free People and Leifsdottir divisions within our wholesale segment usesuse a separate software system for customer service, order entry and allocations, production planning and inventory management. During fiscal 2007, we successfully completed installation of a new wholesale customer service system that provides significantly improved functionality and flexibility to help serve our customers. This system has the capability to handle additional workload related to increased order volume and will better suit us over the long term to meet the wholesale segment’s growth needs. We have contracted with a nationally recognized company to provide disaster-recovery services with respect to our key systems.

During fiscal 2007, we also completed the upgrade of our existing point of sale platform at our North American locations. This upgrade included the replacement of our existing register software, replacement of registers and related hardware and the addition of radio frequency equipment to be utilized in the store receiving and operations areas. We believe this upgrade has allowed us to process customer transactions more quickly and efficiently, while reducing existing administration. We believe this initiative has also resulted in advanced flexibility and customer service in the areas of locating inventory and accessing the direct-to-consumer channel within our retail stores. This new platform establishes better long-term technology resources and provides the infrastructure that enabled Anthropologie to implement a customer relationship management system during fiscal 2008.

During fiscal 2009, we successfully completed a warehousing software system implementation for our wholesale segment at our Trenton, South Carolina fulfillment center. During fiscal 2010 we began implementation of the warehouse software at our Lancaster County, Pennsylvania and Reno, Nevada distribution centers. This implementation will be complete in fiscal 2012. The new software provides significantly improved scalability and functionality aligning with our business growth needs. We believe this upgrade will support our growth needs for the long-term.

During fiscal 2009,2010, we also began phase onework on an Order Management System (“OMS”) that will significantly improve our ability to serve both our store and online customers and will provide for substantial improvements in our back office administration as it relates to supply chain, fulfillment and inventory control. Furthermore, it will integrate inventory visibility regardless of the channel in which the merchandise was received or sold. We completed the implementation of the OMS for three of our six brands in fiscal 2011 and expect to convert the remaining three brands in fiscal 2012.

During fiscal 2010, we began work on a supply chain management software implementation project.upgrade that provides us greater visibility into our supply chain process. Additionally, it provides for standardized commercial invoicing that will be automatically matched to the related purchase order. We completed Phase I of this project in fiscal 2011, which included benefits such as a single consistent view of all purchase orders to our vendors regardless of business segment. Phase II is anticipated to be completed during the second quarter of fiscal 2012.

Competition

The specialty retail, direct-to-consumer and the wholesale apparel businesses are each 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 our Urban Outfitters, Anthropologie, Free People and Terrain stores compete against a wide variety of smaller, independent specialty stores, as well as department stores and national specialty chains. Many of our competitors have substantially greater name recognition as well as financial, marketing and other resources. Our Anthropologie and Free People stores also face competition from small boutiques that offer an individualized shopping experience similar to the one we strive to provide to our target customers. In addition, some of our suppliers offer products directly to consumers and certain of our competitors.

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 a greater volume of circulation and web traffic.

Our Free People and Leifsdottir wholesale businesses compete with numerous wholesale companies based on the quality, fashion and price of our wholesale product offerings. Many of our wholesale business competitors’ products have a wider distribution network. In addition, certain of our wholesale competitors have greater name recognition, and financial and other resources.

Trademarks and Service Marks

We are the registered owner in the United States of certain service marks and trademarks, including, but not limited to “Urban Outfitters”, “Anthropologie”, “Urban Renewal”, “Free People”, “Co-Operative”“Leifsdottir”, “Ecote”, “4040 Locust”, “+. . . .”, “A Little Birdie Told Me”, “Allihop”“Terrain”, “BDG Guaranteed Tough”, “Bica Cheia”, “Brand: All-Son”, “Cartonnier”, “Character Hero”, “Charlie & Robin”, “Darling Blue”“Co-Operative”, “Deletta”, “Edmé & Esyllte”“Ecote”, “Elevenses”, “Ett Twå”, “Fairytales Are True”, “Featherbone”, “Field Flower”, “Fink”, “Floreat”, “Hand Knit by Dollie”, “Hawkings McGill”, “Hei-Hei”, “Hi-Brow”“Eloise”, “Idra”, “Kimchi & Blue”, “Knitted & Knotted”, “Laureate Lane”, “Lilka”, “Little Yellow Button”, “Lucky Penny”, “Maeve”, “Moulinette Soeurs”, “Nap Time”“Intimately Free People”, “Odille”, “O’Hanlon Mills Carragn Kerry”, “Oiseau”, “Peasandqueues”, “Pure & Good”, “Ric-Rac”, “Salt Valley Western”, “Satu Field of Freesia”, “Satu Plum Nectar”, “Satu Vanilla Infusion”, “Shiny Pine”, “Silence & Noise”, “Sitwell”, “Sleeping on Snow”, “Sparkle & Fade”, “Sparrow”, “Standard Cloth Washington Street”, “Stapleford”, “Sunday Monday Tuesday Wednesday Thursday Friday Saturday”, “Taikonhu”, “Terrain at Styer’s”, “The Charmer”, “This Tree Needs You”, “UO”,“Urban Renewal” and “Urbn.com.”“Urbn.com”. 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. We are not aware of any valid claims of infringement or challenges to our right to use any of our marks in the United States.

Employees

As of January 31, 2009,2011, we employed approximately 12,50016,000 people, approximately 44%40.2% of whom arewere full-time employees. The number of part-time employees fluctuates depending on seasonal needs. Of our total employees, 2% work in the wholesale segment and the remaining 98% work in our retail segment. None of our employees are covered by a collective bargaining agreement, and we believe that our relations with our employees are excellent.

Financial Information about Operations

We aggregate our operations into two reportable segments, the retail segment and the wholesale segment. See Note 13, “Segment Reporting,” in the notes to our consolidated financial statements for additional information.

Financial Information about Geographical Areas

See Note 13, “Segment Reporting,” in the notes to our consolidated financial statements for information regarding net sales from domestic and foreign operations and long-lived assets.

Seasonality

Our business is subject to seasonal fluctuations. See Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Quarterly Results for additional information.

Item 1A. Risk Factors

Our business segments are sensitive to economic conditions, consumer spending, shifts in fashion and industry and demographic conditions.

We are subject to seasonal variations and face numerous business risk factors. Consumer purchases of discretionary retail items and specialty retail products, including our products, may decline during recessionary periods and also may decline at other times when disposable income is lower. A prolonged economic downturn could have a material adverse impact on our business, financial condition or results of operations. There is a risk that consumer sentiment may decline due to economic and/or geo-political factors, which could negatively impact our financial position and results of operations.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending which have continued to deteriorateremains uncertain and may remain depressed for the foreseeable future. Some of the factors impacting discretionary consumer spending include general economic conditions, wages and employment, consumer debt, reductions in net worth based on recent severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors. Consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. The recent downturn in the economy may continue to affect consumer purchases of our merchandise and adversely impact our results of operations and continued growth. The economic conditions may also affect the number of specialty retail businesses and their ability to purchase merchandise from our wholesale segment. It is difficult to predict how long the current uncertain economic, capital and credit market conditions will continue and what impact they will have on our business.

We rely heavily on our ability to identify changes in fashion.

Customer tastes and fashion trends are volatile and can change rapidly. Our success depends in part on our ability to effectively predict and respond to changing fashion tastes and consumer demands, and to translate market trends into appropriate, saleable product offerings. Our inability to effectively determine these changes may lead to higher seasonal inventory levels and a future need to increase markdowns to liquidate our inventory. Compared to our retail segment, our wholesale segment is more sensitive to changes in fashion trends because of longer lead times in the manufacture and sale of its apparel. Our fashion decisions constitute a material risk and may have an adverse effect on our financial condition and results of operations.

We may not be successful in expanding our business and opening new retail stores.

Our growth strategy depends on our ability to open and operate new retail stores on a profitable basis. Our operating complexity will increase as our store base grows, and we may face challenges in managing our future growth. Such growth will require that we continue to expand and improve our operating capabilities, and expand, train and manage our employee base. We may be unable to hire and train a sufficient number of qualified personnel or successfully manage our growth. Our expansion prospects also depend on a number of other factors, many of which are beyond our control, including, among other things, competition, the availability of financing for capital expenditures and working capital requirements, the availability of suitable sites for new store locations on acceptable lease terms,

and the availability of inventory. There can be no assurance that we will be able to achieve our store

expansion goals, nor can there be any assurance that our newly opened stores will achieve revenue or profitability levels comparable to those of our existing stores in the time periods estimated by us, or at all. If our stores fail to achieve, or are unable to sustain, acceptable revenue and profitability levels, we may incur significant costs associated with closing those stores.

Existing and increased competition in the specialty retail, direct-to-consumer and wholesale apparel businesses may reduce our net revenues, profits and market share.

The specialty retail direct-to-consumersegment and the wholesale apparel businesses are each 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. Our Anthropologie and Free People stores also face competition from small boutiques that offer an individualized shopping experience similar to the one we strive to provide to our target customers. In addition, some of our suppliers offer products directly to consumers and certain of our competitors. Our Free People and Leifsdottir wholesale businesses compete with numerous wholesale companies based on the quality, fashion and price of our wholesale product offerings, many of whose products have wider distribution than ours. Many of our competitors have substantially greater name recognition as well as financial, marketing and other resources. We cannot assure you that we will continue to be able to compete successfully against existing or future competitors. Due to difficult economic conditions our competitors may force a markdown or promotional sales environment which could hurt our ability to achieve our historical profit margins. Our expansion into markets served by our competitors and entry of new competitors or expansion of existing competitors into our markets could have a material adverse effect on our business, financial condition and results of operations.

We depend on key personnel and may not be able to retain or replace these employees or recruit additional qualified personnel, which would harm our business.

We believe that we have benefited substantially from the leadership and experience of our senior executives, including our Chairman, President and co-founder, Richard A. Hayne, and our Chief Executive Officer, Glen T. Senk. The loss of the services of any of our senior executives could have a material adverse effect on our business and prospects, as we may not be able to find suitable management personnel to replace departing executives on a timely basis. We do not have an employment agreement with Mr. Hayne, Mr. Senk or any of our other key personnel. In addition, as our business expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for personnel in the retail industry. Our inability to meet our staffing requirements in the future could impair our ability to increase revenue and could otherwise harm our business.

We could be materially and adversely affected if any of our distribution centers are closed.

We operate four distribution facilities worldwide to support our retail and wholesale business segments in the United States, Western Europe and Canada, and for fulfillment of catalog and web site orders. The merchandise purchased for our United States and Canadian retail operationoperations is shipped directly to our distribution centers in Lancaster County, Pennsylvania and Reno, Nevada while merchandise purchased for our direct-to-consumer and wholesale operations is shipped directly to our fulfillment center in Trenton, South Carolina. The merchandise purchased for our Western Europe

retail and direct-to-consumer operations is shipped to Essex, England. We plan to purchase land to construct a 468,000 square foot fulfillment center in Reno, Nevada, in fiscal 2012 that will support our direct-to-consumer channel. If any of our distribution centers

were to close for any reason, or we are unable to successfully open the additional distribution facility, the other distribution centers may not be able to support the resulting additional distribution demands. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to re-open or replace the center.

We rely significantly on foreign sources of production.

We receive a substantial portion of our apparel and other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources. To the extent that our vendors are located overseas or rely on overseas sources for a large portion of their products, any event causing a disruption of imports, including the imposition of import restrictions, war, and acts of terrorism and natural disasters could adversely affect our business. If imported goods become difficult or impossible to bring into the United States, and if we cannot obtain such merchandise from other sources at similar costs, our sales and profit margins may be adversely affected. The flow of merchandise from our vendors could also be adversely affected by financial or political instability in any of the countries in which the goods we purchase are manufactured, if the instability affects the production or export of merchandise from those countries. Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used by our vendors in the manufacture of our products, our vendors may not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. Trade restrictions in the form of tariffs or quotas, or both, applicable to the products we sell could also affect the importation of those products and could increase the cost and reduce the supply of products available to us. The cost of fuel is a significant component in transportation costs, therefore, increases in the petroleum products can adversely affect our gross margins. In addition, decreases in the value of the U.S. dollar relative to foreign currencies could increase the cost of products we purchase from overseas vendors.

Our operating results fluctuate from period to period.

Our business experiences seasonal fluctuations in net sales and operating income, with a more significant portion of operating income typically realized during the five-month period from August 1 to December 31 of each year (the back-to-school and holiday periods). Any decrease in sales or margins during this period, or in the availability of working capital needed in the months preceding this period, could have a more material adverse effect on our business, financial condition and results of operations.operations than in other periods. Seasonal fluctuations also affect our inventory levels, as we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the back-to-school and holiday selling periods. If we are not successful in selling our inventory during this period, we may be forced to rely on markdowns or promotional sales to dispose of the inventory or we may not be able to sell the inventory at all, which could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to protect our trademarks and other intellectual property rights.

We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks and service marks on a worldwide

basis. In order to more effectively protect them from infringement and to defend against claims of infringement, the marks are owned by separate subsidiaries who are responsible for maintaining and managing existing and future marks, thereby increasing their value to the company. We are not aware of any valid claims of infringement or challenges to our right to use any of our trademarks and service marks in the United States. Nevertheless, there can be no assurance that the actions we have taken to establish and protect our trademarks and service marks will be adequate to prevent imitation of our

products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks, service marks and intellectual property of others. Also, others may assert rights in, or ownership of, trademarks and other intellectual property of ours and we may not be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States.

War, acts of terrorism, or the threat of either may negatively impact availability of merchandise and/or otherwise adversely impact our business.

In the event of war or acts of terrorism, or if either are threatened, our ability to obtain merchandise available for sale in our stores may be negatively impacted. A substantial portion of our merchandise is imported from other countries, see “We rely significantly on foreign sources of production”on page 9.14. If commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers and stores, as well as fulfilling catalog and web site orders. In the event of war or acts of terrorism, or the threat of either, we may be required to suspend operations in some or all of our stores, which could have a material adverse impact on our business, financial condition and results of operations.

We may not be successful in introducing additional store concepts.

We may, from time to time, seek to develop and introduce new concepts or brands in addition to our existing Urban Outfitters, Anthropologie, Free People, Leifsdottir, Terrain and TerrainBHLDN brands. Our ability to succeed in these new concepts could require significant capital expenditures and management attention. Additionally, any new concept is subject to certain risks, including customer acceptance, competition, product differentiation, challenges relating to economies of scale in merchandise sourcing and the ability to attract and retain qualified personnel, including management and designers. There can be no assurance that we will be able to develop and grow these or any other new concepts to a point where they will become profitable, or generate positive cash flow. If we cannot successfully develop and grow these new concepts, our financial condition and results of operations may be adversely impacted.

We may develop new store concepts through acquisitions and we may not be successful in integrating those acquisitions.

Acquisitions involve numerous risks, including the diversion of our management’s attention from other business concerns, the possibility that current operating and financial systems and controls may be inadequate to deal with our growth and the potential loss of key employees.

We also may encounter difficulties in integrating any businesses we may acquire with our existing operations. The success of these transactions depends on our ability to:

 

successfully merge corporate cultures and operational and financial systems;

 

realize cost reduction synergies; and

 

as necessary, retain key management members and technical personnel of acquired companies.

In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on any company that we may acquire, or have recently acquired. Also, there may be additional costs relating to acquisitions including, but not limited to,

possible purchase price adjustments. Any of our rights to indemnification from sellers to us, even if obtained, may not be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business and financial condition.

Risks associated with InternetOur internet sales are subject to operational risk.

We sell merchandise over the Internet through our websites.web sites. Our Internet operations are subject to numerous risks, including reliance on third party computer hardware/software, rapid technological change, diversion of sales from our stores, liability for online content, violations of state or federal laws, including those relating to online privacy, credit card fraud, risks related to the failure of the computer systems that operate our websites and their related support systems, including computer viruses, telecommunications failures and electronic break-ins and similar disruptions. If our websites were disrupted for any material length of time for the reasons described above or any other reasons, our sales and profitability may suffer. There is no assurance that our Internet operations will continue to achieve sales and profitability growth.

Manufacturer compliance with our social compliance program requirements.

We have a compliance program that is monitored on an annual basis by our buying offices. Our production facilities are either certified as in compliance with our program, or areas of improvement are identified and corrective follow-up action is taken. All manufacturing facilities are required to follow applicable national labor laws, as well as international compliance standards regarding workplace safety, such as standards that require clean and safe working environments, clearly marked exits and paid overtime. We believe in protecting the safety and working rights of the people who produce the goods sold in our stores and through our wholesale business, while recognizing and respecting cultural and legal differences found throughout the world. We require our outside vendors to register through an online website and agree that they and their suppliers will abide by certain standards and conditions of employment.

Our investments in auction rate securities are subject to risks which may affect the liquidity of these investments and could cause an impairment charge.

Approximately 7%3.6% of our cash, cash equivalents and marketable securities are invested in “A” or better rated Auction Rate Securities (“ARS”) that represent interests in municipal and student loan related collateralized debt obligations, all of which are guaranteed by either government agencies and/or insured by private insurance agencies up to 97% or greater of par value. Historically, investments in ARS have been highly liquid, however, if an auction for the securities we own fails, the investments may not be readily convertible. Liquidity for ARS is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually 7, 28, 35 or 90 days. The principal associated with failed auctions will not be available until either a successful auction occurs, the bond is called by the issuer, a buyer is found from outside the auction process or the debt obligation reaches its maturity. Our ARS had a par valuean amortized cost of $44.0$33.3 million and a fair value of $38.7

$29.5 million as of January 31, 2009.2011. As of January 31, 20092011 all of our ARS have failed to liquidate at auction due to lack of market demand. Based on review of credit quality, collateralization, final stated maturity, estimates of the probability of being called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity for same investment security, impact due to extended periods of maximum auction rates and valuation models, we have recorded a $5.3$3.8 million temporary impairment on our ARS as of January 31, 2009.2011. To date, we have collected all interest receivable on outstanding ARS when due and have not been informed by the issuers that accrued interest payments are currently at risk. We do not have the abilityintent to holdsell the ARS investments untilunderlying securities prior to their maturity.recovery and we believe it is not likely that we will be required to sell the underlying securities prior to their anticipated recovery of full amortized cost. We cannot assure that further impairment to our ARS will not occur.

Our results can be adversely affected by market disruptions.

Market disruptions due to severe weather conditions, natural disasters, health hazards, terrorist activities, financial crises, political crises or other major events or the prospect of these events can affect consumer spending and confidence levels and adversely affect our results or prospects in affected markets. The receipt of proceeds under any insurance we maintain for these purposes may be delayed or the proceeds may be insufficient to fully offset our losses.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters and litigation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance or financial condition.

We are subject to numerous regulations that could adversely affect our business.

We are subject to customs, child labor, tax, employment, truth-in-advertising and other laws, including consumer protection regulations and zoning and occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and distribution centers. Additional legal and regulatory requirements, and the fact that foreign laws occasionally conflict with domestic laws, have increased the complexity of the regulatory environment and the cost of compliance. Although we undertake to monitor changes in these laws, if these laws change without our knowledge, or are violated by importers, designers, manufacturers or distributors, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the controlling regulations, any of which could adversely affect our business.

Item 1B. Unresolved Staff Comments

We have no outstanding comments with the staff of the SEC.

Item 2. Properties

In AugustSince 2006, we moved and consolidated our home office intohas been located in several buildings on one campus in the historic core of the Philadelphia, Pennsylvania Navy Yard. This acquisition allowsThe consolidated offices at the Navy yard allow for a morean efficient operation of our Philadelphia-based offices and will help to support our growth needs for at least the next ten years. The property located at 5000 South Broad Street in Philadelphia is approximately five miles fromforeseeable future. In fiscal 2011, we completed a 54,000 square foot expansion of our previous Philadelphia-based home offices. Weoffice and currently occupy approximately 282,000 square feet at the Navy Yard. Optionsfeet. We hold options on several adjacent buildings that are also available for at least the next ten years to allow for additional expansion if necessary. The expenditures to improveexpand our Navy Yard facilities in fiscal 2011 were capitalized and are being depreciated based on the useful life of the improvements and fixtures.

Our customer contact center is located in Trenton, South Carolina as part of our 459,000 square foot distributionfulfillment center, and occupies approximately 16,000 square feet. Our officeWe occupy two offices in Europe is locatedincluding approximately 6,900 square feet of space at 24 Market Place in London and occupies approximately 6,9003,500 square feet of space.space at 24-26 West Street in London. Our European home offices and our customer contact facilitiesfacility are leased properties with varying lease term expirations through 2016.

We own a 191,000291,000 square foot distribution center in Lancaster County, Pennsylvania. In March 2009, we began construction to expand this space by approximately 100,000 square feet. During Fiscal Yearfiscal 2008 we entered into an operating lease for a warehousedistribution facility in Reno, Nevada.Nevada and amended this lease for additional space in 2009. The facility is approximately 175,500214,500 square feet and is primarily used to support our western United States stores. During Fiscal Year 2008 we invested approximately $6 million in equipment and other improvements for this location. The term of this lease is set to expire in 2017 with Company options to renew for up to an additional ten years. Our distribution and fulfillment centers support our retail segment, with our Trenton, South Carolina facility also supporting the majority of our merchandise distributed by our wholesale segment.

In March 2009,fiscal 2011, we executed an amendmententered into operating leases for a distribution and fulfillment center in Rushden, England to support our original lease for an additional 39,000retail and direct-to-consumer channels in Europe. The distribution center will occupy approximately 98,000 square feet and the fulfillment center will occupy approximately 142,000 square feet.

Improvements to our home officein recent years, including those in fiscal 2011 described in Item 7: Management’s Discussion and distribution facilitiesAnalysis—Liquidity and Capital Resources, were necessary to adequately support our growth. We believe we may need to further expand the expansion willsquare footage of our home office and distribution facilities to support our growth forover the next several years. For more information on our distribution center properties, see Item 1: Business—Company Operations—Distribution. We believe that our facilities are well maintained and in good operating condition.

All of our Urban Outfitters, Anthropologie, Free People and Terrain stores are leased, well maintained and in good operating condition. Our retail stores are typically leased for a term of ten years with renewal options for an additional five to ten years. Total estimated selling square feet for stores open, under lease atas of January 31, 2009,2011, by Urban Outfitters, Anthropologie, Free People and Terrain was approximately 1,348,000, 895,000, 42,0001,621,000, 1,124,000, 58,000 and 20,000, respectively. Terrain also utilizes two acres of outdoor space to sell seasonal, live plants, accessories and outdoor furniture. The average store selling square feet is approximately 9,5009,200 for Urban Outfitters, 7,4007,300 for Anthropologie and 1,400 for Free People. Selling square feet can sometimes change due to floor moves, use of staircases, cash register configuration and other factors.

The following table shows the location of each of our existing retail stores, as of January 31, 2009:

Urban Outfitters Stores2011:

 

LOCATION

LOCATION

LOCATION

LOCATION

Alabama

Birmingham

Arizona

Tempe

Tucson

Scottsdale

California

Berkeley

Burbank

Costa Mesa

Fresno

Glendale

Irvine

Los Angeles

Melrose Ave.

Cahuenga Blvd

Newport Beach

Pasadena

Rancho Cucamonga

Sacramento

Santa Cruz

San Diego

San Francisco

Powell St.

Fillmore St.

