e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal
Year Ended January 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File
Number: 1-33338
American Eagle Outfitters,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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No. 13-2721761
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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77 Hot Metal Street, Pittsburgh, PA
(Address of principal
executive offices)
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15203-2329
(Zip
Code)
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Registrants telephone number, including area code:
(412) 432-3300
Securities registered pursuant to Section 12(b) of the
Act:
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Common Shares, $0.01 par value
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New York Stock Exchange
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(Title of class)
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(Name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES þ NO o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Sections 15(d) of
the
Act. YES o NO þ
Indicate by check mark 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 submit and post such files), and (2) has
been subject to the filing requirements for the past
90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). YES o NO o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
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. o
Indicate by check mark 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.
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). YES o NO þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates of the registrant as of
August 1, 2009 was $2,583,043,775.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: 209,044,166 Common Shares were outstanding at
March 19, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III Proxy Statement for 2010 Annual
Meeting of Stockholders, in part, as indicated.
AMERICAN
EAGLE OUTFITTERS, INC.
TABLE OF
CONTENTS
1
PART I
General
As used in this report, all references to we,
our, and the Company refer to American
Eagle Outfitters, Inc. (AEO, Inc.) and its
wholly-owned subsidiaries. American Eagle
Outfitters, American Eagle, AE,
and the AE Brand refer to our U.S. and Canadian
American Eagle Outfitters stores. AEO Direct refers
to our
e-commerce
operations, ae.com, aerie.com, martinandosa.com and 77kids.com.
NLS refers to National Logistics Services which we
operated in Canada prior to its disposition during the
53 week period ended February 3, 2007.
Our financial year is a 52/53 week year that ends on the
Saturday nearest to January 31. As used herein,
Fiscal 2010 refers to the 52 week period ending
January 29, 2011. Fiscal 2009, Fiscal
2008 and Fiscal 2007 refer to the 52 week
periods ended January 30, 2010, January 31, 2009 and
February 2, 2008, respectively. Fiscal 2006
refers to the 53 week period ended February 3, 2007.
Fiscal 2005 refers to the 52 week period ended
January 28, 2006.
American Eagle Outfitters, Inc., a Delaware corporation,
operates under the American
Eagle®
(AE®),
aerie®
by American
Eagle®,
77kids®
by american
eagle®
and
MARTIN+OSA®
(M+O) brands.
Founded in 1977, American Eagle
Outfitters®
is a leading apparel and accessories retailer that operates more
than 1,000 retail stores in the U.S. and Canada, and online
at
ae.com®.
Through its family of brands, AEO, Inc. offers high quality,
on-trend clothing, accessories and personal care products at
affordable prices. Our online business, AEO Direct, ships to 75
countries worldwide.
American Eagle
Outfitters®
boasts a passionate and loyal customer base ranging from college
students to Hollywood celebrities. The Company focuses on
delivering the right product at the right price, combined with a
philosophy of operational excellence and discipline across the
organization.
As of January 30, 2010, we operated 938 American Eagle
Outfitters stores in the United States and Canada, 137 aerie
stand-alone stores and 28 MARTIN+OSA stores.
Subsequent to Fiscal 2009, on March 5, 2010, the Board of
Directors (the Board) of the Company approved
managements recommendation to proceed with the closure of
M+O. The decision to take this action resulted from an extensive
evaluation of M+O and review of strategic alternatives, which
revealed that it was not achieving performance levels that
warranted further investment. As a result of this decision, the
Company plans to close all 28 stores and cease all online and
corporate operations for M+O in Fiscal 2010. Refer to
Note 15 to the Consolidated Financial Statements for
additional information regarding the planned closure of M+O.
Growth
Strategy
Our primary growth strategies are focused on the following key
areas of opportunity:
AE
Brand
The American Eagle
Outfitters®
brand targets 15- to
25-year old
girls and guys, achieving the perfect combination of American
prep and current fashion. Denim is the cornerstone of the
American
Eagle®
product assortment, which is completed by other key categories
including sweaters, graphic t-shirts, fleece, outerwear and
accessories. The American
Eagle®
attitude is honest, real, individual and fun. American
Eagle®
is priced to be worn by everyone, everyday, delivering value
through quality and style.
Gaining market share in key categories, such as graphic tees and
fleece is a primary focus within the AE brand. In addition, we
will build upon our number one position in denim. Delivering
value, variety and versatility to our customers remains a top
priority. While AE has always been a value brand, we will
continue to underscore a value message with customers. We will
offer value at all levels of the assortment, punctuated with
compelling, pre-planned promotions that are profitable to the
business. We are reducing production lead-times, which enables
us to
2
react more quickly and profit from emerging trends. Finally, we
continue to innovate our store experience to be more impactful
from front to back.
aerie
by American Eagle
In the fall of 2006, the Company launched
aerie®
by American Eagle (aerie), a collection of
Dormwear®,
intimates and personal care products for the 15- to
25-year-old
AE®
girl. What started as a
sub-brand
quickly became a standalone concept in its own right. The
collection is available in 137 standalone aerie stores
throughout the United States and Canada, online at
www.aerie.com, and at select American
Eagle®
stores.
aerie®
features a complete fitness line called aerie
f.i.t.tm,
as well as a personal care collection that includes fragrance,
body care and cosmetics to complement the aerie lifestyle.
Designed to be sexy, comfortable and cozy,
aerie®
offers
AE®
customers a new way to express their personal style everyday.
