NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
The following description of the Urban Outfitters, Inc. 401(k)
Savings Plan (the Plan) provides only general information. Participants should refer to the Plan documents for a more complete description of the Plans provisions.
General
The Plan is a defined contribution 401(k) plan covering substantially all employees of Urban Outfitters, Inc. (the
Company) that have attained age 18. Eligible employees are able to participate in the Plan upon completing three months of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA).
The Plan is administered by a committee consisting of members appointed by the board of directors of the Company and
the Plans assets are managed by Fidelity Management Trust Company (Fidelity), the recordkeeper and custodian.
Contributions
Subject to certain limitations as outlined in the Plan documents, participants may elect to contribute from 1% to 25%
of their eligible compensation, as defined, to the Plan. Participants who have attained age 50 before the end of the plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from
other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan.
The Company may make matching contributions (allocated based on participant contributions for the year) and additional discretionary
contributions (allocated based on participant compensation) to the Plan. To be eligible for employer contributions, a participant must have completed 12 months of continuous service. For each of the years ended December 31, 2016 and 2015, the
Company made matching contributions equal to 25% of the first 6% of an employees compensation deferred under the Plan. No additional discretionary contributions were made.
Rollovers
Rollovers represent transfers of account balances of certain participant contributions into certain investments of the
Plan from other qualified plans or individual retirement accounts. The Plan does not accept rollovers of after-tax employee contributions or designated Roth contributions.
Participant Accounts
Each participants account is credited with the participants elective and rollover contributions,
the Companys contribution and an allocation of plan investment earnings (losses), and charged with withdrawals, distributions and fees. Participant accounts are charged quarterly with an allocation of administrative expenses that are paid by
the Plan. Allocations are based on account balances, or specific participant transactions, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account. Except as limited
by the Companys Insider Trading Policy and applicable laws, participants may change their investment options at any time.
Vesting
Participants are immediately vested in their contributions plus or minus actual earnings or losses thereon. Vesting in the
Companys contributions is graded over five years of credited service. Participants become 100% vested if separated from service due to retirement, death or disability.
Forfeitures
Participants forfeit non-vested company contributions if their employment is terminated. Forfeited non-vested company
contributions are used first to pay administrative expenses of the Plan and then to reduce the Companys contributions. As of December 31, 2016 and 2015, the Plan had forfeitures of approximately $18,000, and $3,000, respectively,
available to pay administrative expenses or reduce future company contributions. Forfeitures of approximately $233,000 and $303,000 were used to pay both administrative expenses and reduce employer contributions of the Plan for the years ended
December 31, 2016 and 2015, respectively.
Notes Receivable from Participants
Participants may borrow from their vested
accounts up to a maximum equal to the lesser of $50,000 or 50% of the value of the participants vested interest in their account. Loan terms range from one to five years, or up to fifteen years for the purchase of a residence. The loans are
collateralized by the balance in the participants account and bear interest at the prime rate plus a fixed rate of 1% upon loan origination. Principal and interest are paid ratably through payroll deductions. Participants may only have one
loan outstanding at a given time.
5
Payment of Benefits
A participant who separates from service before retirement, death
or disability may request early payment of their vested benefits. Benefits are paid as soon as administratively feasible following the date on which a distribution is requested.
Separated participants may request an in-kind distribution of the portion of their vested account invested in Urban Outfitters, Inc. common
stock.
Participants, upon attainment of age
59
1
⁄
2
, may elect to receive in-service distributions. Financial hardship withdrawals are also permitted pending submission of verification to the plan
administrator warranting the financial hardship.
Funding Policy
The Company remits employee deferral and company matching
contributions to the Plan on a bi-weekly basis.
2.
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Summary of Significant Accounting Policies
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Basis of Accounting
The
financial statements of the Plan are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America except for benefit payments which are recorded when paid.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those
estimates.
Contributions
Participant contributions are recorded when the Company makes payroll deductions from eligible Plan
participants. Employer contributions are accrued in the period in which they become obligations of the Company.
Valuation of
Investments
The Plans investments are stated at fair value, except for the fully benefit-responsive investment contract, which is stated at contract value. Securities traded on a national securities exchange are valued at the last
reported sales price on the last business day of the Plan year. Mutual funds are stated at quoted market prices which represent the net asset value of shares held by the Plan at year-end. Interest-bearing deposits are valued at carrying value, which
approximates fair value. Fully benefit-responsive investment contracts are measured at contract value because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the contract.