San José

San Luis Obispo

Santa Barbara

Santa Monica

Simi Valley

Studio City

Thousand Oaks

Torrance

Walnut Creek

Westwood

Colorado

Boulder

Denver

Lone Tree

Connecticut

New Haven

Florida

Jacksonville

Miami

Miami Beach

Orlando

Palm Beach Gardens

South Miami

Tampa

Georgia

Atlanta

Peachtree Rd.

Ponce DeLeon Ave

Savannah

Idaho

Boise

Illinois

Champaign

Chicago

Clark St.

North Rush St.

South State St.

Milwaukee Ave.

Evanston

Oak Brook

Schaumburg

Indiana

Bloomington

Kansas

Lawrence

Louisiana

Baton Rouge

New Orleans

Maryland

Baltimore

Massachusetts

Boston

Newbury St.

Faneuil Hall

Cambridge

Northampton

Michigan

Ann Arbor

East Lansing

Troy

Minnesota

Bloomington

Minneapolis

Missouri

Kansas City

St. Louis

Nebraska

Omaha

Nevada

Las Vegas

Desert Passage

Mandalay Bay

New Jersey

Montclair

Paramus

New Mexico

Albuquerque

New York

Cheektowaga

Garden City

New York

Chelsea

The East Side

Midtown

SoHo

Queens

The West Side

The Upper West Side

Brooklyn

North Carolina

Charlotte

Durham

Ohio

Cincinnati

Columbus

Westlake

Oregon

Portland

Tigard

Pennsylvania

Ardmore

King of Prussia

Philadelphia

Pittsburgh

University City

Rhode Island

Providence

South Carolina

Charleston

Texas

Austin

Dallas

Northpark Center

East Mockingbird Lane

Houston

University Blvd.

The Galleria

San Antonio

Spring

Utah

Salt Lake City

Vermont

Burlington

Virginia

McLean

Richmond

Washington

Seattle

Broadway East

Fifth Ave

University Way

Lynnwood

Washington D.C.

Chinatown

Georgetown

Wisconsin

Madison

Milwaukee

Canada

Kingston

Montréal

Catherine St.

St. Denis St.

Toronto

Yonge St.

Queen St.

Vancouver

West Edmonton

England

Birmingham

Bristol

Leeds

Liverpool

London

Kent

Kensington High St.

Oxford St.

Covent Garden

Manchester

Ireland

Dublin

Cecilia St.

Dundrum

Belfast

Scotland

Glasgow

Denmark

Copenhagen

Sweden

Stockholm

Belgium

Antwerp

Germany

Hamburg

    Urban
Outfitters
   Anthropologie   Free
People
   Terrain   Total 

United States:

          

Alabama

   1     2               3  

Arkansas

        1               1  

Arizona

   4     4     1          9  

California

   33     30     12          75  

Colorado

   3     3     1          7  

Connecticut

   1     3     1          5  

Delaware

   1     1               2  

Florida

   8     10               18  

Georgia

   4     3               7  

Idaho

   1     1               2  

Illinois

   9     8     2          19  

Indiana

   1     1               2  

Kansas

   1                    1  

Louisiana

   2     2               4  

Massachusetts

   6     6     3          15  

Maryland

   1     4               5  

Michigan

   3     2               5  

Minnesota

   2     3               5  

Missouri

   2     2               4  

Mississippi

        1               1  

North Carolina

   3     3               6  

Nebraska

   1     1               2  

New Jersey

   5     8     2          15  

New Mexico

   1     1               2  

New York

   15     8     5          28  

Nevada

   2     2               4  

Ohio

   3     3               6  

Oklahoma

        1               1  

Oregon

   2     2               4  

Pennsylvania

   5     5     3     1     14  

Rhode Island

   1                    1  

South Carolina

   1     2               3  

Tennessee

   1     2     1          4  

Texas

   8     11     5          24  

Utah

   1     1               2  

Virginia

   3     4     2          9  

Vermont

   1                    1  

Washington

   4     3     4          11  

Wisconsin

   2     2               4  

District of Columbia

   2     1               3  
                         

Total United States

   144     147     42     1     334  

Anthropologie Stores

LOCATION

LOCATION

LOCATION

LOCATION

Alabama

Birmingham

Huntsville

Arizona

Mesa

Scottsdale

Fashion Square

Kierland Commons

Tucson

California

Berkeley

Beverly Hills

Burlingame

Carlsbad

Carmel

Chula Vista

Corona

Corte Madera

Danville

El Segundo

Fresno

Glendale

Irvine

Los Angeles

Newport Beach

Pasadena

Palo Alto

Rancho Cucamonga

Roseville

San Diego

La Jolla Village

Fashion Valley

San Francisco

San José

Santa Barbara

Santa Monica

Simi Valley

Thousand Oaks

Torrance

Colorado

Boulder

Denver

Cherry Creek

Lone Tree

Connecticut

Westport

Greenwich

South Windsor

Florida

Boca Raton

Coral Gables

Jacksonville

Miami Beach

Naples

Orlando

Palm Beach Gardens

Tampa

West Palm Beach

Georgia

Atlanta

Dunwoody

Idaho

Boise

Illinois

Chicago

State St.

Southport Ave.

Geneva

Highland Park

Oak Brook

Schaumburg

Indiana

Indianapolis

Louisiana

Baton Rouge

Maryland

Annapolis

Rockville

Towson

Massachusetts

Boston

Burlington

Chestnut Hill

Natick

Michigan

Birmingham

Troy

Minnesota

Maple Grove

Minneapolis

Mississippi

Ridgeland

Missouri

Kansas City

St. Louis

Nebraska

Omaha

Nevada

Henderson

Las Vegas

New Jersey

Edgewater

North Brunswick

Princeton

Short Hills

Shrewsbury

Woodcliff Lake

New Mexico

Albuquerque

New York

Garden City

Greenvale

New York

Union Square

SoHo

Rockefeller Center

White Plains

North Carolina

Charlotte

Northlake Mall SouthPark Mall

Greensboro

Ohio

Cincinnati

Columbus

Woodmere

Oregon

Portland

Tigard

Pennsylvania

Glen Mills

Philadelphia

Pittsburgh

Wayne

South Carolina

Myrtle Beach

Tennessee

Nashville

Texas

Austin

Dallas

Highland Park Village

NorthPark Center

Houston

Plano

San Antonio

Southlake

Spring

Utah

Salt Lake City

Virginia

McLean

Reston

Richmond

Washington

Seattle

Fifth Ave.

University Village

Washington D.C.

Georgetown

Wisconsin

Madison

Milwaukee

Free People Stores

LOCATION

LOCATION

LOCATION

California

Cahuenga

Carlsbad

Canoga Park

Glendale

Los Angeles

Palo Alto

San Antonio

Santa Monica

Torrance

Walnut Creek

Connecticut

Greenwich

Illinois

Chicago

1464 N. Milwaukee Ave.
1401 N. Milwaukee Ave.

New Jersey

Paramus

Short Hills

New York

Brooklyn

Garden City

New York

Fifth Ave.
Third Ave.

Oregon

Portland

Pennsylvania

Ardmore

King of Prussia

Massachusetts

Boston

Burlington

Texas

Austin

Dallas

Virginia

Arlington

McLean

Washington

Bellevue

Seattle

Terrain Garden Center

LOCATION

Pennsylvania

Glen Mills

    Urban
Outfitters
   Anthropologie   Free
People
   Terrain   Total 

Canada:

          

Alberta

   2     2               4  

British Columbia

   1                    1  

Ontario

   4     2               6  

Quebec

   3                    3  
                         

Total Canada

   10     4               14  

Europe:

          

United Kingdom

   15     2               17  

Denmark

   1                    1  

Sweden

   1                    1  

Ireland

   3                    3  

Belgium

   1                    1  

Germany

   1                    1  
                         

Total Europe

   22     2               24  
                         

Global Total

   176     153     42     1     372  
                         

In addition to the stores listed above, Leifsdottir, the Anthropologie brand’s newFree People also operates wholesale concept,sales and showroom facilities in New York City, Los Angeles and Chicago that are leased through 2017, 2014 and 2019, respectively. Leifsdottir operates a wholesale sales and showroom facility in New York City that is leased through the year 2014. Free People also operates wholesale sales and showroom facilities in New York City, Los Angeles and Chicago which are leased through 2017, 2010 and 2009 respectively.

Item 3. Legal Proceedings

We are 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 our financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders(Removed and Reserved)

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2009, through the solicitation of proxies or otherwise.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer

             Purchases of Equity Securities

Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common shares are traded on the NASDAQ Global Select Market under the symbol “URBN.” The following table sets forth, for the periods indicated below, the reported high and low closing sale prices for our common shares as reported on the NASDAQ Global Select Market.

Market Information

 

   High  Low

Fiscal 2009

    

Quarter ended April 30, 2008

  $34.64  $26.67

Quarter ended July 31, 2008

  $34.30  $28.82

Quarter ended October 31, 2008

  $37.20  $18.61

Quarter ended January 31, 2009

  $22.31  $12.82

Fiscal 2008

    

Quarter ended April 30, 2007

  $27.57  $24.04

Quarter ended July 31, 2007

  $27.11  $19.41

Quarter ended October 31, 2007

  $25.27  $20.20

Quarter ended January 31, 2008

  $29.00  $23.92
   High   Low 

Fiscal 2011

    

Quarter ended April 30, 2010

  $40.56    $30.83  

Quarter ended July 31, 2010

  $39.41    $31.96  

Quarter ended October 31, 2010

  $34.97    $29.28  

Quarter ended January 31, 2011

  $38.46    $30.31  

Fiscal 2010

    

Quarter ended April 30, 2009

  $19.49    $14.13  

Quarter ended July 31, 2009

  $24.04    $18.76  

Quarter ended October 31, 2009

  $33.86    $24.43  

Quarter ended January 31, 2010

  $35.64    $30.52  

Holders of Record

On March 26, 200924, 2011 there were 102107 holders of record of our common shares.

Dividend Policy

Our current credit facility includes certain limitations on the payment of cash dividends on our common shares. We have not paid any cash dividends since our initial public offering and do not anticipate paying any cash dividends on our common shares in the foreseeable future.

Stock Performance

The following tablesgraph and graph comparetable compares the cumulative total shareholder return on our common shares with the cumulative total return on the Standard and Poor’s 500 Composite Stock Index and the Standard and Poor’s 500 Apparel Retail Index for the period beginning February 1, 2004January 31, 2006 and ending January 31, 2009,2011, assuming the reinvestment of any dividends and assuming an initial investment of $100 in each. The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of possible future performance of the common shares or the referenced indices.

*$100 invested on 1/31/0406 in stock or index, including reinvestment of dividends.

Fiscal yearyears ending January 31.

 

Company / Index

  Base
Period
Jan-04
  INDEXED RETURNS
Years Ended
  Jan-05  Jan-06  Jan-07  Jan-08  Jan-09

Urban Outfitters, Inc.

  $100  $207.80  $269.80  $241.05  $286.49  $153.91
  Base
Period
Jan-06
   INDEXED RETURNS
Years Ended
 

Company/Market/Peer Group

  Jan-07   Jan-08   Jan-09   Jan-10   Jan-11 

Urban Outfitters Inc.

  $100.00    $89.34    $106.19    $57.05    $115.60    $123.84  

S&P 500

   100   106.23   117.26   134.28   131.17   80.50  $100.00    $114.51    $111.87    $68.66    $91.41    $111.69  

S&P 500 Apparel Retail

  $100  $121.05  $114.76  $132.03  $126.27  $64.41  $100.00    $115.06    $110.04    $56.13    $110.98    $145.72  

Equity Compensation Plan Information

The following table shows the status of securities under the Company’s stock incentive plans as of January 31, 2009:2011:

 

  EQUITY COMPENSATION PLAN  EQUITY COMPENSATION PLAN 
  Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options, Restricted
Shares,
Warrants and
Rights
 Weighted-
Average Exercise
Price of
Outstanding
Options, Restricted
Shares,
Warrants and
Rights
 No. of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plan (Excluding Securities
Referenced in Column (A))
  Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options, Restricted
Shares,
Warrants and
Rights
   Weighted-
Average Exercise
Price of
Outstanding
Options, Restricted
Shares,
Warrants and
Rights
 No. of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plan (Excluding Securities
Referenced in Column (A))
 

Plan Category

  (A) (B) (C)  (A)   (B) (C) 

Equity Compensation Plans Approved by Security Holders:

    

Equity Compensation Plans Approved by Security Holders (1):

     

Securities

  11,114,618(1) $19.64(2) 11,219,150   10,253,349    $24.31(2)   9,834,300  

Equity Compensation Plans not Approved by Security Holders:

  —     —    —  

Equity Compensation Plans Not Approved by Security Holders:

     

Securities

   —       —      —    
                    

Total

  11,454,250  $19.64  11,219,150   10,253,349    $24.31    9,834,300  
                    

 

(1)Includes stock options and two performance stock unit awards. Amounts are subject to adjustment to reflect any stock dividend, stock split, share consideration or similar change in our capitalization.
(2)Weighted average exercise price does not take into account performance stock unit awards.

Item 6. Selected Financial Data

The following table sets forth selected consolidated income statement and balance sheet data for the periods indicated. The selected consolidated income statement and balance sheet data for each of the five fiscal years presented below is derived from our consolidated financial statements. The data presented below should be read in conjunction with Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statementsConsolidated Financial Statements of the Company and the related notes thereto, which appear elsewhere in this report. The results of operations for past accounting periods are not necessarily indicative of the results to be expected for any future accounting period.

 

 Fiscal Year Ended January 31, Fiscal Year Ended January 31, 
 2009 2008 2007 2006 2005 2011 2010 2009 2008 2007 
 (in thousands, except share amounts and per share data) (in thousands, except share amounts and per share data) 

Income Statement Data:

          

Net sales

 $1,834,618 $1,507,724 $1,224,717 $1,092,107 $827,750 $2,274,102   $1,937,815   $1,834,618   $1,507,724   $1,224,717  

Gross profit

  713,478  576,772  451,921  448,606  338,750  936,620    786,145    713,478    576,772    451,921  

Income from operations

  299,435  224,945  163,989  207,699  148,366  414,203    338,984    299,435    224,945    163,989  

Net income

  199,364  160,231  116,206  130,796  90,489  272,958    219,893    199,364    160,231    116,206  

Net income per common share—basic

 $1.20 $0.97 $0.71 $0.80 $0.56 $1.64   $1.31   $1.20   $0.97   $0.71  

Weighted average common shares outstanding—basic

  166,793,062  165,305,207  164,679,786  163,717,726  161,419,898  166,896,322    168,053,502    166,793,062    165,305,207    164,679,786  

Net income per common share—diluted

 $1.17 $0.94 $0.69 $0.77 $0.54 $1.60   $1.28   $1.17   $0.94   $0.69  

Weighted average common shares outstanding—diluted

  170,860,605  169,640,585  168,652,005  169,936,041  167,303,450  170,333,550    171,230,245    170,860,605    169,640,585    168,652,005  

Balance Sheet Data:

          

Working capital

 $483,252 $266,232 $231,087 $251,675 $189,597 $592,953   $617,664   $483,252   $266,232   $231,087  

Total assets

  1,329,009  1,142,791  899,251  769,205  556,684  1,794,321    1,636,093    1,329,009    1,142,791    899,251  

Total liabilities

  275,234  289,360  223,968  208,325  154,440  382,773    339,318    275,234    289,360    223,968  

Capital lease obligations

  —    —    —    —    60

Total shareholders’ equity

 $1,053,775 $853,431 $675,283 $560,880 $402,244 $1,411,548   $1,296,775   $1,053,775   $853,431   $675,283  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We operate two business segments: Asegments; a leading lifestyle merchandising retailing segment and a wholesale apparel segment. Our retailing segment consists of our Urban Outfitters, Anthropologie, Free People, Terrain, Leifsdottir and TerrainBHLDN brands, whose merchandise is sold directly to our customers through our stores, catalogs, call centers and web sites. Our wholesale apparel segment consists of our Free People wholesale division and our Leifsdottir Anthropologie’s recently launched wholesale division. Free People wholesale designs, develops and markets young women’s contemporary casual apparel. Leifsdottir wholesale designs, develops and markets sophisticated women’s contemporary apparel.

Our comparable retail segment net sales data includes our comparable store and comparable direct-to-consumer channels. A store is included in comparable storeretail segment net sales data, as presented in this discussion, if it has been open at least one full fiscal year, prior to fiscal 2009, unless it was materially expanded or remodeled within that year or was not otherwise operating at its full capacity within that year. A direct-to-consumer channel is included in comparable retail segment net sales data, as presented in this discussion, if it has been operational for at least one full fiscal year. Sales from stores and direct-to-consumer channels that do not fall within the definition of a comparable store or channel are considered non-comparable. Furthermore, non-store sales, such as catalog and website related sales andThe effects of foreign currency translation adjustments are also considered non-comparable.

Although we have no precise empirical data as it relates to customer traffic or customer conversion rates in our stores, we believe that, based only on our observations, changes in transaction volume, as discussed in our results of operations, may correlate to changes in customer traffic. Transaction volume changes may be caused by a combination of response to our brands’ fashion offerings, our web advertising, circulation of our catalogs and an overall growth in brand recognition as we expand our store base.

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 20092011 ended on January 31, 2009. The comparable store net sales data presented in this discussion is calculated based on the net sales of all stores open at least 12 full months at the beginning of the period for which such data is presented.2011.

Our historical and long-term goal is to achieve a net sales compounded annual growth rate of 20% or better through a combination of opening new stores, growing comparable store sales, continuing the growth of our direct-to-consumer and wholesale operations and introducing new concepts.

Retail StoresStore

As of January 31, 2009,2011, we operated 142176 Urban Outfitters stores of which 118144 are located in the United States, 710 are located in Canada and 1722 are located in Europe. During fiscal 2009,2011, we opened 2021 new Urban Outfitters stores, 1214 of which are located within the United States, 3 of which are located in Canada and 54 of which are located in Europe. Urban Outfitters targets young adults aged 18 to 3028 through a unique merchandise mix and compelling store environment. OurUrban Outfitters’ product offering includes women’s and men’s fashion apparel, footwear and accessories, as well as an eclectic mix of apartment wares and gifts. We plan to open additional stores over the next several years, some of which may be outside the United States. Urban’sUrban Outfitters’ North American and European store sales accounted for approximately 35.9%31.8% and 6.2%5.3% of consolidated net sales, respectively, for fiscal 2009.2011.

We operated 121153 Anthropologie stores as of January 31, 2009, all2011, of which 147 are located in the United States.States, 4 are located in Canada and 2 are located in Europe. During fiscal 20092011 we opened 1316 new Anthropologie stores.stores, of which 14 are located within the United States, 1 is located in Canada, and 1 is located in Europe. Anthropologie tailors its merchandise to sophisticated and contemporary women aged 3028 to 45. OurAnthropologie’s product assortment includes women’s casual apparel and accessories, shoes, home furnishings and a diverse array of gifts and decorative items. We plan to open additional stores over the next several years, including opening Anthropologie stores in Europe.some of which may be outside the United States. Anthropologie’s North American and European store sales accounted for approximately 35.0%35.1% and 0.8% of consolidated net sales, respectively, for fiscal 2009.2011.

We operated 3042 Free People stores as of January 31, 2009,2011, all of which are located in the United States. During fiscal 20092011 we opened 15nine new Free People stores.stores and converted one store location to a Free People wholesale showroom. Free People primarily offers private label branded merchandise targeted to young contemporary women aged 25 to 30. Free People provides a unique merchandise mix of casual women’s apparel, shoes, accessories and gifts. We plan to open additional stores over the next several years. Free People’s retail store sales accounted for approximately 1.8%2.3% of consolidated net sales for fiscal 2009.2011.

We operated one Terrain garden center as of January 31, 2009,2011, which is located in Glen Mills, Pennsylvania. Terrain is our newest store concept designed to appeal to customers interested in a creative, sophisticated outdoor living and gardening experience. Terrain seeks to create a compelling shopping environment, inspired by the ‘greenhouse.’ The site is large and free standing. Merchandise includes lifestyle home and garden products combined with antiques, live plants, flowers, wellness products and flowers.accessories. Terrain also offers a variety of landscape and design services. Terrain’sWe are evaluating locations for future Terrain garden centers. Terrain store sales accounted for less than 1%1.0% of consolidated net sales for fiscal 2009.2011.

For all brands combined, we plan to open approximately 4250 to 55 new stores during fiscal 2010,2012, including one BHLDN store and approximately 914 new Free People stores and one new Terrain garden center.stores. The remaining new stores will be divided approximately evenly between Urban Outfitters and Anthropologie.

Direct-to-consumerDirect-to-Consumer

Anthropologie offers a direct-to-consumer catalog that markets select merchandise, most of which is also available in our Anthropologie stores. During fiscal 2009,2011, we circulated approximately 21.517.6 million catalogs and believe that our catalogs have been instrumental in helping to build the Anthropologie brand identity with our target customers.catalogs. We plan to decreaseincrease circulation to approximately 18.423.2 million catalogs during fiscal 2012.

Our Anthropologie European customers are offered a direct-to-consumer catalog that markets selected merchandise, most of which is also offered at our Anthropologie stores located in Europe. The catalog was launched in September 2010 and replacewe circulated approximately 126,000 catalogs in Europe during fiscal 2011. We plan to circulate approximately 595,000 catalogs in Europe during fiscal 2012. We anticipate the reduced circulation spendnumber of catalogs circulated to grow consistent with further investments in web marketing. We expect catalog circulation to be consistent over the next few years.anticipated demand from our European Anthropologie customers.

Anthropologie operates a web sitewww.anthropologie.com,that accepts orders directly from customers. The web site captures the spirit of the store by offering a similar yet broader array of apparel, accessories, household and gift merchandise as found in the stores. As with our catalog, we believe that the web site increases Anthropologie’s reputation and brand recognition with its target customers and helps support the strength of Anthropologie’s store operations.

In March 2003, Urban Outfitters introduced a direct-to-consumer catalog offering selected merchandise, much of which is also available in our Urban Outfitters stores. During fiscal 2009, we circulated approximately 12 million Urban Outfitters catalogs. We believe this catalog has expanded our distribution channels and increased brand awareness. We plan to maintain circulation of approximately 12 million catalogs during fiscal 2010 and continue to further invest in web marketing initiatives. We expect catalog circulation to be consistent over the next few years.

Urban OutfittersAnthropologie also operates a web site that accepts orders directly from customers. The web site,www.urbanoutfitters.com, was launched in May 2000. The web site captures the spirit of the store by offering a similar selection of merchandise as found in the stores. As with the Urban Outfitters catalog, we believe the web site increases the reputation and recognition of the brand with its target customers, as well as helps to support the strength of Urban Outfitters’ store operations.

In August 2006, Urban Outfitters launched a web site targetingtargets our European customers. The web sitewww.urbanoutfitters.co.uk, was launched in March 2010. The web site captures the spirit of our European stores by offering a similar yet broader selection of merchandise as found in our stores. Fulfillment is provided from a third-party distribution center located in the United Kingdom. During the second quarter of fiscal 2012, we anticipate opening our own distribution center in Rushden, England.

Urban Outfitters offers a direct-to-consumer catalog offering selected merchandise, much of which is also available in our Urban Outfitters stores. During fiscal 2011, we circulated approximately 14.2 million Urban Outfitters catalogs. We believeplan to increase circulation to approximately 15.4 million catalogs during fiscal 2012.

