Urban Outfitters 2009 Annual Report Download - page 60

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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 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
is 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 and $2,496 as of
January 31, 2009 and 2008, respectively. Advertising expenses were $45,561, $40,828 and $35,882 for
fiscal 2009, 2008 and 2007, 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, 2008 and 2007, the Company did not capitalize any internal-use software development costs
because substantially all costs were incurred during the planning stage, and costs incurred during the
application and infrastructure development stage were not material.
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 provisions 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).
F-12