Urban Outfitters 2011 Annual Report Download - page 65

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.
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 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 $3,323
and $3,238 as of January 31, 2011 and 2010, respectively. Advertising expenses were $58,336,
$46,827 and $45,561 for fiscal 2011, 2010 and 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
2011, 2010 and 2009, 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).
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