Our Urban Outfitters European customers are offered a direct-to-consumer catalog that markets selected merchandise, most of which is also offered at our Urban Outfitters stores located in Europe. The catalog was launched in November 2010 and we circulated approximately 200,000 catalogs in Europe during fiscal 2011. We plan to circulate approximately 800,000 catalogs in Europe during fiscal 2012. We anticipate the number of catalogs circulated to grow consistent with the anticipated demand from our European Urban Outfitters customers.

Urban Outfitters operates a web site increasesthat accepts orders directly from customers. The web site captures the reputation and recognitionspirit of the brand withstore by offering a similar yet broader selection of merchandise as found in the stores.

Urban Outfitters also operates three web sites targeting our European customerscustomers. The web sites capture the spirit of our European stores by offering a similar yet broader selection of merchandise as well as helps to supportfound in our Urban Outfitters’ European store operations.stores. Fulfillment is provided from a third-party distribution center located in the United Kingdom. During the second quarter of fiscal 2012, we anticipate opening our own distribution center in Rushden, England.

In October 2005, Free People introducedoffers a direct-to-consumer catalog offering select merchandise most of which is also available in our Free People stores. During fiscal 2009,2011, Free People circulated approximately 6.77.6 million catalogs. We believe this catalog has expanded our distribution channels and increased brand awareness. We plan to expand catalog circulation to approximately 7.48.8 million catalogs during fiscal 2010 and intend to increase the level of catalog circulation over the next few years.2012.

Free People also operates a web site that accepts orders directly from customers. The web site,www.freepeople.com, was launched in September 2004. The web site exposes consumers to the product assortment found at Free People retail stores as well as all of the Free People wholesale offerings. As

Terrain operates a web site that accepts orders directly from customers. The web site was launched in September 2009. The web site exposes consumers to a portion of the product assortment found at the Terrain retail store.

Leifsdottir operates a web site that accepts orders directly from consumers. The web site was launched in September 2009. The web site exposes consumers to all product offerings from the Leifsdottir concept.

BHLDN launched its website on February 14, 2011. The website accepts orders directly from customers and exposes consumers to all product offerings from the BHLDN concept. A retail store is planned to open during fiscal 2012.

Increases in our catalog circulation are driven by our evaluation of the response rate to each individual catalog. Based upon that evaluation, we adjust the frequency and circulation of our catalog portfolio as needed. In addition, we evaluate the buying pattern of our direct-to-consumer customers to determine which customers respond to our catalog mailings. We also utilize the services of list rental companies to identify potential customers that will receive future catalogs.

We believe that our web sites increase the reputation and recognition of our brands with our catalog, we believe that the web site increases Free People’s reputation and brand recognition with its target customers and helpshelp support the trafficstrength of Free People’s storeour stores’ operations. We plan on increasing our spending on investments in web marketing during fiscal 2012 for all of our brands. These increases will be based on our daily evaluation of the customer’s response rate to our marketing investments.

Direct-to-consumer sales for all brands combined were approximately 14.9%19.1% of consolidated net sales for fiscal 2009.2011.

Wholesale Operations

The Free People wholesale division designs, develops and markets young women’s contemporary casual apparel. During fiscal 2011, Free People’s range of tops, bottoms, sweaters and dresses were sold worldwide through approximately 1,8001,400 better department and specialty stores, including Bloomingdale’s, Nordstrom, Lord & Taylor, Belk, Urban Outfitters and our own Free People stores. Free People wholesale sales accounted for approximately 5.8%4.9% of consolidated net sales for fiscal 2009.2011.

During the second quarter ofThe Leifsdottir wholesale division was established in fiscal 2009, we launched2009. Leifsdottir the Anthropologie brand’s wholesale division. Leifsdottir designs, develops and markets sophisticated women’s contemporary apparel including dresses, tops and bottoms.bottoms, as well as shoes and accessories. Leifsdottir is sold through luxury department stores including Bloomingdale’s, Nordstrom, Neiman Marcus and Bergdorf Goodman, select specialty stores and our own Anthropologie stores. Leifsdottir wholesale sales accounted for less than 1% of total consolidated net sales for fiscal 2009.2011.

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.

Our senior management has reviewed the critical accounting policies and estimates with our audit committee. Our significant accounting policies are described in Note 2 of our consolidated financial statements, “Summary of Significant Accounting Policies.” 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 of operations 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. If actual results were to differ significantly from estimates made, the reported results could be materially affected. We are not currently aware of any reasonably likely events or circumstances that would cause our actual results to be materially different from our estimates.

Revenue Recognition

Revenue is recognized at the point-of-sale for retail store sales or when merchandise is shipped to customers for wholesale and direct-to-consumer sales, net of estimated customer returns. Revenue is recognized at the completion of a job or service for landscape sales. Revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority. Payment for merchandise at our stores and through our direct-to-consumer businesschannel is tendered by cash, check, credit card, debit card or gift card. Therefore, our need to collect outstanding accounts receivable for our retail and direct-to-consumer businesschannel is negligible and mainly results from returned checks or unauthorized credit card charges.transactions. We maintain an allowance for doubtful accounts for our wholesale and landscape service businesses accounts receivable, which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments. Deposits for custom orders are recorded as a liability and recognized as a sale upon delivery of the merchandise to the customer. These custom orders, typically for upholstered furniture, haveare not been material. Deposits for landscape services are recorded as a liability and recognized as a sale upon completion of service. Landscape services and related deposits haveare not been material.

We account for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer. A liability is established and remains on our books until the card is redeemed by the customer, at which time we record the redemption of the card for merchandise as a sale, or when we determine the likelihood of redemption is remote. We determine the probability of the gift cards being redeemed to be remote based on historical redemption patterns. Revenues attributable to gift card liabilities relieved after the likelihood of redemption becomes remote are included in sales and haveare not been material. Our gift cards do not expire.

Sales Return Reserve

We record a reserve for estimated product returns where the sale has occurred during the period reported, but the return is likely to occur subsequent to the period reported and may otherwise be considered in-transit. The reserve for estimated in-transit product returns is based on our most recent historical return trends. If the actual return rate or experience is materially higher than our estimate, additional sales returns would be recorded in the future. As of January 31, 20092011 and 2008,2010, reserves for estimated sales returns in-transit totaled $7.5$11.4 million and $6.8$9.9 million, representing 2.7%3.0% and 2.3%2.9% of total liabilities, respectively.

Marketable Securities

Our marketable securities may be classified as either held-to-maturity or available-for-sale. Held-to-maturity securities represent those securities that are held at amortized cost and that we have both the intent and abilitythe belief that it is not likely that we will be required to holdsell the security prior to

its maturity and are carried atrecovery of full amortized cost. Interest on these securities, as well as amortization of discounts and premiums, is included in interest income. Available-for-sale securities represent debt securities that do not meet the classification of held-to-maturity, are not actively traded and are carried at fair value, which approximates amortized cost. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. Other than temporary impairment losses related to credit losses are considered to be realized losses. 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. Securities classified as current have maturity dates of

less than one year from the balance sheet date. Securities classified as long-termnon-current have maturity dates greater than one year from the balance sheet date. Available for sale securities such as ARS that fail at auction and do not liquidate under normal course are classified as long term assets, any successfulnon-current assets. Successful auctions would be classified as current assets. MarketableAll of our marketable securities as of January 31, 20092011 and 20082010 were classified as available-for-sale.

Inventories

We value our inventories, which consist primarily of general consumer merchandise held for sale, at the lower of cost or market. Cost is determined on the first-in, first-out method and includes the cost of merchandise and import related costs, including freight, import taxes and agent commissions. 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 expected 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 value. Criteria utilized by the Company to quantify aging trends includes factors such as average selling cycle and seasonality of merchandise, the historical rate at which merchandise has sold below cost during the average selling cycle, and the value and nature of merchandise currently priced below original cost. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required.appropriate. The majority of inventory at January 31, 20092011 and 20082010 consisted of finished goods. Unfinished goods and work-in-process were not material to the overall net inventory value. Net inventories as of January 31, 20092011 and January 31, 20082010 totaled $169.7$229.6 million and $171.9$186.1 million, representing 12.8% and 15.0%11.4% of total assets, respectively. Any significant unanticipated changes in the risk factors noted within this report could have a significant impact on the value of our inventories and our reported operating results.

Adjustments to reserves related to the net realizable value of our inventories are primarily based on the market value of our physical inventories, cycle counts and recent historical trends. Our physical inventories for fiscal 20092011 were performed as of June 20082010 and January 2009.2011. Our estimates generally have been accurate and our reserve methods have been applied on a consistent basis. We expect the amount of our reserves to increase over time as we expand our store base and accordingly, related inventories.

Long-Lived Assets

Our long-lived assets consist principally of store leasehold improvements, buildings and furniture and fixtures, and buildings, and are included in the “Property and equipment, net” line item in our consolidated balance sheets included in this report. Store leasehold improvements are recorded at cost and are amortized using the straight-line method over the lesser of the applicable store lease term, including lease renewals which are reasonably assured, or the estimated useful life of the leasehold improvements. The typical initial lease term for our stores is ten years. Buildings are recorded at cost

and are amortized using the straight-line method over 39 years. Furniture and fixtures are recorded at cost and are amortized using the straight-line method over their useful life, which is typically five years. Net property and equipment as of January 31, 20092011 and January 31, 20082010 totaled $505.4$586.3 million and $488.9$540.0 million, respectively, representing 38.0%32.7% and 42.8%33.0% of total assets, respectively.

In assessing potential impairment of our store related assets, we periodically evaluate 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 our 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, which, in general, is assumed to be measurable within three years from the date a store location has opened. If economic conditions are substantially different from our expectations, the carrying value of certain of our long-lived assets may become impaired. For fiscal 2009, 20082011, 2010 and 2007,2009, write-downs of long-lived assets were not material.

We have not historically encountered material early retirement charges related to our long-lived assets. The cost of assets sold or retired and the related accumulated depreciation or amortization is removed from the accounts with any resulting gain or loss included in net income. Maintenance and repairs are charged to operating expense as incurred. Major renovations or improvements that extend the service lives of our assets are capitalized over the extension period or life of the improvement, whichever is less. We did not close any store locations in fiscal 2009.

As of the date of this report, all of our stores opened in excess of three years are expected to generate positive annual cash flow before allocation of corporate overhead.

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 tax jurisdictions in which we operate. This process involves estimating our actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We 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. DeferredNet deferred tax assets as of January 31, 20092011 and January 31, 20082010 totaled $46.3$52.1 million and $35.0$43.6 million, respectively, representing 3.5%2.9% and 3.1%2.7% of total assets, respectively. To the extent we believe that recovery of an asset is at risk, we establish valuation allowances. To the extent we establish valuation allowances or increase the allowances in a period, we include an expense within the tax provision in the consolidated statement of income.

We increased valuation allowances to $1.4$2.6 million as of January 31, 20092011 from $1.2$2.2 million as of January 31, 2008.2010. This increase occurredis based on evidence of our ability to generate sufficient future taxable income in certain foreign and state jurisdictions. In the future, if enough evidence of our ability to generate sufficient future taxable income in these foreign jurisdictions becomes apparent, we would be required to reduce our valuation allowances, resulting in a reduction in income tax expense in the consolidated statement of income. On a quarterly basis, management evaluates the likelihood that we will realize the deferred tax assets and adjusts the valuation allowances, if appropriate.

Our tax liability for uncertain tax positions contains uncertainties because we are required to make assumptions and to apply judgement to estimate the exposures associated with our various filing positions. Although we believe that the judgements and estimates discussed herein are reasonable, actual results may differ, and we may be exposed to losses or gains that could be material.

Accounting for Contingencies

From time to time, we are named as a defendant in legal actions arising from our normal business activities. We account for contingencies such as these in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies.” SFAS No. 5 requires usgenerally accepted accounting principles in the United States. We are required to record an estimated loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires management to use its best judgment when estimating an accrual related to such contingencies. As additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our results of operations from period to period. Likewise, an actual loss arising from a loss contingency which significantly exceeds the amount accrued in our consolidated financial statements could have a material adverse impact on our operating results for the period in which such actual loss becomes known.

Results of Operations

As a Percentage of Net Sales

The following tables set forth, for the periods indicated, the percentage of our net sales represented by certain income statement data and the change in certain income statement data from period to period. This table should be read in conjunction with the discussion that follows:

 

  Fiscal Year Ended
January 31,
   Fiscal Year Ended
January 31,
 
  2009 2008 2007  2011 2010 2009 

Net sales

  100.0% 100.0% 100.0%   100.0  100.0  100.0

Cost of sales, including certain buying, distribution and occupancy costs

  61.1  61.7  63.1    58.8    59.4    61.1  
                    

Gross profit

  38.9  38.3  36.9    41.2    40.6    38.9  

Selling, general and administrative expenses

  22.6  23.3  23.5    23.0    23.1    22.6  
                    

Income from operations

  16.3  15.0  13.4    18.2    17.5    16.3  

Interest income

  0.6  0.6  0.5    0.1    0.3    0.6  

Other income

  —    —    —      —      —      —    

Other expenses

  —    —    —      —      —      —    
                    

Income before income taxes

  16.9  15.6  13.9    18.3    17.8    16.9  

Income tax expense

  6.0  4.9  4.4    6.3    6.4    6.0  
                    

Net income

  10.9% 10.7% 9.5%   12.0  11.4  10.9
                    

Period over Period Change:

        

Net sales

  21.7% 23.1% 12.1%   17.4  5.6  21.7

Gross profit

  23.7% 27.6% 0.7%   19.1  10.2  23.7

Income from operations

  33.1% 37.2% (21.0)%   22.2  13.2  33.1

Net income

  24.4% 37.9% (11.2)%   24.1  10.3  24.4

Fiscal 20092011 Compared to Fiscal 20082010

Net sales in fiscal 20092011 increased by 21.7%17.4% to $1.83$2.27 billion, from $1.51$1.94 billion in the prior fiscal year. The $327$336 million increase was primarily attributable to a $311$320 million or 22.0%17.5% increase, in retail segment sales. Ournet sales and a $16 million or 15.6% increase in our wholesale segment contributed $16 million to this increase for fiscal year 2009 as Free People wholesale net sales increased $13 million or 13.4%, excluding sales to our retail segment, and Leifsdottir contributed $3 million.sales. The growth in our retail segment net sales during fiscal 20092011 was driven by an increaseincreases of $156$161 million in non-comparable and new store net sales, an increase$110 million, or 34.0%, in direct-to-consumer net sales of $67and $49 million, or 32.4%4%, an increase toin comparable store net sales of $88 million or 7.8%.sales. The increase in comparable storeretail segment net sales was comprised of 3.4%9.8%, 4.1%6.9% and 11.9%26.7% increases at Anthropologie, Urban Outfitters and Free People respectively. The increase in our wholesale segment net sales was due to a $15 million, or a 15.9% increase, at Free People wholesale and Urban Outfitters, respectively.a $1.0 million, or an 11.9% increase, at Leifsdottir wholesale.

The increase in net sales attributable to non-comparable and new stores was primarily the result of opening 4946 new stores in fiscal 20092011 and 3833 new stores in fiscal 20082010 that were considered non-comparable during fiscal 2009.2011. Comparable store net sales increases were primarily the result of an increase in the number of transactions and units sold per transaction, partially offset by a decrease in the average unit sales prices. Direct-to-consumer net sales in fiscal year 2011 increased over the prior year primarily due to increased traffic to our web sites combined with an increase in average order value, which more than offset a decrease in conversion rate. Catalog circulation across all brands increased by 2.8 million, or 7.7%. Thus far during the first quarter of fiscal 2012, comparable retail segment net sales are low single-digit negative. The increase in Free People wholesale net sales was driven by increases in transactions and average unit sale prices. Leifsdottir’s wholesale net sales increase was a result of an increase in the number of transactions that more than offset a decrease in average unit sale prices.

Gross profit rates in fiscal 2011 increased to 41.2% of net sales, or $937 million, from 40.6% of net sales, or $786 million, in fiscal 2010. This increase was primarily due to improved merchandise margins and leveraging of store occupancy expense driven by positive comparable store sales. Total Company inventory increased 23.3% to $230 million from $186 million in the prior year. The increase is primarily related to the acquisition of inventory to stock new stores and our direct-to-consumer channel growth. Comparable retail segment inventory (which includes our direct-to-consumer channel) grew 9.7%, while comparable store inventories increased 4.4%.

Selling, general and administrative expenses, as a percentage of net sales for fiscal 2011, decreased to 23.0% of net sales versus 23.1% of net sales for fiscal 2010. The decrease in percentage was primarily due to leveraging of direct store fixed and controllable costs driven by the positive retail segment comparable sales. In fiscal 2011, selling, general and administrative expenses increased by $75 million, to $522 million, from $447 million in the prior fiscal year. The dollar increase versus the prior year is primarily related to the operating expenses of new and non-comparable stores.

Income from operations increased to 18.2% of net sales, or $414 million, for fiscal 2011 compared to 17.5% of net sales, or $339 million, for fiscal 2010.

Our annual effective income tax rate for January 31, 2011 decreased to 34.6% of income before income taxes for fiscal 2011 compared to 36.2% of income before income taxes for fiscal 2010. This decrease was due to the favorable mix of earnings in certain foreign jurisdictions and the federal rehabilitation credit included in fiscal 2011. See Note 8 “Income Taxes” in our Notes to the Consolidated Financial Statements, for a reconciliation of the statutory U.S. federal income tax rate to

our effective tax rate. We expect the tax rate for fiscal 2012 to be higher than that of fiscal 2011 due in part to the expiration of the federal rehabilitation credit received in fiscal 2011.

Fiscal 2010 Compared to Fiscal 2009

Net sales in fiscal 2010 increased by 5.6%, to $1.94 billion from $1.83 billion in the prior fiscal year. The $103 million increase was attributable to a $109 million or 6.3% increase, in retail segment net sales that was partially offset by a $6 million or 5.4% decline in our wholesale segment net sales. The growth in our retail segment net sales during fiscal 2010 was driven by an increase of $115 million in non-comparable and new store net sales, and an increase in direct-to-consumer net sales of $53 million or 19.5%. These increases were partially offset by a decline of $35 million or 2.6% in comparable store net sales and $24 million of foreign currency translation adjustments. The increase in comparable retail segment net sales was comprised of 3.3% and 7.1% increases at Anthropologie and Free People, respectively, partially offset by a 1.0% decrease at Urban Outfitters. The decline in our wholesale segment net sales was due to an $11 million or 10.6% decline at Free People wholesale that was partially offset by an increase of $5 million or 185% at Leifsdottir.

The increase in net sales attributable to non-comparable and new stores was primarily the result of opening 33 new stores in fiscal 2010 and 49 new stores in fiscal 2009 that were considered non-comparable during fiscal 2010. Comparable store net sales decreases were primarily the result of decreases in the number of units sold per transaction, that were partially offset by slight increases in average unit sales prices and increases in transactions resulting from an increased response to our merchandise offerings. These increases more than offset a slight decrease in the number of units sold per transaction. Thus far during fiscal 2010 total Company sales are less than the same period in the prior year and our comparable store sales trend has declined from our most recently completed quarter.transactions. Direct-to-consumer net sales in fiscal year 20092010 increased over the prior year primarily due to increased traffic to our web sites, which more than offset minor decreases in conversion rate and average order value. Circulation modestly increasedCatalog circulation across all brands decreased by 688,000 catalogs3 million or 1.7%8.2%. The increasedecrease in Free People wholesale net sales was driven by increaseddecreases in transactions and average unit sale prices andprices. Leifsdottir wholesale net sales increase was a result of increased transactions.transactions that more than offset a decline in average unit sale prices.

Gross profit rates in fiscal 20092010 increased to 40.6% of net sales or $786 million from 38.9% of net sales or $713 million from 38.3% of net sales or $577 million in fiscal 2008.2009. This improvement is primarily due to leveraging of our store occupancy expenses and improvements in our initial merchandise margins which arewere partially offset by adjustments to record anticipated markdowns duringa higher rate of store occupancy expense driven by the fourth quarter of fiscal 2009.decrease in comparable store sales. Total inventories at January 31, 2009 decreased2010 increased by 1.3%$16 million or 9.7% to $170$186 million from $172$170 million in the prior fiscal year. The decreaseincrease is primarily due to a 13% decrease in comparable storethe acquisition of inventory which more than offset additions to inventories forstock new and non-comparable stores. Comparable store inventory at cost decreased by 3%.

Selling, general and administrative expenses during fiscal 2009 decreased2010 increased to 23.1% of net sales or $447 million versus 22.6% of net sales versus 23.3% of net salesor $414 million for fiscal 2008.2009. The rate reductionincrease is primarily due to controlling selling and store support related expensesan increase in additionincentive based compensation that relates to lower corporate expenses resulting from non-recurring legal fees incurredmeeting targeted operating performance goals in fiscal 2010. The dollar increase versus the prior year. Selling, general and administrative expenses in fiscal 2009 increased to $414 million from $352 million in the prior fiscal year. The increaseyear is primarily related to the operating expenses of new and non-comparable stores.

Income from operations increased to 17.5% of net sales or $339 million for fiscal 2010 compared to 16.3% of net sales or $299 million for fiscal 2009 compared to 15.0% of net sales or $225 million for fiscal 2008.2009.

Our annual effective income tax rate increased to 36.2% of income for fiscal 2010 compared to 35.6% of income for fiscal 2009 compared to 31.6% of income for fiscal 2008.2009. The increase in this year’sfiscal 2010’s tax rate is primarily due to a lower

proportion of tax free interest income due to a strategic shift to a mix of lower risk securities versus the prior year’s annual effective tax rate being favorably impacted by the receipt of one-time federal tax incentives for work performed on the development of our new home offices.holdings. See Note 8 “Income Taxes” in our consolidated financial statements, included elsewhere in this report,the Notes to the Consolidated Financial Statements, for a reconciliation of the statutory U.S. federal income tax rate to our effective tax rate. We expect the tax rate for fiscal year 2010 to be similar to fiscal year 2009.

Fiscal 2008 Compared to Fiscal 2007

Net sales in fiscal 2008 increased by 23.1% to $1.51 billion, from $1.22 billion in the prior fiscal year. The $283 million increase was primarily attributable to a $263 million or 22.8% increase, in retail segment sales. Our wholesale segment contributed $20 million as Free People wholesale net sales increased 27.3%, excluding sales to our retail segment. The growth in our retail segment sales during fiscal 2008 was driven by an increase of $162 million or 42.8% in non-comparable and new store net sales, an increase in direct-to-consumer net sales of $52 million or 33.8% and an increase to comparable store net sales of $49 million or 5.5%. The increase in comparable store net sales was comprised of 12.8% and 18.4% increases at Anthropologie and Free People, respectively which more than offset a comparable store net sales decrease of 0.9% for fiscal year 2008 at Urban Outfitters.

The increase in net sales attributable to non-comparable and new stores was primarily the result of opening 38 new stores in fiscal 2008 and 32 new stores in fiscal 2007 that were considered non-comparable during fiscal 2008. Comparable store net sales increases were primarily the result of increases in average unit sales prices and increases in transactions resulting from an increased response to our merchandise offerings. These increases more than offset a slight decrease in the number of units sold per transaction. Direct-to-consumer net sales increased over the prior year primarily due to increased traffic to our web sites, improved customer response related to the circulation of approximately 3.2 million additional catalogs, and improvements in the average order value. The increase in Free People wholesale sales was driven by increased average unit sale prices and increased transactions.

