Urban Outfitters 2012 Annual Report Download - page 63

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Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data)
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 comprised of
web marketing, catalog printing, paper, postage and other costs related to production of photographic images used in our catalogs and on our websites. The
catalog printing, paper, postage and other 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 and 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 $3,586 and $3,323 as of January 31, 2012 and 2011, respectively. Advertising expenses
were $71,684, $58,336 and $46,827 for fiscal 2012, 2011 and 2010, respectively.
Start-up Costs
The Company expenses all start-up and organization costs as incurred, including travel, training, recruiting, salaries and other operating costs.
Website 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 2012, 2011 and 2010, the Company did not capitalize any internal-use software development costs because
substantially all costs were incurred during the planning and operating stages, and costs incurred during the application and infrastructure development stage
were not material.
Income Taxes
The Company 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 for a further discussion of income taxes).
Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net
income per common share is computed by dividing
F-12