The financial statements include the fully benefit-responsive investment contract and its related activity on a contract value basis.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
Net Appreciation in Fair Value of Investments
The Plan presents, in the Statement of Changes in Net
Assets Available for Benefits, the net appreciation in the fair value of its investments, which consists of the net realized gains or losses and the unrealized appreciation or depreciation on these investments.
Administrative Expenses
Administrative expenses are calculated on a quarterly basis on total Plan Assets based upon average
quarterly assets and are subject to offset for revenue received from investments. Any remaining balance, after the application of the offsets, is charged to participants accounts on a quarterly basis. Certain expenses of maintaining the
Plan are paid for by the Company and are excluded from these financial statements.
Notes Receivable from Participants
Notes
receivable from participants are measured at their unpaid principal balance plus any accrued, but unpaid, interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are
incurred. No allowance for credit losses has been recorded as of December 31, 2016 or 2015. If a participant ceases to make loan repayments and the recordkeeper deems the participant loan to be in default, the participant loan balance is
reduced and a benefit payment is recorded.
Recently Issued Accounting Pronouncements
In July 2015, the Financial Accounting
Standards Board (FASB) issued an accounting standards update that requires an employee benefit plan to use contract value as the only measurement amount for fully benefit-responsive investment contracts. The Plan adopted this part of the
update as of January 1, 2016 and retrospectively applied this update to all financial statement periods presented.
Reclassification
Certain amounts in the 2015 financial statements have been reclassified to conform to the 2016 financial statement
presentation.
6
3.
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Fair Value Measurements
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Accounting Standards Codification (ASC) Topic 820
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-tier hierarchy that is used to identify
assets and liabilities measured at fair value. The hierarchy focuses on the inputs used to measure fair value and requires that the lowest level input be used. The three levels defined in ASC Topic 820 are as follows:
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Level 1observable inputs based upon quoted market prices for identical assets or liabilities within active markets.
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Level 2observable inputs other than Level 1 that are based upon quoted market prices for similar assets or liabilities, based upon quoted prices within inactive markets, or inputs other than quoted market prices
that are observable through market data for substantially the full term of the asset or liability.
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Level 3inputs that are unobservable for the particular asset or liability due to little or no market activity and are significant to the fair value of the asset or liability. These inputs reflect assumptions that
market participants would use when valuing the particular asset or liability.
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ASC Topic 820 requires the Plan to describe
the methodologies used to measure the fair value of assets and liabilities. These methodologies were consistently applied to all assets and liabilities carried by the Plan as of December 31, 2016 and 2015. The Plan has described below, the
methodology used to measure each major category of investment assets.
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The Urban Outfitters, Inc. common stock fund is an employer stock fund. The fund consists of Urban Outfitters, Inc. common stock. Urban Outfitters, Inc. common stock is valued at the quoted market price from a national
securities exchange which represents fair value. The Urban Outfitters, Inc. common stock fund is classified within Level 1 of the valuation hierarchy.
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Mutual funds are valued at the total market value of the underlying assets based on published market prices as of the close of the last day of the plan year. These values represent the net asset values of the shares
held by the Plan and are classified within Level 1 of the valuation hierarchy.
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Interest-bearing deposits are valued at carrying value, which approximates fair value, and are classified within Level 1 of the valuation hierarchy.
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The following tables present the fair value of investment assets as of December 31, 2016 and 2015 by type of asset and by the valuation
hierarchy described above. The Plan had no assets that were classified as Level 2 or 3 as of December 31, 2016 and 2015.
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Fair Value Measurements at
December 31, 2016
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Description
|
|
(Level 1)
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Total
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Urban Outfitters, Inc. common stock fund
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$
|
10,996,561
|
|
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$
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10,996,561
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Mutual funds
|
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98,430,523
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98,430,523
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Interest-bearing deposits
|
|
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751
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|
|
|
751
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|
|
|
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Total investments at fair value
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$
|
109,427,835
|
|
|
$
|
109,427,835
|
|
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Fair Value Measurements at
December 31, 2015
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Description
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|
(Level 1)
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|
Total
|
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Urban Outfitters, Inc. common stock fund
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|
$
|
9,110,573
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$
|
9,110,573
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Mutual funds
|
|
|
81,093,591
|
|
|
|
81,093,591
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Interest-bearing deposits
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|
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722
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|
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|
722
|
|
|
|
|
|
|
|
|
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Total investments at fair value
|
|
$
|
90,204,886
|
|
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$
|
90,204,886
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7
4.