Gross profit rates in fiscal 2008 increased to 38.3% of net sales or $577 million from 36.9% of net sales or $452 million in fiscal 2007. This improvement is primarily due to a lower rate of merchandise markdowns and leveraging of our store occupancy expenses driven by the net increase in comparable store net sales. Total inventories at January 31, 2008 increased by 11.4% to $172 million from $154 million in the prior fiscal year. The increase primarily related to the acquisition of inventory to stock new retail stores. On a comparable store basis, inventories decreased by 2.8% versus the prior fiscal year.

Selling, general and administrative expenses during fiscal 2008 decreased to 23.3% of net sales versus 23.5% of net sales for fiscal 2007. Rate reductions from controlling store support related expenses driven by increases in comparable store net sales was the primary contributor and more than offset non-comparable expenses to operate our new home office facility. Selling, general and administrative expenses in fiscal 2008 increased to $352 million from $288 million in the prior fiscal year. The increase primarily related to the operating expenses of new and non-comparable stores.

Income from operations increased to 15.0% of net sales or $225 million for fiscal 2008 compared to 13.4% of net sales or $164 million for fiscal 2007.

Our annual effective income tax rate improved slightly to 31.6% of income for fiscal 2008 compared to 31.7% of income for fiscal 2007. These favorable rates are based upon a number of factors including: certification for work performed on the development of our new offices that qualified for certain one-time federal tax incentives; the execution of certain related reorganization efforts in fiscal 2008 and 2007 as well as the relief of certain valuation allowances related to net operating loss carry-forwards of our wholly owned foreign subsidiaries in fiscal 2007.

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities were $809 million as of January 31, 2011 as compared to $745 million as of January 31, 2010 and $521 million as of January 31, 2009 as compared to $3742009. The $64 million as of January 31, 2008 and $222 million as of January 31, 2007. The increase in cash, cash equivalents and marketable securities during fiscal 2009 occurred2011 was primarily as a result of adding $252$385 million from cash provided by operating activities, which primarily consistspartially offset by $205 million of net income.cash used for share repurchases and $144 million of cash used for property and equipment. Cash used in investing activities for fiscal 20092011 was $57$36 million, consisting of which $113$144 million was used primarily for the construction of new stores and was partially offset by the$108 million in net activity ofproceeds from marketable securities.

Cash fromused in financing activities in fiscal 20092011 of $22$168 million was primarily related to exercisesthe repurchase of our common shares pursuant to our share repurchase program partially offset by cash provided by the exercise of stock options and related tax benefits on stock option exercises. Our working capital for fiscal years 2011, 2010 and 2009 2008was $593 million, $618 million and 2007 was $483 million, $266 million and $231 million, respectively. The changesChanges in working capital primarily relate to changes to the volume of cash, cash equivalents, marketable securities and inventories relative to inventory-related payables and store-related accruals.

During the last three years, we have mainly satisfied our cash requirements through our cash flow from operations. Our primary uses of cash have been to open new stores and purchase inventories. We have also used our cash to repurchase shares of our common stock. We continued to invest in our direct-to-consumer efforts, wholesale businesses, distribution facilities, home office and in our Europeaninternational subsidiaries. Cash paid for property and equipment, net of tenant improvement allowances, included in deferred rent, for fiscal 2011, 2010 and 2009 2008 and 2007 were $144 million, $109 million, $92 million and $193$113 million respectively, and were primarily used to expand and support our store base. In fiscal 2007, we substantially completed the construction of our home offices at the Navy Yard resulting in an additional $82 million of cash paid for property and equipment.

During fiscal 2010,2012, we plan to construct and open approximately 4250 to 55 new stores, renovate certain existing stores, expand our Lancaster County, Pennsylvaniaconstruct additional distribution and fulfillment facilities in Rushden, England and Reno, Nevada, distribution centers, decreasecontinue to expand our home office in Philadelphia, Pennsylvania, upgrade our systems, increase our catalog circulation by approximately 29 million catalogs to approximately 3849 million catalogs, and purchase inventory for our stores, direct-to-consumer and wholesale businesses at levels appropriate to maintain our planned sales growth. We plan to decreaseincrease the level of capital expenditures during fiscal 20102012 to approximately $110$188 million. We believe that our new store, catalog and inventory investments have the ability to generate positive cash flow within a year. ImprovementsWe believe improvements to our home office, fulfillment and distribution facilities wereare necessary to adequately support our growth.

During fiscal 2010, we We may also enter into one or more acquisitions or transactions related to the expansion of the Terrain brand or other new concepts. We do not anticipate that these acquisitions or transactions individually orour brands.

During fiscal 2011, we completed a 54,000 square foot expansion of our home office in the aggregate will be material.Philadelphia, Pennsylvania at a cost of approximately $25 million.

During fiscal 2010, we plan on substantially completingcompleted a 100,000 square foot addition to our Lancaster, Pennsylvania distribution facility. This facility primarily serves our midwestMidwest and eastEast coast stores. We believe this expansion will help support our growth for the next several years.

During fiscal 2008, we entered into an operating lease for a warehouse facility in Reno, Nevada to support our western United States stores. The facility is approximately 176,000 square feet and the term of the lease is set to expire in 2017 with our option to renew for up to an additional 10 years. During fiscal 2008, we invested approximately $6.3 million in equipment and other improvements for this location. In March 2009, we executed a lease for an additional 39,000 square feet of warehouse space at our Reno, Nevada facility. We believe this expansion will support our growth for the next several years.near term.

On February 28, 2006, our Board of Directors approved a stock repurchase program. The program authorizes usthe Company to repurchasepurchase up to 8,000,0008.0 million common shares. We repurchased 1.2 million common shares from time-to-time, based upon prevailing

market conditions. During theduring fiscal year ended January 31, 2007,2007. During fiscal 2011 we repurchased and subsequently retired 1,220,000

6.4 million common shares at a costfor $205.0 million. On November 16, 2010, our Board of Directors authorized the repurchase of 10.0 million additional common shares. This authorization supplements the Company’s 2006 stock repurchase program.

Subsequent to January 31, 2011 and through April 1, 2011, we repurchased and retired 4.8 million common shares for approximately $21$148.7 million. NoThis activity completes our 2006 repurchase program and leaves approximately 5.6 million shares were repurchased during fiscal 2008 or fiscal 2009.available for repurchase under the 2010 program.

On December 11, 2007,September 21, 2009, we amended our renewed and amended our line of credit facility with Wachovia Bank, National Association (the “Line”) with Wells Fargo Bank N.A. (the “Bank”). This amendment added an additional borrower and certain additional guarantors. The Line is a three-year revolving credit facility with an accordion feature allowing an increase in available credit up to $100.0 million at our discretion, subjectdiscretion. On May 27, 2010, we executed a fifth amendment to a seven day request period. As of January 31, 2009, the Line increasing its credit limit under the Line was $60.0to $80.0 million. The Line contains a sub-limit for borrowings by our European subsidiaries that are guaranteed by us. Cash advances bear interest at LIBOR plus 0.50% to 1.60% based on our achievement of prescribed adjusted debt ratios. The Line subjects us to various restrictive covenants, including maintenance of certain financial ratios and covenants such as fixed charge coverage and adjusted debt. The covenants also include limitations on our capital expenditures, ability to repurchase shares and the payment of cash dividends. As of and during the fiscal year ended January 31, 2009,2011, there were no borrowings under the Line and we were in compliance with all covenants under the Line. Outstanding letters of credit and stand-by letters of credit under the Line totaled approximately $35.1$55.5 million as of January 31, 2009.2011. The available credit, including the accordion feature, under the Line was $64.9totaled approximately $44.5 million as of January 31, 2009.2011. We believeare negotiating a renewal of the renewed Line willwith the Bank. As part of these negotiations, we were granted an extension of all of the existing terms, covenants and conditions of the Line through April, 2011. We expect the renewal to satisfy our letter of credit needs through fiscal 2011. Wachovia Bank, National Association was acquired by Wells Fargo, effective January 1, 2009. The Wells Fargo acquisition does not affect the original line agreement.at least 2014.

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. Accumulated cash and future cash from operations, as well as available credit under our line of credit facility, are expected to fund such obligations and commitments. The tables noted below present a summary of these obligations and commitments as of January 31, 2009:2011:

Contractual Obligations

 

      Payments Due by Period (in thousands)

Description

  Total
Obligations
  Less Than
One
Year
  One to
Three
Years
  Three to
Five
Years
  More Than
Five
Years

Operating leases (1)

  $1,086,186  $132,497  $392,548  $232,231  $328,910

Purchase orders (2)

   302,961   302,961   —     —     —  

Construction contracts (3)

   1,684   1,684   —     —     —  

FIN 48 liability

   381   381   —     —     —  
                    

Total contractual obligations

  $1,391,212  $437,523  $392,548  $232,231  $328,910
                    

The contractual obligations table excludes our FIN 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”) liability of $10.7 million because we cannot reasonably estimate in which future periods these amounts will ultimately be settled. This amount was classified as a long-term liability in our consolidated balance sheet as of January 31, 2009. The $0.4 million FIN 48 liability was classified as a current liability in the Company’s consolidated balance sheet as of January 31, 2009 and is shown in the above table.

       Payments Due by Period (in thousands) 

Description

  Total
Obligations
   Less Than
One
Year
   One to
Three
Years
   Three to
Five
Years
   More Than
Five
Years
 

Operating leases (1)

  $1,280,955    $164,289    $480,931    $253,011    $382,724  

Purchase orders (2)

   278,079     278,079     —       —       —    

Construction contracts (3)

   18,004     18,004     —       —       —    

Tax Contingencies (4)

   798     798     —       —       —    
                         

Total contractual obligations

  $1,577,836    $461,170    $480,931    $253,011    $382,724  
                         

 

(1)

Includes store operating leases, which generally provide for payment of direct operating costs in addition to rent. The obligation amounts shown above only reflect our future minimum lease

 

payments as the direct operating costs fluctuate over the term of the lease. Additionally, there are seven26 locations where a percentage of sales are paid in lieu of a fixed minimum rent that are not reflected in the above table. Total rent expense related to these seven26 locations was approximately $1.1 million$4,705 for fiscal 2009.2011. It is common for the lease agreements for our European locations to adjust the minimum rental due to the current market rate multiple times during the term. The table above includes our best estimate of the future payments for these locations. Amounts noted above include commitments for 3420 executed leases for stores not opened as of January 31, 2009.2011.

(2)Our merchandise commitments are cancellable with no or limited recourse available to the vendor until the merchandise shipping date.
(3)Includes store construction contracts with contractors that are fully liquidated upon the completion of construction, which is typically within 12 months.
(4)Tax contingencies include $798 that are classified as a current liability in the Company’s Consolidated Balance Sheets as of January 31, 2011. Tax contingencies in the table above do not show an existing liability of $10,580 because we cannot reasonably estimate in which future periods these amounts will ultimately be settled. As a result, the $10,580 liability was classified as a non-current liability in the Company’s Consolidated Balance Sheets as of January 31, 2011.

Commercial Commitments

 

Description

  Total
Amounts
Committed
  Amount of Commitment Per Period
(in thousands)
  Total
Amounts
Committed
   Amount of Commitment Per Period
(in thousands)
 
  Less
Than
One
Year
  One
to
Three
Years
  Three
to

Five
Years
  More
Than
Five
Years
  Less
Than
One
Year
   One
to
Three
Years
   Three
to
Five
Years
   More
Than
Five
Years
 

Line of credit (1)

  $32,969  $32,969  $—    $—    $—    $51,397    $51,397    $  —      $  —      $  —    

Standby letters of credit

   2,170   2,170   —     —     —     4,081     4,081     —       —       —    
                                   

Total commercial commitments

  $35,139  $35,139  $—    $—    $—    $55,478    $55,478    $  —      $  —      $  —    
                                   

 

(1)Consists primarily of outstanding letter of credit commitments in connection with import inventory purchases.

Off-Balance Sheet Arrangements

As of and for the three fiscal years ended January 31, 2009,2011, except for operating leases entered into in the normal course of business, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Other Matters

Recently Issued Accounting Pronouncements

In November 2007,January 2010, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141R “Business Combinations”,an accounting standards update which requires that all business combinations be accounted for by applying the acquisition method. Under the acquisition method, the acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, and any contingent consideration and contractual contingencies, as a whole at theiramends fair value measurements and disclosures and aims to improve the transparency of financial reporting of assets and liabilities measured at fair value. The update requires new disclosures for transfers in and out of Level 1 and Level 2 and the basis for such transfers. Also required are disclosures for activity in Level 3 including purchase, sale, issuance and settlement

information. Lastly, it clarifies guidance regarding disaggregation and disclosure of information about valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements in Level 2 and Level 3 categories. We have adopted the new disclosures and clarifications of existing disclosures as of the acquisition date. Under SFAS No. 141R, all transaction costs are expensed as incurred. SFAS No. 141R rescinds EITF 93-7. Under EITF 93-7, the effect of any subsequent adjustments to uncertain tax positionsFebruary 1, 2010 which were generally applied to goodwill, excepteffective for post-acquisition interest on uncertain tax positions, which was recognized as an adjustment to income tax expense. Under SFAS No. 141R, all subsequent adjustments to these uncertain tax positions that otherwise would have impacted goodwill will be recognized in the income statement. The guidance in SFAS No. 141R will be applied prospectively to business combinations for which the

acquisition date is on or after the beginning of the firstinterim and annual reporting periodperiods beginning after December 15, 2008. We do not expect the application of SFAS No. 141R to have a material2009. This adoption had no impact on our consolidated financial statements.

In February 2007,condition, results of operations or cash flows. We have not adopted the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsdisclosures about purchases, sales, issuances and Financial Liabilities: Including an Amendmentsettlements in the roll forward of FASB Statement No. 115.” SFAS No. 159 provides companies with an option to report selected financial assets and liabilities atactivity in Level 3 fair value and requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 ismeasurements as these disclosures are effective for financial statements issued for fiscal years beginning after NovemberDecember 15, 2007. Effective February 1, 2008, we adopted SFAS No. 1592010 and interim periods within those fiscal years. We do not expect this adoption to have elected to not apply the provisions of SFAS No. 159 to report certain of our assets and liabilities at fair value.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities in fiscal years beginning after November 15, 2007 and for certain non-financial assets and certain non-financial liabilities in fiscal years beginning after November 15, 2008. Effective February 1, 2008, we have adopted the provisions of SFAS No. 157 that relate toan impact on our financial assets and financial liabilities (see Note 4). We are currently evaluating the impactcondition, results of the provisions of SFAS No. 157 that relate to our nonfinancial assets and nonfinancial liabilities, which are effective for us as of February 1, 2009.operations or cash flows.

Seasonality and Quarterly Results

The following tables set forth our net sales, gross profit, net income and net income per common share (basic and diluted) for each quarter during the last two fiscal years and the amount of such net sales and net income, respectively, as a percentage of annual net sales and annual net income. The unaudited financial information has been prepared in accordance with GAAPaccounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

  Fiscal 2009 Quarter Ended   Fiscal 2011 Quarter Ended (1) 
  April 30,
2008
 July 31,
2008
 Oct. 31,
2008
 Jan. 31,
2009
  April 30,
2010
 July 31,
2010
 Oct. 31,
2010
 Jan. 31,
2011
 
  (dollars in thousands, except per share data)  (dollars in thousands, except per share data) 

Net sales

  $394,292  $454,295  $477,953  $508,078   $479,961   $552,159   $573,592   $668,390  

Gross profit

   158,680   186,510   195,396   172,892    200,786    234,781    235,993    265,060  

Net income

   42,557   56,988   59,274   40,545    52,957    71,657    73,106    75,238  

Net income per common share—basic

   0.26   0.34   0.35   0.24    0.31    0.42    0.44    0.46  

Net income per common share—diluted

   0.25   0.33   0.35   0.24    0.31    0.42    0.43    0.45  

As a Percentage of Fiscal Year:

          

Net sales

   21%  25%  26%  28%   21  24  25  30

Net income

   21%  29%  30%  20%   19  26  27  28
  Fiscal 2010 Quarter Ended (1) 
  April 30,
2009
 July 31,
2009
 Oct. 31,
2009
 Jan. 31,
2010
 
  (dollars in thousands, except per share data) 

Net sales

  $384,796   $458,626   $505,900   $588,493  

Gross profit

   143,305    187,091    210,088    245,661  

Net income

   30,805    49,021    62,392    77,675  

Net income per common share—basic

   0.18    0.29    0.37    0.46  

Net income per common share—diluted

   0.18    0.29    0.36    0.45  

As a Percentage of Fiscal Year:

     

Net sales

   20  24  26  30

Net income

   14  22  29  35

 

   Fiscal 2008 Quarter Ended 
   April 30,
2007
  July 31,
2007
  Oct. 31,
2007
  Jan. 31,
2008
 
   (dollars in thousands, except per share data) 

Net sales

  $314,544  $348,449  $379,320  $465,411 

Gross profit

   112,615   130,027   149,938   184,192 

Net income

   29,367   31,866   45,382   53,616 

Net income per common share—basic

   0.18   0.19   0.27   0.32 

Net income per common share—diluted

   0.17   0.19   0.27   0.32 

As a Percentage of Fiscal Year:

     

Net sales

   21%  23%  25%  31%

Net income

   18%  20%  28%  34%
(1)The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the following types of market risks—fluctuations in the purchase price of merchandise, as well as other goods and services; the value of foreign currencies in relation to the U.S. dollar; and changes in interest rates. Due to the Company’s inventory turnover rate 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 the majority of its merchandise in U.S. dollars, including a portion of the goods for its stores located in Canada and Europe.

The Company’s exposure to market risk for changes in interest rates relates to its cash, cash equivalents and marketable securities. As of January 31, 20092011 the Company’s cash, cash equivalents and marketable securities consisted primarily of funds invested in money market accounts,

tax-exempt municipal bonds rated A“A” or better, Federal Government Agencies, FDIC insured corporate bonds andrated “A” or better, federal government agencies, pre-refunded tax-exempt municipal bonds rated “A” or better, treasury bills, auction rate securities rated A or better, which bear interest at a variable rate. Due to the average maturityrate and conservative nature of the Company’s investment portfolio, weFDIC insured corporate bonds. We believe a 100 basis point change in interest rates would not have a material effect on the consolidated financial statements. This is due to the conservative nature of the Company’s investment portfolio and the fact that all securities, with the exception of ARS, mature in three years or less. As the interest rates on a material portion of our cash, cash equivalents and marketable securities are variable, a change in interest rates earned on the cash, cash equivalents and marketable securities would impact interest income along with cash flows, but would normally not impact the fair market value of the related underlying instruments.

Approximately 7%3.6% of our cash, cash equivalents and marketable securities are invested in “A” or better rated Auction Rate Securities (“ARS”)ARS that represent interests in municipal and student loan related collateralized debt obligations, all of which are guaranteed by either government agencies and/or insured by private insurance agencies up to 97% or greater of par value. The Company’s ARS had a par valuean amortized cost of $44.0$33.3 million and a fair value of $38.7$29.5 million, as of January 31, 2009.2011. As of January 31, 2009,2011, all of the ARS held by the Company failed to liquidate at auction due to lack of market demand. As of January 31, 2008,2010, the Company had $95.2$37.6 million of paramortized cost and $33.5 million of fair value ARS. Liquidity for these ARS is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually 7, 28, 35 or 90 days. The principal associated with these failed auctions will not be available until either a successful auction occurs, the bond is called by the issuer, a buyer is found from outside the auction process, or the debt obligation reaches its maturity. Based on review of credit quality, collateralization, final stated maturity, estimates of the probability of being called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity for the same investment security, impact due to extended periods of maximum auction rates and valuation models, we have recorded a $5.3$3.8 million and $4.1 million of temporary impairment charges on our ARS as of January 31, 2009.2011 and January 31, 2010, respectively. To date, we have collected all interest receivable on outstanding ARS when due and expect to continue to do so in the future. We do not have the abilityintent to holdsell the investments untilunderlying securities prior to their maturity.recovery and we believe it is not likely to sell the underlying securities prior to their anticipated recovery of full amortized cost. As a result of the current illiquidity, the Company has classified all ARS as long termnon-current assets under marketable securities. The Company continues to monitor the market for ARS and consider the impact, if any, on the fair value of its investments.

Item 8. Financial Statements and Supplementary Data

The information required by this Item is incorporated by reference from Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Quarterly Results of Operations and from pages F-1 through F-31.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based on this review, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of January 31, 2009.2011.

Management’s Annual Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Securities Exchange Act Rule 13a-15(f). Our system of internal control is designed to provide reasonable, not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and effectiveness of our internal control over financial reporting based on theInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2009.2011.

The effectiveness of internal control over financial reporting as of January 31, 20092011 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report that is included on page 3942 of this annual report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fourth quarter of fiscal 20092011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Urban Outfitters, Inc.

Philadelphia, Pennsylvania

We have audited the internal control over financial reporting of Urban Outfitters, Inc. and subsidiaries (the “Company”) as of January 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of January 31, 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended and our report dated March 31, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 31, 2009

Item 9B. Other Information

None

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Urban Outfitters, Inc.

Philadelphia, Pennsylvania

We have audited the internal control over financial reporting of Urban Outfitters, Inc. and subsidiaries (the “Company”) as of January 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of January 31, 2011, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended and our report dated April 1, 2011 expressed an unqualified opinion on those consolidated financial statements.

/s/    DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

April 1, 2011

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table sets forth the name, age and position of each of our executive officers and directors:

 

Name

  

Age

  

Position

Richard A. Hayne

  6163  Chairman of the Board of Directors and President

John E. KyeesGlen T. Senk

  6254Director and Chief Executive Officer

Eric Artz

43  Chief Financial Officer

Glen A. Bodzy

  5658  General Counsel and Secretary

Glen T. SenkStephen Murray

  5250  Director and Chief Executive Officer

Tedford G. Marlow

57Global President, Urban Outfitters Brand

Robert RossWendy B. McDevitt

  4046  Executive Director of FinanceGlobal Co-President, Anthropologie Brand

Wendy Wurtzburger

53Global Co-President, Anthropologie Brand

Freeman M. Zausner

  6163  Chief Administrative Officer

Margaret Hayne

  5153  President, Free People Brand

Frank J. Conforti

35Chief Accounting Officer

Scott A. Belair (2)(3)

  6163  Director

Harry S. Cherken, Jr. (1)

  5961  Director

Joel S. Lawson III (2)(3)

  6163  Director

Robert H. Strouse (1)(2)(3)

  6062  Director

 

(1)Member of the Nominating Committee.
(2)Member of the Audit Committee.
(3)Member of the Compensation Committee.

Mr. Hayne, president and director since 1976, co-founded Urban Outfitters in 1970 and has been Chairman of the Board of Directors and President since the Company’s incorporation in 1976. Margaret Hayne, President of Free People, is Mr. Hayne’s spouse.

Mr. Kyees joined Urban Outfitters in November 2003. He is a 33-year veteran in the retail industry with Chief Financial Officer (“CFO”) roles at several retailers. Mr. Kyees formerly held the position as CFO and Chief Administrative Officer for bebe stores, Inc., a retail chain headquartered in San Francisco, from March 2002 through November 2003. Prior to joining bebe, Mr. Kyees served as CFO for Skinmarket, a startup teenage cosmetic retailer, from March 2000 through March 2002. Mr. Kyees was also CFO for HC Holdings from December 1997 through March 2000. From May 1997 through December 1997, Mr. Kyees was CFO for Ashley Stewart and from November 1984 through January 1997 Mr. Kyees was CFO for Express, which was a division of The Limited Brands, Inc.

Mr. Bodzy joined Urban Outfitters as its General Counsel in December 1997 and was appointed Secretary in February 1999. Prior to joiningHayne’s long tenure leading the Company as Chairman of the Board and President, in addition to his tenure as Chief Executive Officer until May 2007, makes him uniquely qualified to serve as a director. Mr. Bodzy was Vice President, General CounselHayne brings to the Board his leadership skills and Secretary of Service Merchandise Company Inc. where he was responsible for legal affairs, the store development program and various other corporate areas.industry expertise.

Mr. Senk, a director since 2004, has served as Chief Executive Officer since May 2007, and prior to that, as President of Anthropologie, Inc. since April 1994. Mr. Senk was named Executive Vice President of Urban Outfitters, Inc. in May 2002, and assumed responsibility for the Company’s Free

People divisionbrand in May 2003. 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. Senk began his retail career at Bloomingdale’s, where he served in a variety of roles including Managing Director of Bloomingdale’s By Mail. Mr. Senk serves as a member of the Boards of Directors for Tory Burch, Inc. and David Yurman, Inc. and previously served as a member of the Board of Directors for Bare Escentuals, Inc. Mr. Senk also serves on the board of a nonprofit organization. As the Company’s Chief Executive Officer, Mr. Senk brings his intimate knowledge of the Company’s business, operations, and Tory Burch, Inc.retail industry to the Board of Directors. He also holds an MBA degree.

Mr. Marlow hasArtz was appointed as Chief Financial Officer of the Company on February 1, 2010. He previously served as Chief Financial Officer of VF Contemporary Brands for two years at VF Corporation. Mr. Artz also served as Chief Operating Officer and Chief Financial Officer of Seven For All Mankind, LLC from November 2006 through August 2007. Mr. Artz had been Vice President Urban Outfitters Brandof Operations for VF Outdoor from June 2003 through October 2006, and since July 2001.joining VF Corporation in 1992 served in several financial and operational positions for its divisions in the United States, Europe and Japan. Prior to joining the Company,VF Corporation, Mr. Artz, a Certified Public Accountant, worked 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., a clothing retailer. 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 Brands, Inc.Ernst & Young in their audit department.

Mr. RossBodzy joined Urban Outfitters as its General Counsel in OctoberDecember 1997 and assumed responsibility for the Controller positionwas appointed Secretary in early 1999 and was promoted to Executive Director of Finance in fiscal year 2009.February 1999. Prior to joining the Company, Mr. RossBodzy was Vice President, General Counsel and Secretary of Service Merchandise Company, Inc. where has was responsible for legal affairs, the store development program and various other corporate areas.

Mr. Murray joined the Company as Global President of the Urban Outfitters Brand, effective April 12, 2010. Mr. Murray, joined the Company from VF Corporation, where he served as President, VF Action Sports Coalition since February 2009, overseeing the Vans and Reef brands. Prior to assuming that role, Mr. Murray was President of VF’s Vans brand from 2004 to 2009. Mr. Murray had been the ControllerChief Marketing Officer for American Appliance,Vans, Inc. from 2002 to 2004 and Senior Vice President, International from 1998 to 2002. Prior to joining Vans, Inc., a northeast regional appliance retail chain. Previous to his 15-year tenureMr. Murray held various leadership roles in the retail industry,U.S. and abroad for Reebok International, LTD from 1991 to 1998. Mr. RossMurray holds a B.A. in Business Studies from Middlesex University.

Ms. McDevitt, Global Co-President of the Anthropologie Brand, joined Urban Outfitters in November 1992 and has served within the URBN brands including Director of Administration for URBN, Director of Operations/Stores for Urban Outfitters Europe, Executive Director of Stores and Operations for Anthropologie and Chief Operating Officer for Anthropologie. Prior to joining the Company, Ms. McDevitt worked for Liz Claiborne Inc.

Ms. Wurtzburger, Global Co-President of the Anthropologie Brand, joined Urban Outfitters in 1998 and has served in a senior merchandising role at the public accounting sector in auditAnthropologie brand, including as the Chief Merchandise Officer. Prior to joining the company, Ms. Wurtzburger held buying and advisory services. Mr. Ross obtained his CPA license in 1994.merchandising roles with a variety of department and specialty stores including Abraham & Straus, Macy’s West and Mimi Maternity.

Mr. Zausner rejoined the Company in February 2003 as a consultant and in July 2003 became its Chief Administrative Officer. Mr. Zausner originally joined the Company in 1980 and became its Director of Inventory Management in 1988 and its Secretary in 1990. Mr. Zausner retired from the Company in 1996.

Mrs.Margaret Hayne joined Urban Outfitters in August 1982. She is a 33-year35 year veteran of the retail and wholesale industry and has served as President of the Free People Brand since March 2007. Margaret Hayne is Richard A. Hayne’s spouse.

Mr. Hayne,Conforti joined Urban Outfitters in March 2007 as Director of Finance and SEC Reporting and was subsequently promoted to Controller and then Chief Accounting Officer, his current role. Prior to joining the Chairman of the Board of Directors and President, is Mrs. Hayne’s husband.Company, Mr. Conforti, a Certified Public Accountant, worked for AlliedBarton

Security Services, LLC for five years serving as Controller for three years. Mr. Conforti began his career at KPMG in 1998 where he held various audit roles.

Mr. Belair co-founded Urban Outfitters in 1970 and has been a director since its incorporation in 1976.1970. He has served as Principal of The ZAC Group, a financial advisory firm, during the last eighteen years. Previously, he was a managing director of Drexel Burnham Lambert Incorporated. Mr. Belair is also a director of Hudson City Bancorp, Inc. (HCBK), and Hudson City Savings Bank, the nation’s largest S&L institution by market capitalization. He holds an MBA degree and has financial and investment expertise as a result of his significant experience as a CPA, financial advisor, and former chief financial officer in the financial services industry, including financial reporting expertise. As a co-founder of the Company, Mr. Belair has been involved with the Company from its inception, and accordingly has a comprehensive understanding of and perspective on its overall business and strategic direction.

Mr. Cherken a director since 1989, has been a partner in the law firm of Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania since 1984, is a former managing partner of that firm, and until January 2007 served as Co-Chair of its Real Estate Group. As a real estate lawyer with over 30 years experience representing public and private companies in the acquisition, construction, development, financing, leasing, management, consolidation, and disposition of commercial real estate, he has extensive experience with real estate transactions, including negotiating real estate transactions and leases on behalf of the Company. Mr. Cherken also holds a Masters in Liberal Arts degree and serves as a trustee of various not for profit institutions.

Mr. Lawson a director since 1985, is an independent consultant and private investor. From November 2001 until November 2003, he also served as 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., an investment banking and corporate finance firm. Howard, Lawson & Co. became an indirect, wholly-owned subsidiary of FleetBoston Financial Corporation in March 2001. As the former Chief Executive Officer of an investment banking and corporate finance firm, Mr. Lawson has extensive experience in financial and investment matters, including financial reporting expertise. In addition, as the former Executive Director of a global organization of merger and acquisition advisory firms, he has specialized knowledge regarding mergers and acquisitions. He also holds an MBA degree and serves as a director of a non-profit entity.

Mr. Strouse a director since 2002, serves as President of Wind River Holdings, L.P. Wind River oversees a diversified group of privately owned industrial and service businesses. Through his experience with this private investment company, Mr. Strouse brings to the Board of Directors experience in strategic planning, budgeting, talent recruitment and real estate businesses.development, risk management, and corporate development activities. Mr. Strouse is also a former corporate lawyer whose practice, prior to 1998 when he joined Wind River, focused on mergers and acquisitions, corporate governance and SEC reporting.

Code of Conduct and Ethics

We have had a written code of conduct for a number of years. Our Code of Conduct and Ethics applies to our Directors and employees, including our President, Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. The Code includes guidelines relating to compliance with laws, the ethical handling of actual or potential conflicts of interest, the use of corporate opportunities, protection and use of our confidential information, accepting gifts and

business courtesies, accurate financial reporting, and procedures for promoting compliance with, and reporting violations of, the Code. The Code of Conduct and Ethics is available on our website at www.urbanoutfittersinc.com.www.urbanoutfittersinc.com. We intend to post any amendments to our Code of Conduct and Ethics on our website and also to disclose any waivers (to the extent applicable to the Company’s President, Chief Executive Officer, Chief Financial Officer or Principal Accounting Officer) on a Form 8-K within the prescribed time period.

Section 16(a). Beneficial Ownership Reporting Compliance

Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

Other Information

Other information required by Item 10 relating to the Company’s directors is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

Item 11. Executive Compensation

Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

Item 14. Principal Accountant Fees and Services

Information required by this item is incorporated herein by reference from the Company’s Proxy Statement for the 20092011 Annual Meeting of Shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) Financial Statements

Consolidated Financial Statements filed herewith are listed in the accompanying index on page F-1.

(2) Financial Statement Schedule

None

All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto.

(3) Exhibits

The Exhibits listed below are filed as part of, or incorporated by reference into, this report. The file number for each exhibit incorporated by reference is 000-22754 unless otherwise provided.

 

Exhibit

Number

  

Description

3.1  Amended and Restated Articles of Incorporation incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed on September 9, 2004.
3.2  Amendment No. 1 to Amended and Restated Articles of Incorporation incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed on September 9, 2004.
3.3  Amended and Restated Bylaws are incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on March 2, 2009.
10.110.1†  Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wachovia Bank, National Association is incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on December 10, 2004.June 8, 2010.
10.2  First Amendment to Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wachovia Bank, National Association is incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K filed on March 30, 2007.
10.310.3†  Second Amendment to Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wachovia Bank, National Association is incorporated by reference to Exhibit 10.310.2 of the Company’s AnnualQuarterly Report on Form 10-K10-Q filed on March 28, 2008.June 8, 2010.
10.4+10.4†Third Amendment to the Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wachovia Bank, National Association is incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on June 8, 2010.
10.5Fifth Amended and Restated Note, dated May 27, 2010, by and among Urban Outfitters, Inc. and Wells Fargo Bank, National Association is incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on September 8, 2010.

Exhibit

Number

Description

10.6Letter Agreement Extension of Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wachovia Bank, National Association as amended, dated December 1, 2010 is incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on December 10, 2010.
10.7*Letter Agreement Extension of Amended and Restated Credit Agreement by and among Urban Outfitters, Inc. and Wells Fargo Bank, N.A. as amended, dated March 9, 2011.
10.8+  Urban Outfitters 2004 Stock Incentive Plan is incorporated by reference to AppendixBof the Company’s Definitive Proxy Statement on Schedule 14A filed on April 26, 2004 and Amendment No. 1 to the Urban Outfitters 2004 Stock Incentive Plan is incorporated by reference to AppendixA of the Company’s Definitive Proxy Statement on Schedule 14A filed on April 25, 2005.
10.5+10.9+  1997 Stock Option Plan is incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for fiscal year ended January 31, 1997.
10.6+10.10+  Urban Outfitters 401(k) Savings Plan is incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-8 (file no. 333-84333) filed on August 3, 1999.

Exhibit

Number

Description

10.7+10.11+  2000 Stock Incentive Plan is incorporated by reference to AppendixA of the Company’s Definitive Proxy Statement on Schedule 14A filed on April 17, 2000.
10.8+10.12+  2008 Stock Incentive Plan is incorporated by reference to AppendixA of the Company’s Definitive Proxy Statement on Schedule 14A filed on March 28, 2008
10.9+10.13+  Urban Outfitters Executive Incentive Plan, as amended and restated effective February 1, 2010, is incorporated by reference to AppendixBAof the Company’s Definitive Proxy Statement on Schedule 14A filed on April 25, 2005.1, 2010.
10.14+Form of 2004 Plan—Non-Qualified Stock Option Agreement is incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on June 18, 2009.
10.15+Form of 2004 Plan—Non-Employee Director Non-Qualified Stock Option Agreement is incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed on June 18, 2009.
10.16+Form of 2004 Plan—Incentive Stock Option Agreement is incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K filed on June 18, 2009.
10.17+Form of 2004—Stock Appreciation Right Agreement is incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed on September 7, 2010.
10.18+Form of 2004 Plan—Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed on December 10, 2010.
10.19+Form of 2008 Plan—Non-Qualified Stock Option Agreement is incorporated by reference to Exhibit 99.4 of the Company’s Current Report on Form 8-K filed on June 18, 2009.
10.20+Form of 2008 Plan—Non-Employee Director Non-Qualified Stock Option Agreement is incorporated by reference to Exhibit 99.5 of the Company’s Current Report on Form 8-K filed on June 18, 2009.

Exhibit

Number

Description

10.21+Form of 2008 Plan—Incentive Stock Option Agreement is incorporated by reference to Exhibit 99.6 of the Company’s Current Report on Form 8-K filed on June 18, 2009.
10.22+Form of 2008 Plan—Performance Stock Unit Agreement is incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on September 7, 2010.
10.23+Form of 2008 Plan—Restricted Stock Unit Agreement is incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q filed on December 10, 2010.
21.1*  

List of Subsidiaries.

23.1*  

Consent of Deloitte & Touche LLP.

31.1*  

Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer.

31.2*  

Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer.

32.1**  

Section 1350 Certification of the Company’s Principal Executive Officer.

32.2**  

Section 1350 Certification of the Company’s Principal Financial Officer.

101.INS**

XBRL Instance Document

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase

101.LAB**

XBRL Taxonomy Extension Label Linkbase

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase

101.DEF**

XBRL Taxonomy Extension Definition Linkbase

 

*Filed herewith
**Furnished herewith
+Compensatory plan
Confidential treatment has been requested with respect to portions of certain schedules and exhibits to this agreement pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 and these confidential portions have been redacted. A complete copy of this agreement, including the redacted portions, has been separately filed with the Securities and Exchange Commission.

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.
April 1, 20092011 By: 

/s/    GLEN T. SENK        

  

Glen T. Senk

  

Chief Executive Officer

(Principal Executive Officer)

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

  

Chairman of the Board, President and Director

 April 1, 2009

/s/    JOHN E. KYEES        

John E. Kyees

(Principal Financial Officer)

Chief Financial Officer

April 1, 2009

/s/    ROBERT ROSS        

Robert Ross

(Principal Accounting Officer)

Executive Director of Finance

April 1, 20092011

/s/    GLEN T. SENK        

Glen T. Senk

(Principal Executive Officer)

  

Chief Executive Officer and Director

 April 1, 20092011

/s/    ERIC ARTZ        

Eric Artz

(Principal Financial Officer)

Chief Financial Officer

April 1, 2011

/s/    FRANK J. CONFORTI        

Frank J. Conforti

(Principal Accounting Officer)

Chief Accounting Officer

April 1, 2011

/s/    SCOTT A. BELAIR        

Scott A. Belair

  

Director

 April 1, 20092011

/s/    HARRY S. CHERKEN, JR.        

Harry S. Cherken, Jr.

  

Director

 April 1, 20092011

/s/    JOEL S. LAWSON III        

Joel S. Lawson III

  

Director

 April 1, 20092011

/s/    ROBERT H. STROUSE        

Robert H. Strouse

  

Director

 April 1, 20092011

URBAN OUTFITTERS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

   Page

Report of Independent Registered Public Accounting Firm—Deloitte & Touche LLP

  F-2

Consolidated Balance Sheets as of January 31, 20092011 and January 31, 20082010

  F-3

Consolidated Statements of Income for the fiscal years ended January 31, 2009, 20082011, 2010 and 20072009

  F-4

Consolidated Statements of Shareholders’ Equity for the fiscal years ended January  31, 2009, 20082011, 2010 and 20072009

  F-5

Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2009, 20082011, 2010 and 20072009

  F-6

Notes to Consolidated Financial Statements

  F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Urban Outfitters, Inc.

Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets of Urban Outfitters, Inc. and subsidiaries (the “Company”) as of January 31, 20092011 and 2008,2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended January 31, 2009.2011. 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 the standards of the Public Company Accounting Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the financial position of Urban Outfitters, Inc. and subsidiaries as of January 31, 20092011 and 2008,2010, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2009,2011, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, 2009,2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31, 2009April 1, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania

March 31, 2009April 1, 2011

URBAN OUTFITTERS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

  January 31,  January 31, 
  2009 2008 2011 2010 
ASSETS      

Current assets:

      

Cash and cash equivalents

  $316,035  $105,271  $340,257   $159,024  

Marketable securities

   49,948   80,127   116,420    342,512  

Accounts receivable, net of allowance for doubtful accounts of $1,229 and $966, respectively

   36,390   26,365

Accounts receivable, net of allowance for doubtful accounts of $1,015 and $1,284, respectively

   36,502    38,405  

Inventories

   169,698   171,925   229,561    186,130  

Prepaid expenses and other current assets

   46,412   46,238   66,886    67,865  

Deferred taxes

   5,919   3,684   14,351    12,277  
             

Total current assets

   624,402   433,610   803,977    806,213  
             

Property and equipment, net

   505,407   488,889   586,346    539,961  

Marketable securities

   155,226   188,252   351,988    243,445  

Deferred income taxes and other assets

   43,974   32,040   52,010    46,474  
             

Total Assets

  $1,329,009  $1,142,791  $1,794,321   $1,636,093  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY      

Current liabilities:

      

Accounts payable

  $62,955  $74,020  $82,904   $78,041  

Accrued compensation

   11,975   10,128   20,212    21,913  

Accrued expenses and other current liabilities

   66,220   83,230   107,908    88,595  
             

Total current liabilities

   141,150   167,378   211,024    188,549  

Deferred rent and other liabilities

   134,084   121,982   171,749    150,769  
             

Total Liabilities

   275,234   289,360   382,773    339,318  
             

Commitments and contingencies (see Note 11)

      

Shareholders’ equity:

      

Preferred shares; $.0001 par value, 10,000,000 shares authorized, none issued

   —     —     —      —    

Common shares; $.0001 par value, 200,000,000 shares authorized, 167,712,088 and 166,104,615 issued and outstanding, respectively

   17   17

Common shares; $.0001 par value, 200,000,000 shares authorized, 164,413,427 and 168,558,371 issued and outstanding, respectively

   17    17  

Additional paid-in capital

   170,166   144,204   27,603    184,620  

Retained earnings

   901,339   701,975   1,394,190    1,121,232  

Accumulated other comprehensive (loss) income

   (17,747)  7,235

Accumulated other comprehensive loss

   (10,262  (9,094
             

Total Shareholders’ Equity

   1,053,775   853,431   1,411,548    1,296,775  
             

Total Liabilities and Shareholders’ Equity

  $1,329,009  $1,142,791  $1,794,321   $1,636,093  
             

The accompanying notes are an integral part of these consolidated financial statements.

URBAN OUTFITTERS, INC.

Consolidated Statements of Income

(in thousands, except share and per share data)

 

  Fiscal Year Ended January 31,   Fiscal Year Ended January 31, 
  2009 2008 2007   2011 2010 2009 

Net sales

  $1,834,618  $1,507,724  $1,224,717   $2,274,102   $1,937,815   $1,834,618  

Cost of sales, including certain buying, distribution and occupancy costs

   1,121,140   930,952   772,796    1,337,482    1,151,670    1,121,140  
                    

Gross profit

   713,478   576,772   451,921    936,620    786,145    713,478  

Selling, general and administrative expenses

   414,043   351,827   287,932    522,417    447,161    414,043  
                    

Income from operations

   299,435   224,945   163,989    414,203    338,984    299,435  

Interest income

   11,504   9,390   6,531    4,669    6,290    11,504  

Other income

   694   575   353    486    463    694  

Other expenses

   (2,143)  (515)  (715)   (2,150  (1,331  (2,143
                    

Income before income taxes

   309,490   234,395   170,158    417,208    344,406    309,490  

Income tax expense

   110,126   74,164   53,952    144,250    124,513    110,126  
                    

Net income

  $199,364  $160,231  $116,206   $272,958   $219,893   $199,364  
                    

Net income per common share:

        

Basic

  $1.20  $0.97  $0.71   $1.64   $1.31   $1.20  
                    

Diluted

  $1.17  $0.94  $0.69   $1.60   $1.28   $1.17  
                    

Weighted average common shares outstanding:

        

Basic

   166,793,062   165,305,207   164,679,786    166,896,322    168,053,502    166,793,062  
                    

Diluted

   170,860,605   169,640,585   168,652,005    170,333,550    171,230,245    170,860,605  
                    

The accompanying notes are an integral part of these consolidated financial statements.

URBAN OUTFITTERS, INC.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

 

 Compre-
hensive
Income
  Common Shares Additional
Paid-in
Capital
  Unearned
Compen-
sation
  Retained
Earnings
  Accumulated
Other
Compre-
hensive
Income
(Loss)
  Total  Compre-
hensive
Income
  Common Shares Additional
Paid-in
Capital
  Retained
Earnings
  Accumulated
Other
Compre-
hensive
Income
(Loss)
  Total 
 Number of
Shares
 Par
Value
   Number of
Shares
 Par
Value
 

Balances as of February 1, 2006

  164,831,477  $16 $138,050  $(3,905) $426,190  $528  $560,880 

Balances as of February 1, 2008

   166,104,615   $17   $144,204   $701,975   $7,235   $853,431  

Net income

 $199,364    —      —      —      199,364    —      199,364  

Foreign currency translation

  (19,866  —      —      —      —      (19,866  (19,866

Unrealized losses on marketable securities, net of tax

  (5,116  —      —      —      —      (5,116  (5,116
         

Comprehensive income

 $174,382        
         

Share-based compensation

   —      —      3,637    —      —      3,637  

Stock options and awards

   1,607,473    —      8,891    —      —      8,891  

Tax effect of share exercises

   —      —      13,434    —      —      13,434  
                   

Balances as of January 31, 2009

   167,712,088   $17   $170,166   $901,339   $(17,747 $1,053,775  

Net income

 $116,206  —     —    —     —     116,206   —     116,206  $219,893    —      —      —      219,893    —      219,893  

Foreign currency translation

  3,614  —     —    —     —     —     3,614   3,614   7,173    —      —      —      —      7,173    7,173  

Unrealized gains on marketable securities, net of tax

  142  —     —    —     —     —     142   142   1,480    —      —      —      —      1,480    1,480  
                   

Comprehensive income

 $119,962         $228,546        
                   

Share-based compensation

  —     —    3,497   —     —     —     3,497    —      —      4,766    —      —      4,766  

Unearned compensation reclass

  —     —    (3,905)  3,905   —     —     —   

Exercise of stock options

  1,375,986   1  6,350   —     —     —     6,351 

Tax effect of share exercises

  —     —    5,394   —     —     —     5,394 

Share Repurchase

  (1,220,000)  —    (20,801)  —     —     —     (20,801)
                     

Balances as of January 31, 2007

  164,987,463   17  128,586   —     542,396   4,284   675,283 

Net income

 $160,231  —     —    —     —     160,231   —     160,231 

Foreign currency translation

  703  —     —    —     —     —     703   703 

FIN48 adjustment

  —    —     —    —     —     (652)  —     (652)

Unrealized gains on marketable securities, net of tax

  2,248  —     —    —     —     —     2,248   2,248 
          

Comprehensive income

 $163,182        
          

Share-based compensation

  —     —    3,277   —     —     —     3,277 

Exercise of stock options

  1,117,152   —    5,000   —     —     —     5,000 

Stock options and awards

   846,283    —      3,250    —      —      3,250  

Tax effect of share exercises

  —     —    7,341   —     —     —     7,341    —      —      6,438    —      —      6,438  
                                        

Balances as of January 31, 2008

  166,104,615   17  144,204   —     701,975   7,235   853,431 

Balances as of January 31, 2010

   168,558,371   $17   $184,620   $1,121,232   $(9,094 $1,296,775  

Net income

 $199,364  —     —    —     —     199,364   —     199,364  $272,958    —      —      —      272,958    —      272,958  

Foreign currency translation

  (19,866) —     —    —     —     —     (19,866)  (19,866)  (429  —      —      —      —      (429  (429

Unrealized losses on marketable securities, net of tax

  (5,116) —     —    —     —     —     (5,116)  (5,116)  (739  —      —      —      —      (739  (739
                   

Comprehensive income

 $174,382         $271,790        
                   

Share-based compensation

  —     —    3,637   —     —     —     3,637    —      —      10,725    —      —      10,725  

Exercise of stock options

  1,607,473   —    8,891   —     —     —     8,891 

Stock options and awards

   2,256,273    —      24,129    —      —      24,129  

Tax effect of share exercises

  —     —    13,434   —     —     —     13,434    —      —      12,847    —      —      12,847  

Share Repurchases

   (6,401,217  —      (204,718  —      —      (204,718
                                        

Balances as of January 31, 2009

  167,712,088  $17 $170,166  $—    $901,339  $(17,747) $1,053,775 

Balances as of January 31, 2011

   164,413,427   $17   $27,603   $1,394,190   $(10,262 $1,411,548  
                                        

The accompanying notes are an integral part of these consolidated financial statements.