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Fully Benefit-Responsive Investment Contract
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The Prudential Guaranteed Income Fund
(GIF) is a group annuity insurance contract issued by Prudential Retirement Insurance and Annuity Company (PRIAC) and is backed by the full faith and creditworthiness of the issuer.
Under the group annuity insurance contract that supports this product, participants may ordinarily direct permitted withdrawal or transfers of
all or a portion of their account balance at contract value within reasonable timeframes. Contract value represents deposits made to the contract, plus earnings at guaranteed crediting rates, less withdrawals and fees.
The GIF is a traditional guaranteed investment contract (GIC) and deemed to be fully benefit-responsive. Since the GIF is fully
benefit-responsive, contract value is the relevant measurement. Contract value, as reported by PRIAC, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative fees.
Generally, there are not any events that could limit the ability of the Plan to transact at contract value paid with 90 days notice or contract
value paid over time. There are not any events that allow the issuer to terminate the contract and which require the Plan to settle at an amount different than contract value paid either with 90 days notice or over time.
Interest is credited on contract balances using a single portfolio rate approach. Under this methodology, a single interest
crediting rate is applied to all contributions made to the product regardless of the timing of those contributions. Interest crediting rates are reviewed on a semi-annual basis for resetting. The minimum credit rate under the contract is 1.50%.
5.
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Refundable Contributions
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In order to satisfy the relevant non-discrimination
provisions of the Plan, the Company refunds any excess deferral contributions and related net gains or losses of certain active participants. Refundable contributions at December 31, 2016 and 2015 were $812,165 and $1,033,328, respectively.
Refunds are issued to participants in the month of March subsequent to each plan year. Contributions received from participants have been reduced by the refundable contributions at December 31, 2016.
Although it has not expressed any intent to do so, the Company has
the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will become 100% vested in their accounts.
7.
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Related Party and Party-in-Interest Transactions
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Certain plan investments qualify as
related party and party-in-interest transactions. These include shares of the Companys common stock, shares of a money market fund, shares of a GIC and mutual funds.
The investments held in Urban Outfitters Inc. common stock were $10,996,561 and $9,110,573 at December 31, 2016 and 2015, respectively,
which comprises approximately 9% of net assets available for benefits at December 31, 2016 and 2015.
The Plan holds a money market
fund (Fidelity Cash Reserves Fund) and select mutual funds (Fidelity Spartan Funds) managed by Fidelity. At December 31, 2016 and 2015, the Plan held $751 and $722 of the Fidelity Cash Reserves Fund. The total balance of mutual funds managed by
Fidelity at December 31, 2016 and 2015 was $15,687,461 and $13,385,827, respectively.
The Plan has an agreement with Fidelity for
record keeping and administrative services with a fixed basis point pricing. The pricing is calculated on a quarterly basis on total Plan Assets based upon average quarterly assets and is subject to offset for revenue received from Fidelity and
Non-Fidelity investments as outlined in the agreement. Any remaining balance, after the application of the offsets, will be charged to participant accounts on a quarterly basis.
Notes receivable from participants represent a portion of the Plans receivables. These transactions also qualify as party-in-interest
transactions. Notes receivable from participants to the Plan were $2,188,154 and $1,787,679 as of December 31, 2016 and 2015, respectively.
8
The Plan is based on Fidelity Management & Research Co.s
Volume Submitter Profit Sharing Plan with Cash or Deferred Arrangements (CODA). The Internal Revenue Service (IRS) ruled on March 31, 2014 that the Plan qualifies under Section 401(a) of the Internal Revenue Code
(IRC) under the volume submitter program and the related trust is, therefore, not subject to tax under the present income tax law. The Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan
administration believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan
and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by federal, state and/or local taxing authorities. Plan management has analyzed the tax positions
taken by the Plan, and has concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is
subject to routine examinations by taxing jurisdictions; however, there are currently no audits for any tax periods currently in progress.
9.
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Risks and Uncertainties
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The Plan invests in various investment securities. Investment
securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities
will occur in the near term and that such changes could materially affect participant account balances and the amounts reported in the Statement of Net Assets Available for Benefits.
The Company has evaluated the effects of events that have occurred
subsequent to December 31, 2016, through the filing date of this Form 11-K and have identified no subsequent events.
9