URBAN OUTFITTERS, INC.

Consolidated Statements of Cash Flows

(in thousands)

 

  Fiscal Year Ended January 31,  Fiscal Year Ended January 31, 
  2009 2008 2007  2011 2010 2009 

Cash flows from operating activities:

       

Net income

  $199,364  $160,231  $116,206  $272,958   $219,893   $199,364  

Adjustments to reconcile net income to net cash provided by operating activities:

       

Depreciation and amortization

   81,949   70,017   55,713   101,105    92,350    81,949  

Provision for deferred income taxes

   (9,351)  (2,782)  (4,959)  (8,727  2,161    (9,351

Excess tax benefit of share–based compensation

   (13,434)  (7,341)  (5,394)

Excess tax benefit on share-based compensation

  (12,847  (6,438  (13,434

Share-based compensation expense

   3,637   3,277   3,497   10,725    4,766    3,637  

Loss on disposition of property and equipment, net

   61   317   1,393   119    339    61  

Changes in assets and liabilities:

       

Receivables

   (10,726)  (5,462)  (6,371)  1,835    (1,825  (10,726

Inventories

   (272)  (17,430)  (13,416)  (43,372  (15,544  (272

Prepaid expenses and other assets

   9,210   (22,441)  6,848   14,825    (25,619  9,210  

Accounts payable, accrued expenses and other liabilities

   (8,868)  75,967   33,600   48,492    55,311    (8,868
                   

Net cash provided by operating activities

   251,570   254,353   187,117   385,113    325,394    251,570  
                   

Cash flows from investing activities:

       

Cash paid for property and equipment

   (112,553)  (115,370)  (212,029)  (143,642  (109,260  (112,553

Cash paid for marketable securities

   (809,039)  (293,633)  (182,653)  (463,129  (806,546  (809,039

Sales and maturities of marketable securities

   864,685   220,101   193,274   571,236    421,040    864,685  
                   

Net cash used in investing activities

   (56,907)  (188,902)  (201,408)  (35,535  (494,766  (56,907
                   

Cash flows from financing activities:

       

Exercise of stock options

   8,891   5,000   6,351   24,129    3,250    8,891  

Excess tax benefit of stock option exercises

   13,434   7,341   5,394 

Excess tax benefit from stock option exercises

  12,847    6,438    13,434  

Share repurchases

   —     —     (20,801)  (204,718  —      —    
                   

Net cash provided by (used in) financing activities

   22,325   12,341   (9,056)

Net cash (used in) provided by financing activities

  (167,742  9,688    22,325  
                   

Effect of exchange rate changes on cash and cash equivalents

   (6,224)  212   702   (603  2,673    (6,224
                   

Increase (decrease) in cash and cash equivalents

   210,764   78,004   (22,645)  181,233    (157,011  210,764  

Cash and cash equivalents at beginning of period

   105,271   27,267   49,912   159,024    316,035    105,271  
                   

Cash and cash equivalents at end of period

  $316,035  $105,271  $27,267  $340,257   $159,024   $316,035  
                   

Supplemental cash flow information:

       

Cash paid during the year for:

       

Income taxes

  $115,040  $70,765  $52,535  $121,341   $137,490   $115,040  
                   

Non-cash investing activities—Accrued capital expenditures

  $6,561  $6,645  $14,618  $8,077   $12,960   $6,561  
                   

The accompanying notes are an integral part of these consolidated financial statements.

URBAN OUTFITTERS, INC.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 Commonwealth of Pennsylvania in 1976. The principal business activity of the Company is the operation of a general consumer product retail and wholesale business selling to customers through various channels including retail stores, threefive catalogs and fourten web sites. As of January 31, 20092011 and 2008,2010, the Company operated 294372 and 245327 stores, respectively. Stores located in the United States totaled 270334 as of January 31, 20092011 and 229298 as of January 31, 2008.2010. Operations in Europe and Canada included 1724 stores and 714 stores as of January 31, 2009,2011, respectively and 1219 stores and 410 stores as of January 31, 2008,2010, respectively. In addition, the Company’s wholesale segment sold and distributed apparel to approximately 1,8001,400 better department and 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 20092011 ended on January 31, 2009.2011.

Principles of Consolidation

The consolidated financial statements include the accounts of Urban Outfitters, Inc. and all of its wholly owned subsidiaries. All inter-company 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 short-term highly liquid investments with maturities of less than three months at the time of purchase. These short-term highly liquid investments are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. As of January 31, 20092011 and 2008,2010, cash and cash equivalents included cash on hand, cash in banks and money market accounts. A significant portion of the Company’s cash held in money market accounts is insured under the Federal Government’s Troubled Assets Relief Program (“TARP”).

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

 

Marketable Securities

The Company’s marketable securities may be 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 debt securities that do not meet the classification of held-to-maturity, are not actively traded and are carried at fair value, which approximates amortized cost. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. 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. Securities classified as current have maturity dates of less than one year from the balance sheet date. Securities classified as long-termnon-current have maturity dates greater than one year from the balance sheet date. Available for sale securities such as ARSAuction Rate Securities (“ARS”) that fail at auction and do not liquidate under normal course are classified as long term assets, any successfulnon-current assets. Successful auctions would be classified as current assets. Marketable securities as of January 31, 20092011 and 20082010 were classified as available-for-sale.

Approximately 7%3.6% of the Company’s cash, cash equivalents and marketable securities are invested in “A” or better rated Auction Rate Securities (“ARS”)ARS that represent interests in municipal and student loan related collateralized debt obligations, all of which are guaranteed by either government agencies and/or insured by private insurance agencies at 97% or greater of par value. The Company’s ARS had a fair value of $38.7$29.5 million as of January 31, 20092011 and $95.2$33.5 million as of January 31, 2008.2010. As of and subsequent to the end of the current fiscal year, all of the ARS held by the Company failed to liquidate at auction due to a lack of market demand. Liquidity for these ARS is typicallywas historically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually 7, 28, 35 or 90 days. The principal associated with these failed auctions will not be available until a successful auction occurs, the bond is called by the issuer, a buyer is found from outside the auction process, or the debt obligation reaches its maturity. Based on review of credit quality, collateralization, final stated maturity, estimates of the probability of being called or becoming illiquid prior to final maturity, redemptions of similar ARS, previous market activity for same investment security, impact due to extended periods of maximum auction rates and valuation models, the Company has recorded $5.3$3.8 million and $4.1 million of temporary impairment on its ARS as of January 31, 2009.2011 and January 31, 2010, respectively. To date the Company has collected all interest receivable on outstanding ARS when due and havehas not been informed by the issuers that accrued interest payments are currently at risk. The Company hasdoes not have the abilityintent to holdsell the investments untilunderlying securities prior to their maturity.recovery and the Company believes it is not likely that it will be required to sell the underlying securities prior to their anticipated recovery of full amortized cost. As a result of the current illiquidity, the Company has classified all ARS as long termnon-current assets under marketable securities. The Company continues to monitor the market for ARS and consider the impact, if any, on the fair value of its investments.

The Company also includes disclosure about its investments that are in an unrealized loss position for which other-than-temporary impairments have not been recognized in accordance with the Emerging Issues Task Force (“EITF”) Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Applications to Certain Investments”.

recognized.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

 

Accounts Receivable

Accounts receivable primarily consists of amounts due from our wholesale customers as well as credit card receivables. The activity of the allowance for doubtful accounts for the years ended January 31, 2011, 2010 and 2009 2008 and 2007 iswas as follows:

 

   Balance at
beginning of
year
  Additions  Deductions  Balance at
end of
year

Year ended January 31, 2009

  $966  $4,375  $(4,112) $1,229

Year ended January 31, 2008

  $849  $2,628  $(2,511) $966

Year ended January 31, 2007

  $445  $2,192  $(1,788) $849
   Balance at
beginning of
year
   Additions   Deductions  Balance at
end of
year
 

Year ended January 31, 2011

  $1,284    $2,397    $(2,666 $1,015  

Year ended January 31, 2010

  $1,229    $1,791    $(1,736 $1,284  

Year ended January 31, 2009

  $966    $4,375    $(4,112 $1,229  

Inventories

Inventories, which consist primarily of general consumer merchandise held for sale, are valued at the lower of cost or market. Cost is determined on the first-in, first-out method and includes the cost of merchandise and import related costs, including freight, import taxes and agent commissions. 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 expected 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 value. Criteria utilized by the Company to quantify aging trends include factors such as average selling cycle and seasonality of merchandise, the historical rate at which merchandise has sold below cost during the average selling cycle, and the value and nature of merchandise currently priced below original cost. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if appropriate. The majority of inventory at January 31, 20092011 and 20082010 consisted of finished goods. Unfinished goods and work-in-process were not material to the overall net inventory value.

Adjustments to reserves related to the net realizable value of inventories are primarily based on the market value of the Company’s physical inventories, cycle counts and recent historical trends. The Company’s physical inventories for fiscal 2011 were performed as of June 2010 and January 2011. The Company’s estimates generally have been accurate and their reserve methods have been applied on a consistent basis. The Company expects the amount of their reserves to increase over time as they expand their store base and accordingly, related inventories.

Property and Equipment

Property and equipment are stated at cost and primarily consist of store related leasehold improvements, buildings and furniture and fixtures. Depreciation is typically computed using the straight-line method over five years for furniture and fixtures, the lesser of the lease term or useful life for leasehold improvements, three to ten years for other operating equipment and 39 years for buildings. Major renovations or improvements that extend the service lives of our assets are capitalized over the extension period or life of the improvement, whichever is less.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

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, 2009.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2011.

Deferred Rent

Rent expense from leases is recorded on a straight-line basis over the lease period. The net excess of rent expense over the actual cash paid is recorded as deferred rent. In addition, certain store leases provide for contingent rentals when sales exceed specified break-point levels that are weighted based upon historical cyclicality. For leases where achievement of these levels is considered probable based on cumulative lease year revenue versus the established breakpoint at any given point in time, contingent rent is accrued. This is expensed in addition to minimum rent which is recorded on a straight-line basis over the lease period.

Operating Leases

The Company leases its retail stores under operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions or some combination of these items. The Company recognizes rent expense on a straight-line basis over the accounting lease term.

The Company records rent expense on a straight-line basis over the lease period commencing on the date that the premise is available from the landlord. The lease period includes the construction period to make the leased space suitable for operating during which time the Company is not permitted to occupy the space. For purposes of calculating straight-line rent expense, the commencement date of the lease term reflects the date the Company takes possession of the building for initial construction and setup.

The Company classifies tenant improvement allowances onin its consolidated financial statements withinConsolidated Financial Statements under deferred rent that will be amortized asand amortizes them on a reduction of rent expensestraight-line basis over the straight-linerelated lease period. Tenant improvement allowance activity is presented as part of cash flows from operating activities in the accompanying consolidated statementsConsolidated Statements of cash flows.Cash Flows.

Revenue Recognition

Revenue is recognized at the point-of-sale for retail store sales or when merchandise is shipped to customers for wholesale and direct-to-consumer sales, net of estimated customer returns. Revenue is recognized at the completion of a job or service for landscape sales. Revenue is presented on a net basis and does not include any tax assessed by a governmental or municipal authority. Payment for merchandise at stores and through the Company’s direct-to-consumer businesschannel is tendered by cash, check, credit card, debit card or gift card. Therefore, the Company’s need to collect outstanding accounts receivable for its retail and direct-to-consumer businesschannel is negligible and mainly results from returned checks or unauthorized credit card transactions. The Company maintains an allowance for doubtful accounts for its wholesale and landscape service accounts receivable, which management

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments. Deposits for custom orders are recorded as a liability and recognized as a sale upon delivery of the merchandise to the customer. These custom orders, typically for upholstered furniture, are not material. Deposits for landscape services are recorded as a liability and recognized as a sale upon completion of service. Landscape services and related deposits are not material.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company accounts for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the customer. A liability is established and remains on the Company’s books until the card is redeemed by the customer, at which time the Company records the redemption of the card for merchandise as a sale or when it is determined the likelihood of redemption is remote. The Company determines the probability of the gift cards being redeemed to be remote based on historical redemption patterns. Revenues attributable to gift card liabilities relieved after the likelihood of redemption becomes remote are included in sales and are not material. The Company’s gift cards do not expire.

Sales Return Reserve

The Company records a reserve for estimated product returns where the sale has occurred during the period reported, but the return is likely to occur subsequent to the period reported and may otherwise be considered in-transit. The reserve for estimated in-transit product returns is based on the Company’s most recent historical return trends. If the actual return rate or experience is materially higher than the Company’s estimate, additional sales returns would be recorded in the future. The activity of the sales returns reserve for the years ended January 31, 2011, 2010 and 2009 2008 and 2007 iswas as follows:

 

   Balance at
beginning of
year
  Additions  Deductions  Balance at
end of
year

Year ended January 31, 2009

  $6,776  $28,408  $(27,637) $7,547

Year ended January 31, 2008

  $8,916  $35,952  $(38,092) $6,776

Year ended January 31, 2007

  $6,390  $29,376  $(26,850) $8,916
   Balance at
beginning of
year
   Additions   Deductions  Balance at
end of
year
 

Year ended January 31, 2011

  $9,912    $41,692    $(40,237 $11,367  

Year ended January 31, 2010

  $7,547    $33,889    $(31,524 $9,912  

Year ended January 31, 2009

  $6,776    $28,408    $(27,637 $7,547  

Cost of Sales, Including Certain Buying, Distribution and Occupancy Costs

Cost of sales, including certain buying, distribution and occupancy costs includes the following: the cost of merchandise; merchandise markdowns; obsolescence and shrink;shrink provisions; store occupancy costs including rent and depreciation; customer shipping expensecosts for direct-to-consumer orders; in-bound and outbound freight; U.S. Customs related taxes and duties; inventory acquisition and purchasing costs; warehousing and handling costs and other inventory acquisition related costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses includes expenses such as (i) direct selling and selling supervisory expenses; (ii) various corporate expenses such as information systems, finance, loss prevention, talent acquisition, and executive management expenses; and (iii) other associated general expenses.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

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.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 primarily relate to our direct-to-consumer marketing expenses which are composed of web marketing, catalog printing, paper, postage and other costs related to production of photographic images used in our catalogs and on our web sites. These costs are amortized over the period in which the customer responds to the marketing material determined based on historical customer response trends to a similar season’s advertisement. Amortization rates are reviewed on a regular basis during the fiscal year and may be adjusted if the predicted customer response appears materially different than the historical response rate. The Company has the ability to measure the response rate to direct marketing early in the course of the advertisement based on its customers’ reference to a specific catalog or by product placed and sold. The average amortization period for a catalog or web promotion isand related items are typically three months. If there is no expected future benefit, the cost of advertising is expensed when incurred. Advertising costs reported as prepaid expenses were $2,585$3,323 and $2,496$3,238 as of January 31, 20092011 and 2008,2010, respectively. Advertising expenses were $45,561, $40,828$58,336, $46,827 and $35,882$45,561 for fiscal 2009, 20082011, 2010 and 2007,2009, respectively.

Start-up Costs

The Company expenses all start-up and organization costs as incurred, 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 2009, 20082011, 2010 and 2007,2009, the Company did not capitalize any internal-use software development costs because substantially all costs were incurred during the planning stage,and operating stages, and costs incurred during the application and infrastructure development stage were not material.

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 net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company files a consolidated United States federal income tax return (see Note 8).

The Company adopted the provisions8 for a further discussion of FIN 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” on February 1, 2007. FIN 48 prescribes the recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return (see Note 8)income taxes).

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

 

Net Income Per Common Share

Basic net income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, after givingand common share equivalents outstanding. Common share equivalents include the effect to the potential dilution from the exercise of securities, such as stock options and non-vested shares, into shares of common stock as if those securities were exercised (see Note 10).

Accounting for Stock-Based Compensation

Effective February 1, 2006, the Company adopted SFAS No. 123R, “Share Based Payment”, (“SFAS 123R”), using the modified prospective approach. Under the modified prospective approach, the amount of compensation cost recognized includes: (i) compensation cost for all share-based payments granted before but not yet vested as of January 31, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123, and (ii) compensation cost for all share-based payments granted or modified subsequent to January 31, 2006, based on the estimated fair value at the date of grant or subsequent modification date in accordance with the provisions of SFAS 123R.

SFAS 123R also required the Company to change the classification in our consolidated statement of cash flows, of any income tax benefits realized upon the exercise of stock options, or issuance ofstock appreciation rights, restricted shares and performance share unit awards in excess of that which is associated with the expense recognized for financial reporting purposes. These amounts are presented as financing inflows in our consolidated statement of cash flows.

Prior to February 1, 2006 the Company accounted for our share-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, as permitted by SFAS 123, and accordingly did not recognize compensation expense for stock options with an exercise price equal to or greater than the market price of the underlying stock at the date of the grant (see Note 9).units.

Accumulated Other Comprehensive Income

Comprehensive income is comprised of two subsets—net income and accumulated other comprehensive income. Amounts included in accumulated other comprehensive income relate to foreign currency translation adjustments and unrealized gains or losses on marketable securities. The foreign currency translation adjustments are not adjusted for income taxes because these adjustments relate to indefinite investments in non-U.S. subsidiaries. As of January 31, 2009, accumulatedAccumulated other comprehensive income consisted of a foreign currency translation losslosses of $14,496. As$7,752 and $7,323 as of January 31, 2008, accumulated other comprehensive income consisted of a foreign currency translation gain of $5,370. As of2011 and January 31, 2009,2010, respectively. Accumulated other comprehensive income included an unrealized loss,losses, net of tax, on marketable securities of $3,251$2,510 and $1,771 as of January 31, 2008, an unrealized gain of $1,865, net of tax, on marketable securities.2011 and January 31, 2010, respectively. Gross realized gains and losses are included in other income and were not material to the Company’s financial statementsConsolidated Financial Statements for all three years presented.

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 as of the balance sheet date, equity accounts at historical exchange rates, while incomerevenue 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 within shareholders’ equity. As of January 31, 2009, 20082011, 2010 and 2007,2009, foreign currency translation adjustments resulted in a losslosses of $7,752, $7,323 and $14,496, and gains of $5,370 and $4,667, respectively.

Fair Value of Financial Instruments

Effective February 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) that relate to its financial assets and financial liabilities as discussed in Note 4. SFAS No. 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach).

Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities and accounts receivable. The Company manages the credit risk associated with cash, cash equivalents and marketable securities by investing in high-quality securities held with reputable trustees and, by policy, limiting the amount of credit exposure to any one issue. The Company’s investment policy requires that the majority of its cash, cash equivalents and marketable securities are invested in federally insured or guaranteed investment vehicles such as; money market accounts up to applicable TARP limits,as federal government agencies, FDIC insured corporate bonds, federal government agencies and irrevocable pre-refunded municipal bonds.bonds and United States treasury bills. Receivables from 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

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

allowance for doubtful accounts reflects current market conditions and management’s assessment regarding the likelihoodcollectability of collecting its accounts receivable. 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 related to its cash accounts.

Recently Issued Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which amends fair value measurements and disclosures and aims to improve the transparency of financial reporting of assets and liabilities measured at fair value. The update requires new disclosures for transfers in and out of Level 1 and Level 2 and the basis for such transfers. Also required are disclosures for activity in Level 3 including purchase, sale, issuance and settlement information. Lastly, it clarifies guidance regarding disaggregation and disclosure of information about valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements in Level 2 and Level 3 categories. The Company has adopted the new disclosures and clarifications of existing disclosures as of February 1, 2010 which were effective for interim and annual reporting periods beginning after December 15, 2009. This adoption had no impact on the Company’s financial condition, results of operations or cash flows. The Company has not adopted the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements as these disclosures are effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company does not expect this adoption to have an impact on its financial condition, results of operations or cash flows.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recently Issued Accounting Pronouncements(in thousands, except share and per share data)

In November 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141R “Business Combinations” (“SFAS No 141R”), which requires that all business combinations be accounted for by applying the acquisition method. Under the acquisition method, the acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, and any contingent consideration and contractual contingencies, as a whole at their fair value as of the acquisition date. Under SFAS No. 141R, all transaction costs are expensed as incurred. SFAS No. 141R rescinds EITF 93-7. Under EITF 93-7, the effect of any subsequent adjustments to uncertain tax positions were generally applied to goodwill, except for post-acquisition interest on uncertain tax positions, which was recognized as an adjustment to income tax expense. Under SFAS No. 141R, all subsequent adjustments to these uncertain tax positions that otherwise would have impacted goodwill will be recognized in the income statement. The guidance in SFAS No. 141R will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. The Company does not expect the application of SFAS No. 141R to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities: Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Effective February 1, 2008, the Company adopted SFAS No. 159 and has elected not to apply the provisions of SFAS No. 159 to report certain of its assets and liabilities at fair value.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities in fiscal years beginning after November 15, 2007 and for certain nonfinancial assets and certain nonfinancial liabilities in fiscal years beginning after November 15, 2008. Effective February 1, 2008, we have adopted the provisions of SFAS No. 157 that relate to our financial assets and financial liabilities (see Note 4). We are currently evaluating the impact of the provisions of SFAS No. 157 that relate to our nonfinancial assets and nonfinancial liabilities, which are effective for us as of February 1, 2009.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

3. Marketable Securities

During all periods shown, marketable securities are classified as available-for-sale. The amortized cost, gross unrealized gains (losses) and fair values of available-for-sale securities by major security type and class of security as of January 31, 20092011 and 20082010 are as follows:

 

   Amortized
Cost
  Unrealized
Gains
  Unrealized
(Losses)
  Fair
Value

As of January 31, 2009

       

Short-term Investments:

       

Municipal bonds

  $15,814  $123  $—    $15,937

Mutual funds

   5,046   —     —     5,046

Federal government agencies

   24,975   —     —     24,975

Demand notes and equities

   4,840   2   (852)  3,990
                
   50,675   125   (852)  49,948
                

Long-term Investments:

       

Municipal bonds

   76,517   1,239   (10)  77,746

Auction rate instruments (1)

   44,025   —     (5,283)  38,742

Federal government agencies

   25,640   —     (141)  25,499

FDIC insured corporate bonds

   13,318   —     (79)  13,239
                
   159,500   1,239   (5,513)  155,226
                
  $210,175  $1,364  $(6,365) $205,174
                

As of January 31, 2008

       

Short-term Investments:

       

Municipal bonds

  $24,675  $142  $—    $24,817

Auction rate instruments

   33,825   —     —     33,825

Demand notes

   21,485   —     —     21,485
                
   79,985   142   —     80,127
                

Long-term Investments:

       

Municipal bonds

   124,148   2,729   —     126,877

Auction rate instruments (1)

   61,375   —     —     61,375
                
   185,523   2,729   —     188,252
                
  $265,508  $2,871   —    $268,379
                

(1)ARS have been classified as long-term assets in marketable securities in the Company’s Consolidated Balance Sheet as of January 31, 2009 and 2008 due to ARS failures.
   Amortized
Cost
   Unrealized
Gains
   Unrealized
(Losses)
  Fair
Value
 

As of January 31, 2011

       

Short-term Investments:

       

Municipal and pre-refunded municipal bonds

  $42,996    $48    $(9 $43,035  

Federal government agencies

   40,842     80     —      40,922  

FDIC insured corporate bonds

   23,489     66     —      23,555  

Treasury bills

   7,004     4     —      7,008  

Variable rate demand notes

   1,900     —       —      1,900  
                   
   116,231     198     (9  116,420  
                   

Long-term Investments:

       

Municipal and pre-refunded municipal bonds

   143,711     216     (558  143,369  

Corporate bonds

   137,540     173     (154  137,559  

Federal government agencies

   18,225     30     (2  18,253  

Treasury bills

   23,311     34     —      23,345  

Auction rate securities

   33,250     —       (3,788  29,462  
                   
   356,037     453     (4,502  351,988  
                   
  $472,268    $651    $(4,511 $468,408  
                   

As of January 31, 2010

       

Short-term Investments:

       

Municipal and pre-refunded municipal bonds

  $120,778    $357    $(5 $121,130  

Federal government agencies

   154,470     229     (24  154,675  

FDIC insured corporate bonds

   22,219     186     —      22,405  

Treasury bills

   42,758     43     —      42,801  

Equities

   1,800     —       (299  1,501  
                   
   342,025     815     (328  342,512  
                   

Long-term Investments:

       

Municipal and pre-refunded municipal bonds

   35,699     302     (29  35,972  

Federal government agencies

   116,625     394     (111  116,908  

FDIC insured corporate bonds

   32,652     263     —      32,915  

Treasury bills

   24,055     90     —      24,145  

Auction rate securities

   37,625     —       (4,120  33,505  
                   
   246,656     1,049     (4,260  243,445  
                   
  $588,681    $1,864    $(4,588 $585,957  
                   

Proceeds from the sale and maturities of available-for-sale securities were $864,685, $220,101$571,236, $421,040 and $193,274$864,685 in fiscal 2009, 20082011, 2010 and 2007,2009, respectively. The Company included in other income, a net realized loss of $896$30 during fiscal 2009,2011, a net realized gain of $1$1,075 during fiscal 20082010 and a net realized loss of $8$896 during fiscal 2007.2009. Amortization of discounts and premiums, net, resulted in charges of $2,444, $1,734$8,702, $6,204 and $1,818$2,444 for fiscal years 2011, 2010, and 2009, 2008, and 2007, respectively.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The following tables show the gross unrealized losses and fair value of the Company’s marketable securities with unrealized losses that are not deemed to be other-than-temporarily impaired aggregated by the length of time that individual securities have been in a continuous unrealized loss position, at January 31, 2011 and January 31, 2010, respectively.

   January 31, 2011 
   Less Than 12 Months  12 Months or Greater  Total 

Description of Securities

  Fair Value   Unrealized
Losses
  Fair Value   Unrealized
Losses
  Fair Value   Unrealized
Losses
 

Municipal and pre-refunded municipal bonds

   103,090     (567  —       —      103,090     (567

Federal government agencies

   1,397     (2  —       —      1,397     (2

FDIC insured corporate bonds

   67,359     (154  —       —      67,359     (154

Auction rate securities

   —       —      29,462     (3,788  29,462     (3,788
                            

Total

   171,846     (723  29,462     (3,788  201,308     (4,511
                            
   January 31, 2010 
   Less Than 12 Months  12 Months or Greater  Total 

Description of Securities

  Fair Value   Unrealized
Losses
  Fair Value   Unrealized
Losses
  Fair Value   Unrealized
Losses
 

Municipal and pre-refunded municipal bonds

   25,468     (34  —       —      25,468     (34

Federal government agencies

   55,988     (135  —       —      55,988     (135

Equities

   —       —      1,501     (299  1,501     (299

Auction rate securities

   —       —      37,625     (4,120  37,625     (4,120
                            

Total

   81,456     (169  39,126     (4,419  120,582     (4,588
                            

As of January 31, 2009,2011 and 2010, there were a total of 50128 and 53 issued securities with unrealized loss positions within the Company’s portfolio, with a total unrealized loss position of $6,365.respectively. The total unrealized loss position due to write-downs of ARS held by the Company that have experienced auction failures as of January 31, 2011 and 2010 was $5,283.$3,788 and $4,120, respectively. The Company deemed all of these securities as temporarily impaired. The unrealized loss positions were primarily due to auction failures of the ARS held and fluctuations in the market interest rates for remaining securities. The Company believes it has the ability to realize the full value of all of these investments upon maturity or redemption. At January 31, 2008, there were no issued securities with an unrealized loss position within the Company’s portfolio.

As of January 31, 2009,2011, the par value of our ARS was $44,025$33,250 and the estimated fair value was $38,742.$29,462. Our ARS portfolio consists of “A” or better rated ARS that represent interests in municipal and student loan related collateralized debt obligations, all of which are guaranteed by either government agencies and/or insured by private insurance agencies at 97% or greater of par value. To date, we have collected all interest payable on outstanding ARS when due and have not been informed by the issuers that accrued interest payments are currently at risk. WeThe Company does not have the abilityintent to holdsell the underlying securities untilprior to their maturity.recovery and the Company believes it is not likely that it will be required to sell the underlying securities prior to their anticipated recovery of full amortized cost.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

4. Fair Value of Financial Assets and Financial Liabilities

Effective February 1, 2008, theThe Company adopted the provisions of SFAS No. 157 that relate to its financial assets and financial liabilities. SFAS No. 157 establishesutilizes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach)approach that relate to its financial assets and financial liabilities). The levels of the hierarchy are described as follows:

 

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy. The Company’s financial assets that are accounted for at fair value on a recurring basis are presented in the table below:

 

  Marketable Securities Fair Value as of
January 31, 2009
  Marketable Securities Fair Value as of
January 31, 2011
 
  Level 1  Level 2  Level 3  Total Level 1   Level 2   Level 3   Total 

Assets:

                

Municipal bonds

  $—    $93,683  $—    $93,683

Mutual funds

   5,046   —     —     5,046

Auction rate securities

   —     —     38,742   38,742

Municipal and pre-refunded municipal bonds

  $—      $186,404    $—      $186,404  

Federal government agencies

   50,474   —     —     50,474   59,175     —       —       59,175  

FDIC insured corporate bonds

   13,239   —     —     13,239   23,555     —       —       23,555  

Demand notes and equities

   988   3,002   —     3,990

Corporate bonds

   137,559     —       —       137,559  

Treasury bills

   30,353     —       —       30,353  

Auction rate securities

   —       —       29,462     29,462  

Variable rate demand notes

   —       1,900     —       1,900  
                            
  $69,747  $96,685  $38,742  $205,174  $250,642    $188,304    $29,462    $468,408  
                            
  Marketable Securities Fair Value as of
January 31, 2010
 
Level 1   Level 2   Level 3   Total 

Assets:

        

Municipal and pre-refunded municipal bonds

  $—      $157,102    $—      $157,102  

Federal government agencies

   271,583     —       —       271,583  

FDIC insured corporate bonds

   55,320     —       —       55,320  

Treasury bills

   66,946     —       —       66,946  

Auction rate securities

   —       —       33,505     33,505  

Equities

   1,501     —       —       1,501  
                
  $395,350    $157,102    $33,505    $585,957  
                

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Level 1 assets consist of financial instruments whose value has been based on quoted market prices for identical financial instruments in an active market.

Level 2 assets consist of financial instruments whose value has been based on quoted prices for similar assets and liabilities in active markets as well as quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 consists of financial instruments where there was no active market as of January 31, 2009.2011 and 2010. As of January 31, 20092011 and 2010 all of the Company’s level 3 financial instruments consisted of failed ARS of which there was insufficient observable market information to determine fair value. The Company estimated the fair values for these securities by incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included credit quality, collateralization, final stated maturity, estimates of the probability of being called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity for the same investment security, impact due to extended periods of maximum auction rates and valuation models. As a result of this review, the Company determined its ARS to have a temporary impairment of $5,283$3,788 and $4,120 as of January 31, 2009.2011 and January 31, 2010, respectively. The estimated fair values could change significantly based on future market conditions. The Company will continue to assess the fair value of its ARS for substantive changes in relevant market conditions, changes in its financial condition or other changes that may alter its estimates described above. Failed ARS representrepresented approximately 7.4%3.6% and 4.5% of the Company’s total cash, cash equivalents and marketable securities.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

securities as of January 31, 2011 and January 31, 2010, respectively.

Below is a reconciliation of the beginning and ending ARS securities balances that the Company valued using a Level 3 valuation for the fiscal yearyears ended January 31, 2009.2011 and 2010.

 

  Fiscal Year Ended
January 31, 2009
   Fiscal Year Ended
January 31, 2011
 Fiscal Year Ended
January 31, 2010
 

Balance at beginning of period

  $61,375   $33,505   $38,742  

Total (losses) realized/unrealized:

  

Total gains (losses) realized/unrealized:

   

Included in earnings

   (2,880)   —      —    

Included in other comprehensive income

   (5,283)   332    1,163  

Purchases, issuances and settlements

   (17,350)   (4,375  (6,400

Transfers in and/or out of Level 3

   2,880    —      —    
           

Ending Balance as of January 31, 2009

  $38,742 

Balance at end of period

  $29,462   $33,505  
           

Total (losses) for the period included in other comprehensive income attributable to the change in unrealized (losses) related to assets still held at reporting date

  $(5,283)

Unrealized losses included in accumulated other comprehensive income related to assets still held at reporting date

  $(3,788 $(4,120

Total gains for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at reporting date

  $—     $—    

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

5. Property and Equipment

Property and equipment is summarized as follows:

 

  January 31,   January 31, 
  2009 2008   2011 2010 

Land

  $543  $543   $2,387   $2,387  

Buildings

   96,205   94,547    117,982    96,617  

Furniture and fixtures

   214,178   184,910    273,621    242,123  

Leasehold improvements

   486,959   432,831    606,020    552,095  

Other operating equipment

   48,021   38,433    81,856    63,605  

Construction-in-progress

   15,458   19,796    29,295    19,869  
              
   861,364   771,060    1,111,161    976,696  

Accumulated depreciation

   (355,957)  (282,171)   (524,815  (436,735
              

Total

  $505,407  $488,889   $586,346   $539,961  
              

Depreciation expense for property and equipment for fiscal years ended 2011, 2010 and 2009 2008was $92,403, $86,146 and 2007 was $79,505, $68,282 and $53,895, respectively.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

  January 31,  January 31, 
  2009  2008 2011   2010 

Accrued rents and estimated property taxes

  $10,074  $8,707  $9,329    $10,598  

Gift certificates and merchandise credits

   22,307   19,518   30,866     25,161  

Accrued construction

   6,261   6,629   8,103     13,046  

Accrued income taxes

   301   20,569   22,466     5,216  

Accrued sales taxes

   5,174   4,024   7,780     5,373  

Accrued payroll taxes

   3,980     5,901  

Sales return reserve

   7,547   6,018   11,367     9,912  

Other current liabilities

   14,556   17,765   14,017     13,388  
              

Total

  $66,220  $83,230  $107,908    $88,595  
              

7. Line of Credit Facility

On December 11, 2007,September 21, 2009, the Company amended its renewed and amended its line of credit facility with Wachovia Bank, National Association (the “Line”) with Wells Fargo Bank N.A. (the “Bank”). This amendment added an additional borrower and certain additional guarantors. The Line is a three-year revolving credit facility with an accordion feature allowing an increase in available credit up to $100 million$100,000 at the Company’s discretion, subjectdiscretion. On May 27, 2010, the Company executed a fifth amendment to a seven day request period. As of January 31, 2009, the Line increasing its credit limit under the Line was $60 million. The Line contains a sub-limit for borrowings by the Company’s European subsidiaries that are guaranteed by the Company.to

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

$80,000. Cash advances bear interest at LIBOR plus 0.50% to 1.60% based on the Company’s achievement of prescribed adjusted debt ratios. The Line subjects the Company to various restrictive covenants, including maintenance of certain financial ratios and covenants such as fixed charge coverage and adjusted debt. The covenants also include limitations on the Company’s capital expenditures, ability to repurchase shares and the payment of cash dividends. As of January 31, 2009,2011, there were no borrowings under the Line. Outstanding letters of credit and stand-by letters of credit under the Line totaled approximately $35,139$55,478 and $36,281 as of January 31, 2009.2011 and January 31, 2010, respectively. The available credit, including the accordion feature under the Line was $64,861$44,522 and $63,719 as of January 31, 2009.2011 and January 31, 2010, respectively. The Company believesis negotiating a renewal of the renewed Line with the Bank. As part of these negotiations, the Company was granted an extension of all of the existing terms, covenants and conditions of the Line through April, 2011. The Company expects that such renewal will satisfy its letter of credit needs through fiscal 2011. Wachovia Bank, National Association was acquired by Wells Fargo, effective January 1, 2009. The Wells Fargo acquisition does not affect the original line agreement.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

at least 2014.

8. Income Taxes

The components of income before income taxes are as follows:

 

  Fiscal Year Ended January 31,  Fiscal Year Ended January 31, 
  2009  2008  2007 2011   2010   2009 

Domestic

  $297,747  $229,600  $161,985  $374,777    $333,824    $297,747  

Foreign

   11,743   4,795   8,173   42,431     10,582     11,743  
                     
  $309,490  $234,395  $170,158  $417,208    $344,406    $309,490  
                     

The components of the provision for income tax expense are as follows:

 

  Fiscal Year Ended January 31,   Fiscal Year Ended January 31, 
  2009 2008 2007  2011 2010 2009 

Current:

        

Federal

  $103,907  $66,000  $48,893   $127,390   $107,350   $103,907  

State

   15,037   9,936   8,442    19,492    13,216    15,037  

Foreign

   533   1,010   1,576    6,095    1,786    533  
                    
   119,477   76,946   58,911    152,977    122,352    119,477  
                    

Deferred:

        

Federal

   (7,917)  (2,189)  6    (6,698  2,960    (7,917

State

   (462)  (2,499)  (2,333)   (1,906  (365  (462

Foreign

   (1,128)  891   284    (123  (434  (972
                    
   (9,507)  (3,797)  (2,043)   (8,727  2,161    (9,351
                    

Change in valuation allowances

   156   1,015   (2,916)
            $144,250   $124,513   $110,126  
  $110,126  $74,164  $53,952           
          

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The Company’s effective tax rate was different than the statutory U.S. federal income tax rate for the following reasons:

 

   Fiscal Year Ended January 31, 
   2009  2008  2007 

Expected provision at statutory U.S. federal tax rate

  35.0% 35.0% 35.0%

State and local income taxes, net of federal tax benefit

  2.6  2.1  2.3 

Foreign taxes

  (1.5) 0.5  (2.3)

Federal rehabilitation tax credits

  0  (5.0) (2.8)

Other

  (0.5) (1.0) (0.5)
          

Effective tax rate

  35.6% 31.6% 31.7%
          

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

   Fiscal Year Ended January 31, 
  2011  2010  2009 

Expected provision at statutory U.S. federal tax rate

   35.0  35.0  35.0

State and local income taxes, net of federal tax benefit

   3.2    2.3    2.6  

Foreign taxes

   (2.1  (0.6  (1.5

Federal rehabilitation tax credits

   (0.8  —      —    

Other

   (0.7  (0.5  (0.5
             

Effective tax rate

   34.6  36.2  35.6
             

The significant components of deferred tax assets and liabilities as of January 31, 20092011 and 20082010 are as follows:

 

  January 31,   January 31, 
  2009 2008   2011 2010 

Deferred tax liabilities:

      

Prepaid expenses

  $(1,407) $(1,977)  $(1,551 $(815

Depreciation

   (17,762)  (17,399)   (15,922  (32,181
              

Gross deferred tax liabilities

   (19,169)  (19,376)   (17,473  (32,996
              

Deferred tax assets:

      

Deferred rent

   47,945   42,620    43,005    54,563  

Inventories

   5,582   4,176    5,434    5,575  

Accounts receivable

   626   563    747    772  

Net operating loss carryforwards

   2,760   1,666    5,123    4,795  

FIN 48

   4,368   4,090 

Tax uncertainties

   4,433    4,594  

Accrued salaries and benefits, and other

   5,586   2,553    13,496    8,549  
              

Gross deferred tax assets, before valuation allowances

   66,867   55,668    72,238    78,848  
              

Valuation allowances

   (1,402)  (1,246)   (2,622  (2,196
              

Net deferred tax assets

  $46,296  $35,046   $52,143   $43,656  
              

Net deferred tax assets are attributed to the jurisdictions in which the Company operates. As of January 31, 20092011 and 2008,2010, respectively, $32,923$37,170 and $23,187$29,655 were attributable to U.S. federal, $11,392$13,546 and $10,815$11,632 were attributed to state jurisdictions and $1,981$1,427 and $1,044$2,369 were attributed to foreign jurisdictions.

As of January 31, 2009,2011, certain non-U.S. subsidiaries of the Company had net operating loss carryforwards for tax purposes of approximately $7,942$6,965 that do not expire and certain U.S. subsidiaries of the Company had state net operating loss carryforwards for tax purposes of approximately $5,462$14,111 that expire from 20142016 through 2029.2031. At January 31, 2009, The2011, the Company had a

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

full valuation allowance for certain foreign and state net operating loss carryforwards where it was uncertain the carryforwards would be utilized. The Company had no valuation allowance for certain other foreign and state net operating loss carryforwards where management believes it is more likely than not the tax benefit of these carryforwards will be realized. As of January 31, 20092011 and 2008,2010, the non-current portion of net deferred tax assets aggregated $40,378$37,789 and $31,362,$31,379, 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 $53,553$68,415 as of January 31, 2009.2011. These earnings are deemed to be permanently re-invested to finance growth programs.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

 

  January 31,   January 31, 
  2009 2008  2011 2010 2009 

Balance at the beginning of the period

  $7,805  $8,717   $7,532   $7,509   $7,805  

Increases in tax positions for prior years

   24   227    43    948    24  

Decreases in tax positions for prior years

   (380)  (1,414)   (592  (116  (380

Increases in tax positions for current year

   838   917    1,000    1,894    838  

Settlements

   (554)  (345)   (40  (924  (554

Lapse in statute of limitations

   (224)  (297)   (185  (1,779  (224
                 

Balance at the end of the period

  $7,509  $7,805   $7,758   $7,532   $7,509  
                 

The total amount of net unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate were $6,389$6,677 and $6,036$6,039 at January 31, 20092011 and 20082010 respectively. The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. During the years ended January 31, 20092011, 2010 and 2008,2009, the Company recognized $985a benefit of $437, $427 and $465$985 in interest and penalties. The Company had $3,609$3,620 and $2,625$3,182 for the payment of interest and penaltypenalties accrued at January 31, 20092011 and 2008,2010, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. TheIn January 2010, the Company is currently underreceived an examination of its federalreport from the IRS setting forth proposed adjustments to the Company’s U.S. income tax returnreturns for the periodperiods ended January 31, 2005.2005 through 2008. The Company has submitted an appeal with respect to certain of the proposed adjustments. The timing for resolving such appeal to the IRS is uncertain. The Company is not subject to U.S. federal tax examinations for years before fiscal 2004.2005. State and foreign jurisdictions that remain subject to examination range from fiscal 20012002 to 2008,2010 with few exceptions. It is possible that these examinationsany state or foreign examination may be resolved within twelve months. Due to the potential for resolution of Federal appeals and state examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $2,096.$3,411.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

9. Share-Based Compensation

The Company’s 2008 2004 and 20002004 Stock Incentive Plans each authorize up to 10,000,000 common shares, which can be granted as restricted shares, unrestricted shares, incentive stock options, nonqualified stock options, performance sharesshare units (“PSU’s”) or as stock appreciation rights. Grantsrights (“SAR’s”). Awards under these plans generally expire seven or ten years from the date of grant or thirty days after termination orof employment, six months after the date of death or termination due to disability. Stock options generally vest over a period of three or five years, with options becoming exercisable in installments determined by the administrator over the vesting period. However, options granted to non-employee directors generally vest over a period of one year. The Company’s 1997 Stock Option Plan (the “1997 Plan”), which replaced the previous 1987, 1992 and 1993 Stock Option Plans (the “Superseded Plans”), expired during the year ended January 31, 2004. Individual grants outstanding under the 1997 Plan and certaindisability of the Superseded Plans have expiration dates, which extend into the year 2010. Grants under the 1997

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Plan and the Superseded Plans generally expire ten years from the date of grant, thirty days after termination, or six months after the date of death or termination due to disability. Stock options generally vest over a five year period, with options becoming exercisable in equal installments of twenty percent per year.grantee. As of January 31, 20092011 there were 10,000,000, 1,194,7009,251,200 and 24,450583,100 common shares available forto grant under the 2008 2004 and 20002004 Stock Incentive Plans, respectively.

Under the provisions of SFAS No. 123R, the Company recorded $2,481, $2,124 and $2,344 of stock compensation related to stock option awards as well as related tax benefits of $851, $644 and $499 in the Company’s Consolidated Statements of Income for the fiscal years ended January 31, 2009, 2008 and 2007, respectively or less than $0.01 for both basic and diluted earnings per share. During fiscal 2009, the Company granted 1,235,800 stock options. The estimated fair value of the grants was calculated using aA Lattice Binomial option pricing model for the options granted during the fiscal year ended January 31, 2009. For stock options granted during the fiscal year ended January 31, 2008,(“Model”) was used to estimate the fair value of these grants was calculated using the Black Scholes option pricing model. Both the Lattice Binomialstock options and Black Scholes option pricing models incorporate certain economic assumptions to value these stock-based awards.SAR’s. The prevailing difference between the two models is the Lattice Binomial model’s ability to enhance the simple assumptions that underlie the Black Scholes model. The Lattice Binomial modelModel allows for assumptions such as the risk-free rate of interest, volatility and exercise rate to vary over time reflecting a more realistic pattern of economic and behavioral occurrences. The Company uses historical data on exercise timing to determine the expected life assumption. The decrease in the expected life in fiscal year 2009 is due to the fact that the majority of the grants issued in fiscal 2009 expire in seven years. The risk-free rate of interest for periods within the contractual life of the optionaward is based on U.S. Government Securities Treasury Constant Maturities over the expected term of the equity instrument. In the current fiscal year, utilizing the Lattice Binomial option pricing model, theThe expected volatility is based on a weighted average of the implied volatility and the Company’s most recent historical volatility. In previous fiscal years under the Black Scholes option pricing model, the expected volatility was based on the historical volatility of the Company’s stock. The table below outlines the weighted average assumptions for these grants:

   Fiscal
2009
  Fiscal
2008
  Fiscal
2007
 

Expected life, in years

  4.3  6.2  6.8 

Risk-free interest rate

  2.5% 4.5% 4.8%

Volatility

  41.4% 49.8% 54.4%

Dividend rate

  —    —    —   

Based on the Company’s historical experience, the Companyit has assumed an annualized forfeiture rate of 2%5% for its unvested options. Undernon-vested stock options and SAR’s granted during the true-up provisionsfiscal years ended January 31, 2011 and 2010. For stock options granted in previous years that remain non-vested, an annualized forfeiture rate of SFAS No. 123R, the2% has been assumed. The Company will record additional expense if the actual forfeiture rate is lower than it estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.

Stock based compensation expense, included in the Consolidated Statements of Income, for the fiscal years ended January 31, 2011, 2010 and 2009 was as follows:

   Fiscal Year Ended January 31, 
  2011   2010   2009 
  (In thousands) 

Stock Options

  $4,331    $2,975    $2,481  

Stock Appreciation Rights

   463     —       —    

Performance Share Units

   5,929     1,349     —    

Restricted Shares

   2     442     1,156  
               

Total

  $10,725    $4,766    $3,637  
               

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Stock Options

The Company grants stock options which generally vest over a period of three or five years. Stock options become exercisable over the vesting period in installments determined by the administrator, which can vary depending upon each individual grant. Stock options granted to non-employee directors generally vest over a period of one year. The following assumptions were used in the Model to estimate the fair value of stock options at the date of grant:

   Fiscal
2011
  Fiscal
2010
  Fiscal
2009
 

Expected life, in years

   4.3    4.2    4.3  

Risk-free interest rate

   1.8  2.0  2.5

Volatility

   49.9  51.4  41.4

Dividend rate

   —      —      —    

The following table summarizes the Company’s stock option activity:

   Fiscal Year Ended January 31, 2011 
   Shares  Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(years)
   Aggregate
Intrinsic
Value
 

Awards outstanding at beginning of year

   10,642,767   $21.01      

Granted

   452,500    38.09      

Exercised

   (2,209,834  10.92      

Forfeited / Cancelled

   (489,199  23.60      

Expired

   (65,551  32.04      
          

Awards outstanding at end of year

   8,330,683    24.31     4.3    $84,443  

Awards outstanding expected to vest

   8,130,747    24.31     4.3    $82,416  
          

Awards exercisable at end of year

   6,854,134    22.06     4.0    $81,901  
          

The following table summarizes other information related to stock options during the years ended January 31, 2011, 2010 and 2009:

   Fiscal Year Ended January 31, 
      2011           2010           2009     
  (In thousands, except per share data) 

Weighted-average grant date fair value—per share

  $12.07    $8.35    $10.56  

Intrinsic value of awards exercised

  $55,100    $16,613    $41,622  

Net cash proceeds from the exercise of stock options

  $24,129    $3,250    $8,891  

Actual income tax benefit realized from stock option exercises

  $12,847    $6,390    $13,434  

The Company recognized tax benefits, related to stock options of $1,336, $1,034 and $851, in the accompanying Consolidated Statements of Income for the fiscal years ended January 31, 2011, 2010

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

and 2009, respectively. Total compensation cost of stock options granted but not yet vested, as of January 31, 2009,2011, was $11,627,$11,971, which is expected to be recognized over the weighted average period of 2.712.16 years.

The following table summarizes information concerning outstanding and exercisable stock options as of January 31, 2011:

   Awards Outstanding   Awards Exercisable 

Range of Exercise Prices

  Amount
Outstanding
   Wtd. Avg.
Remaining
Contractual
Life
   Wtd.
Avg.
Exercise
Price
   Amount
Exercisable
   Wtd.
Avg.
Exercise
Price
 

$  0.00 - $  3.96

   182,900     0.7    $1.86     182,900    $1.86  

$  3.97 - $  7.92

   668,300     2.4     4.70     668,300     4.70  

$11.87 - $15.83

   2,193,950     3.4     14.36     2,193,950     14.36  

$15.84 - $19.79

   167,500     5.2     19.03     86,667     19.73  

$19.80 - $23.75

   142,333     5.1     22.08     116,667     22.09  

$23.76 - $27.71

   502,000     4.6     25.61     472,000     25.65  

$27.72 - $31.66

   2,722,050     4.9     31.07     2,691,550     31.07  

$31.67 - $35.62

   552,100     5.6     32.84     97,840     32.71  

$35.63 - $39.58

   1,199,550     5.0     38.02     344,260     37.51  
                
   8,330,683     4.3     24.31     6,854,134     22.05  
                

Stock Appreciation Rights

The Company granted SAR’s during fiscal 2011. There were no SAR’s issued or outstanding during fiscal 2010 or 2009. These SAR’s generally vest over a five year period. Each vested SAR entitles the holder the right to the differential between the value of the Company’s common share price at the date of exercise and the value of the Company’s common share price at the date of grant. As of January 31, 2011, none of these SAR’s had vested. The following assumptions were used in the Model to estimate the fair value of stock options at the date of grant:

Fiscal
2011

Expected life, in years

5.3

Risk-free interest rate

1.6

Volatility

47.9

Dividend rate

—  

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

The following table summarizes the Company’s SAR activity:

  Fiscal Year Ended January 31, 2011 
  Shares  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
(years)
  Aggregate
Intrinsic
Value
 

Awards outstanding at beginning of year

  —     $—      

Granted

  495,100    32.84    

Exercised

  —      —      

Forfeited / Cancelled

  (6,300  32.80    

Expired

  —      —      
       

Awards outstanding at end of year

  488,800    32.84    7.6   $491  

Awards outstanding expected to vest

  464,360    32.84    7.6   $466  
       

Awards exercisable at end of year

  —      —      —     $  —    
       

Weighted average grant date fair value — per share

 $12.57     

Total compensation cost of SARs granted, but not yet vested as of January 31, 2011 was $5,374, which is expected to be recognized over the weighted average period of 4.6 years.

Performance Share Units

The Company grants PSU’s which vest based on the achievement of various company performance targets and external market conditions. The fair value of the PSU’s are determined using a Monte Carlo simulation. Once the Company determines that it is probable that the performance targets will be met, compensation expense is recorded for these awards. If any of these criteria are not met, the awards are forfeited. Each PSU is equal to one share of common stock with varying maximum award value limitations. PSU’s typically vest over a two to seven year period.

The following table summarizes the Company’s PSU activity for the fiscal year ended January 31, 2011:

   Shares  Weighted
Average
Fair Value
 

Non-vested awards outstanding at beginning of year

   1,139,116   $24.16  

Granted

   400,300    24.03  

Vested

   (46,439  16.44  

Forfeited / Cancelled

   (51,611  20.99  
      

Non-vested awards outstanding at end of year

   1,441,366    24.57  
      

The aggregate grant date fair value of PSU’s granted during fiscal 2011, 2010 and 2009 was $9,621, $26,932 and $1,238, respectively. The aggregate grant date fair value of PSU’s vested during fiscal 2011 was $1,060. No PSU’s vested during fiscal 2010 or 2009. Total unrecognized compensation cost related to non-vested PSU’s as of January 31, 2011 was $29,115 which is expected to be recognized over a weighted average period of 4.8 years.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize activity under all stock option plans for the respective periods:

   Fiscal Year Ended January 31,
         2009              2008              2007      
   (In thousands, except per share data)

Weighted-average fair value of options granted per share

  $10.56  $12.76  $11.62

Intrinsic value of options exercised

  $41,622  $23,610  $20,822

Cash received from option exercises

  $8,891  $5,000  $6,351

Actual tax benefit realized for tax deductions from option exercises

  $13,434  $7,341  $5,394

Information regarding options under these plans is as follows:

   Fiscal Year Ended January 31, 2009
   Shares  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
(years)
  Aggregate
Intrinsic

Value
(1)

Options outstanding at beginning of year

   11,568,723  $16.04    

Options granted

   1,235,800   36.12    

Options exercised

   (1,607,473)  5.53    

Options forfeited

   (62,300)  24.48    

Options expired

   (80,500)  29.78    
          

Options outstanding at end of year

   11,054,250   19.64  5.5  $217,119

Options outstanding expected to vest

   10,833,165   19.64  5.5  $212,777
          

Options exercisable at end of year

   9,698,950   17.53  5.3  $170,010
          

Weighted average fair value of options granted per share

  $10.56      
          

URBAN OUTFITTERS, INC.(in thousands, except share and per share data)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following table summarizes information concerning currently outstanding and exercisable options as of January 31, 2009:

   Options Outstanding  Options Exercisable

Range of Exercise Prices

  Amount
Outstanding
  Wtd. Avg.
Remaining
Contractual
Life
  Wtd.
Avg.
Exercise
Price
  Amount
Exercisable
  Wtd.
Avg.
Exercise
Price

$  0.00 - $  3.75

  1,280,450  2.2  $1.76  1,280,450  $1.76

$  3.76 - $  7.50

  1,513,050  4.2   4.46  1,513,050   4.46

$  7.51 - $11.25

  208,000  2.9   9.21  208,000   9.21

$11.26 - $15.00

  2,548,700  5.4   14.26  2,536,700   14.27

$15.01 - $18.76

  195,000  5.7   15.60  160,000   15.38

$18.77 - $22.51

  146,500  7.7   20.22  80,000   19.77

$22.52 - $26.26

  371,000  6.7   24.20  320,000   24.19

$22.27 - $30.01

  308,000  6.5   28.15  298,000   28.11

$30.02 - $33.76 (1)

  3,394,250  6.9   31.09  3,302,750   31.11

$33.77 - $37.51

  1,089,300  6.6   37.33  —     —  
            
  11,054,250  5.5   19.64  9,698,950   17.53
            

(1)Options included in this range contain certain restrictions on the sale of the stock which expire in November 2010.

Non-vested Shares

The Company may make non-vested share awards to employees, non-employee directors and consultants. A non-vested share award is an award of common shares that is subject to certain restrictions during a specified period, such as an employee’s continued employment combined with the Company achieving certain financial goals. The Company holds the common shares during the restriction period, and the grantee cannot transfer the shares before the termination of that period. The grantee is, however, generally entitled to vote the common shares and receive any dividends declared and paid on the Company’s common shares during the restriction period.

Restricted Shares

DuringFor the fiscal year ended January 31, 2005,2011, the Company granted 400,0001,000 restricted shares which vest over a period of three years. There were no restricted common stock with a grant dateshares issued during the fiscal years ended January 31, 2010 and 2009. The fair value of $5,766 or $14.42 per share. Share-based compensation expensethe restricted shares was $36.64 which was based on the closing price of $1,156, $1,153 and $1,153 is included in the accompanying Consolidated StatementsCompany’s common shares at the date of Income for each fiscal year endedgrant. As of January 31, 2009, 20082011, all grants of restricted shares remain unvested and 2007, respectively. Totaltotal unrecognized compensation expense ofcost for non-vested non-performancerestricted shares granted as of January 31, 20092011 was $442,$35, which is expected to be recognized over the weighted average period of 0.42.8 years. As of January 31, 2009 this was the only grant of non-vested, non-performance shares.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Performance Shares

On April 28, 2008, the Company granted two awards of 30,184 Performance Stock Units (“PSU’s”). These PSU’s are subject to a vesting period of two years for the first grant (“Grant A”), and three years for the second grant (“Grant B”). Each PSU grant is subject to various performance criteria. If any of these criteria are not met, the grants are forfeited. Each PSU is equal to one share of common stock with a total award value not to exceed 30% appreciation. Grant A had a grant date fair value of $21.55 per share and Grant B had a grant date fair value of $19.47 per share, with both grants having a total grant date fair value of $1,238. The grant date fair value was calculated using a Lattice Binomial Model. In accordance with FAS 123R, there was no compensation expense recognized in the Company’s Consolidated Statements of Income during the year ended January 31, 2009 because vesting was deemed highly improbable due to the unlikely achievement of the performance criteria governing the grant. The performance criteria achievement is re-measured at each reporting period, and if it is deemed likely that the performance targets will be achieved, any unrecognized compensation expense will be recognized prospectively as of the end of the then current reporting.

10. Net Income Per Common Share

The following is a reconciliation of the weighted average shares outstanding used for the computation of basic and diluted net income per common share:

 

  Fiscal Year Ended January 31,  Fiscal Year Ended January 31, 
  2009  2008  2007 2011   2010   2009 

Basic weighted average shares outstanding

  166,793,062  165,305,207  164,679,786   166,896,322     168,053,502     166,793,062  

Effect of dilutive options and restricted stock

  4,067,543  4,335,378  3,972,219

Effect of dilutive options, non-vested shares and stock appreciation rights

   3,437,228     3,176,743     4,067,543  
                     

Diluted weighted average shares outstanding

  170,860,605  169,640,585  168,652,005   170,333,550     171,230,245     170,860,605  
                     

For the fiscal years ended January 31, 2011, 2010 and 2009, 2008options to purchase 1,324,238 shares ranging in price from $32.89 to $39.58, options to purchase 4,331,650 shares ranging in price from $16.58 to $37.51 and 2007, options to purchase 3,351,338 shares ranging in price from $16.58 to $37.51, options to purchase 4,063,875 shares ranging in price from $22.11 to $31.11 and options to purchase 4,763,375 shares ranging in price from $15.48 to $31.11, were excluded from the calculation of diluted net income per common share for the respective fiscal years because the effect was anti-dilutive.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. Commitments and Contingencies

Leases

The Company leases its stores under non-cancelable operating 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

       

2010

  $132,497

2011

   133,527

2012

   132,021  $164,289  

2013

   127,000   166,290  

2014

   121,079   160,899  

2015

   153,742  

2016

   137,211  

Thereafter

   440,062   498,524  
       

Total minimum lease payments

  $1,086,186  $1,280,955  
       

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

Amounts noted above include commitments for 3420 executed leases for stores not opened as of January 31, 2009.2011. The majority of our leases allow for renewal options between five and ten years upon expiration of the initial lease term. 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. Additionally, the Company has entered into store leases that require a percentage of total sales to be paid to landlords in lieu of minimum rent.

Rent expense consisted of the following:

 

  Fiscal Year Ended January 31,  Fiscal Year Ended January 31, 
  2009  2008  2007 2011   2010   2009 

Minimum and percentage rentals

  $112,907  $100,020  $73,058  $143,919    $125,651    $112,907  

Contingent rentals

   1,993   3,282   1,991   5,836     3,327     1,993  
                     

Total

  $114,900  $103,302  $75,049  $149,755    $128,978    $114,900  
                     

The Company also has commitments for un-fulfilled purchase orders for merchandise ordered from our vendors in the normal course of business, which are liquidated within 12 months, of $302,961.$278,079. The majority of the Company’s merchandise commitments are cancellable with no or limited recourse available to the vendor until merchandise shipping date. The Company also has commitments related to contracts with store construction contractors, fully liquidated upon the completion of construction, which is typically within 12 months, of $1,684.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$18,004.

Benefit Plan

Full and part-time U.S. based employees who are at least 18 years of age are eligible after six months of employment to participate in the Urban Outfitters 401(k) Savings Plan (the “Plan”). Under the Plan, employees can defer 1% to 25% of compensation as defined. The Company makes matching contributions in cash of $0.25 per employee contribution dollar on the first 6% of the 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 $1,090, $969$1,308, $1,171 and $812$1,090 for fiscal years 2009, 20082011, 2010 and 2007,2009, respectively.

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 position, results of operations or cash flows.

12. Related Party Transactions

Drinker Biddle & Reath LLP (“DBR”), a law firm, provided general legal services to the Company. Fees paid to DBR during fiscal 2011, 2010 and 2009 were $2,707, $1,732 and $2,670, respectively. Harry S. Cherken, Jr., a director of the Company, is a partner in the law firm of Drinker Biddle & Reath LLP (“DBR”), which provides general legal services to the Company. Fees paid to DBR during fiscal 2009, 2008 and 2007 were $2,670, $3,662 and $1,493, respectively.at DBR. Fees due to DBR as offor the fiscal years ended January 31, 20092011, 2010 and January 31, 2008 for services rendered2009 were approximately $251, $251 and $442, respectively.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and $556, respectively.per share data)

The McDevitt Company, a real estate company, acted as a broker in substantially all of the Company’s new real estate transactions during fiscal 2009, 20082011, 2010 and 2007.2009. The Company has not paid any compensation to The McDevitt Company, but the Company has been advised that The McDevitt Company has received commissions from other parties to such transactions. Wade L. McDevitt is the president and the sole shareholder of The McDevitt Company and brother-in-law of Scott Belair, one of the Company’s directors. There were no amounts due to The McDevitt Company as of January 31, 20092011 and January 31, 2008.2010. Mr. McDevitt’s wife, Wendy B. McDevitt, is an executive officer of the Company, serving as Global Co-President of the Anthropologie Brand.

The Addis Group (“Addis”), an insurance brokerage company, acted as the Company’s commercial insurance broker for the years ended January 31, 2009, 20082011, 2010 and 2007.2009. The Company has not paid any compensation to Addis for such services, but has been advised that Addis has received commissions from other parties to such transactions, to serve as risk manager under one line of coverage. Scott Addis is the President of The Addis Group and the brother-in-law of Richard A. Hayne, Chairman of the Board of Directors and President of the Company. There were no amounts due to or from Addis as of January 31, 20092011 and January 31, 2008.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2010.

13. Segment Reporting

The Company is a nationalglobal retailer of lifestyle-oriented general merchandise with two reporting segments—Retail” and “Wholesale”. The Company’s Retail segment consists of the aggregation of its fourfive brands operating through 294372 stores under the retail names “Urban Outfitters,” “Anthropologie,” “Free People”, “Terrain” and “Terrain”“Leifsdottir” and includes their direct marketing campaigns which consist of threefive catalogs and fournine web sites as of January 31, 2009.2011. Our Retail stores and their direct marketing campaigns are considered an operating segments.segment. Net sales from the Retail segment accounted for more than 93%94% of total consolidated net sales for the years ended January 31, 2009, 20082011, 2010 and 2007.2009. The remainder is derived from the Company’s Wholesale segment that manufactures and distributes apparel to the retail segment and to approximately 1,8001,400 better department and specialty retailers worldwide.

The Company has aggregated its retail stores and associated direct marketing campaigns into a Retail segment based upon their uniqueshared 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 inter-company charges) of the segment. Corporate expenses include expenses incurred and directed by the corporate office that are not allocated to segments. The principal identifiable assets for each operating segment are inventories and property and equipment. Other assets are comprised primarily of general corporate assets, which principally consist of cash and cash equivalents, marketable securities, and other assets, and which are typically not allocated to the Company’s segments. The Company accounts for inter-segment sales and transfers as if the sales and transfers were made to third parties making similar volume purchases.

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

 

The accounting policies of the operating segments are the same as the policies described in Note 2, “Summary of Significant Accounting Policies.” Both the retail and wholesale segments are highly diversified. No customer comprises more than 10% of sales. A summary of the information about the Company’s operations by segment is as follows:

 

 Fiscal Year   Fiscal Year 
 2009 2008 2007   2011 2010 2009 
Net sales       

Retail operations

 $1,724,558  $1,413,251  $1,150,511   $2,153,792   $1,833,733   $1,724,558  

Wholesale operations

  120,364   102,479   79,687    124,768    109,269    120,364  

Intersegment elimination

  (10,304)  (8,006)  (5,481)   (4,458  (5,187  (10,304
                   

Total net sales

 $1,834,618  $1,507,724  $1,224,717   $2,274,102   $1,937,815   $1,834,618  
                   
Income from operations       

Retail operations

 $297,572  $219,248  $159,338   $418,403   $338,114   $297,572  

Wholesale operations

  28,170   21,438   18,319    23,372    22,164    28,170  

Intersegment elimination

  (11,209)  (1,325)  (1,504)   (389  (202  (11,209
                   

Total segment operating income

  314,533   239,361   176,153    441,386    360,076    314,533  

General corporate expenses

  (15,098)  (14,416)  (12,164)   (27,183  (21,092  (15,098
                   

Total income from operations

 $299,435  $224,945  $163,989   $414,203   $338,984   $299,435  
                   
Depreciation expense for property and equipment       

Retail operations

 $78,892  $68,123  $53,458   $91,267   $85,077   $78,892  

Wholesale operations

  613   615   437    1,136    1,069    613  
                   

Total depreciation expense for property and equipment

 $79,505  $68,738  $53,895   $92,403   $86,146   $79,505  
                   
Inventories       

Retail operations

 $157,030  $159,015    $213,420   $178,567   

Wholesale operations

  12,668   12,910     16,141    7,563   
               

Total inventories

 $169,698  $171,925    $229,561   $186,130   
               
Property and equipment, net       

Retail operations

 $500,650  $486,031    $582,241   $535,248   

Wholesale operations

  4,757   2,858     4,105    4,713   
               

Total property and equipment, net

 $505,407  $488,889    $586,346   $539,961   
               
Cash paid for property and equipment       

Retail operations

 $111,658  $113,914  $211,533   $142,791   $107,941   $111,658  

Wholesale operations

  895   1,456   496    851    1,319    895  
                   

Total cash paid for property and equipment

 $112,533  $115,370  $212,029   $143,642   $109,260   $112,553  
                   

The Company has foreign operations in Europe and Canada. Revenues and long-lived assets, based upon ourthe Company’s domestic and foreign operations, are as follows:

 

 Fiscal Year  Fiscal Year 
 2009 2008 2007  2011   2010   2009 
Net sales         

Domestic operations

 $1,663,616 $1,373,162 $1,132,053  $2,027,074    $1,752,787    $1,663,616  

Foreign operations

  171,002  134,562  92,664   247,028     185,028     171,002  
                  

Total net sales

 $1,834,618 $1,507,724 $1,224,717  $2,274,102    $1,937,815    $1,834,618  
                  
Property and equipment, net         

Domestic operations

 $460,551 $434,776   $497,521    $470,401    

Foreign operations

  44,856  54,113    88,825     69,560    
               

Total property and equipment, net

 $505,407 $488,889   $586,346    $539,961    
               

URBAN OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in thousands, except share and per share data)

14. Subsequent Events

Subsequent to January 31, 2011 and through April 1, 2011, the Company has repurchased and retired 4,824,869 common shares for approximately $148,675, which includes commissions, at an average price of $30.81 per share. These repurchases complete the Company’s 2006 stock repurchase program and leaves 5,666,684 shares available for repurchase under the 2010 program which was approved on November 16, 2010.

 

F-31