77kids
by american eagle
Introduced in October of 2008 as an online-only brand, 77kids by
american
eagle®
(77kids) offers on-trend, high-quality clothing and
accessories for kids ages two to 10. We plan to open five
77kids®
brick-and-mortar stores in Fiscal 2010. The brand draws from the
strong heritage of American Eagle
Outfitters®,
with a
point-of-view
thats thoughtful, playful and real. Like American
Eagle®
clothing, 77kids focuses on great fit, value and style. All
77kids®
clothing is backed by the brands
77washtm
and
77softtm
guarantees to maintain size, shape and quality and to be
extremely soft and comfortable through dozens of washes.
AEO
Direct
We sell merchandise via our
e-commerce
operations, ae.com, aerie.com, 77kids.com and martinandosa.com,
which are extensions of the lifestyle that we convey in our
stores. We currently ship to 75 countries. In addition to
purchasing items online, customers can experience AEO Direct
in-store through
Store-to-Door.
Store-to-Door
enables store associates to sell any item available online to an
in-store customer in a single transaction, without placing a
phone call. Customers are taking advantage of
Store-to-Door
by purchasing extended sizes that are not available in-store, as
well as finding a certain size or color that happens to be
out-of-stock
at the time of their visit. The ordered items are shipped to the
customers home free of charge. We accept PayPal as a means
of payment from our ae.com, aerie.com and 77kids.com customers.
We are continuing to focus on the growth of AEO Direct through
various initiatives, including improved site efficiency and
faster check-out, expansion of sizes and styles, and targeted
marketing strategies.
Information concerning our segments and certain geographic
information is contained in Note 2 of the Consolidated
Financial Statements included in this
Form 10-K
and is incorporated herein by reference.
Real
Estate
During Fiscal 2009 and continuing into Fiscal 2010, we are
taking a more cautious stance on real estate growth in light of
a slow-down in the economy. However, we remain focused on
several well-defined strategies that we have in place to grow
our business and strengthen our financial performance.
We are continuing the expansion of our brands throughout the
United States. At the end of Fiscal 2009, we operated in all
50 states, Puerto Rico and Canada. During Fiscal 2009, we
opened 29 new stores, consisting of eight U.S. AE stores
and 21 aerie stores, including two Canadian aerie stores. These
store openings, offset by 24 store closings, increased our total
store base to 1,103 stores.
Additionally, our gross square footage increased by
approximately 1% during Fiscal 2009, with approximately 58%
attributable to the incremental square footage from 22 AE
U.S. and Canadian store remodels and the remaining 42%
attributable to new store openings.
In Fiscal 2010, we plan to open 14 AE and 20 aerie stores and
remodel approximately 20 existing AE stores. We plan to close
all 28 M+O stores and 15 to 25 AE stores. We also plan to open
five 77kids stores with an average size of 5,000 gross
square feet. Our consolidated square footage growth is expected
to be relatively flat compared to Fiscal
3
2009. We believe that there are attractive retail locations
where we can continue to open American Eagle stores and our
other brands in enclosed regional malls, urban areas and
lifestyle centers.
The tables below show certain information relating to our
historical store growth in the U.S. and Canada:
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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2009
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2008
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2007
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2006
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2005
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Consolidated stores at beginning of period
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1,098
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987
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911
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869
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846
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Consolidated stores opened during the period
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29
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122
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80
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50
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36
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Consolidated stores closed during the period
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(24
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(11
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(4
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(8
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(13
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Total consolidated stores at end of period
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1,103
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1,098
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987
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911
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869
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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2009
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2008
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2007
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2006
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2005
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AE Brand stores at beginning of period
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954
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929
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903
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869
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846
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AE Brand stores opened during the period
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8
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35
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30
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42
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36
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AE Brand stores closed during the period
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(24
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)
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(10
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(4
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(8
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(13
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Total AE Brand stores at end of period
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938
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954
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929
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903
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869
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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2009
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2008
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2007
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2006
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2005
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aerie stores at beginning of period
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116
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39
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3
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aerie stores opened during the period
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21
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77
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36
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3
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aerie stores closed during the period
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Total aerie stores at end of period
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137
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116
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39
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3
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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Fiscal
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2009
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2008
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2007
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2006
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2005
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M+O stores at beginning of period
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28
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19
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5
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M+O stores opened during the period
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10
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14
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5
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M+O stores closed during the period
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(1
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Total M+O stores at end of period
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28
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28
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19
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5
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Remodeling of our AE stores into our current store format is
important to enhance our customers shopping experience. In
order to maintain a balanced presentation and to accommodate
additional product categories, we selectively enlarge our stores
during the remodeling process to an average 7,000 gross
square feet, either within their existing location or by
upgrading the store location within the mall. We believe the
larger format can better accommodate our expansion of
merchandise categories. We select stores for expansion or
relocation based on market demographics and store volume
forecasts.
During Fiscal 2009, we remodeled 22 AE U.S. and Canadian
stores. Of the 22 remodeled stores, 10 stores were remodeled and
expanded within their existing locations, nine stores were
relocated to a larger space within the mall and three stores
were remodeled within their existing locations. Additionally,
three stores were refurbished as discussed below.
We maintain a cost effective store refurbishment program
targeted towards our lower volume stores, typically located in
smaller markets. Stores selected as part of this program
maintain their current location and size but are updated to
include certain aspects of our current store format, including
paint and certain new fixtures.
4
Consolidated
Store Locations
Our stores average approximately 5,800 gross square feet
and approximately 4,700 on a selling square foot basis. As of
January 30, 2010, we operated 1,103 stores in the United
States and Canada under the American Eagle Outfitters, aerie and
MARTIN+OSA brands as shown below:
United
States, including the Commonwealth of Puerto Rico
1,015 stores
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Alabama
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18
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Indiana
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22
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Nebraska
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8
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Rhode Island
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4
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Alaska
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5
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Iowa
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13
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Nevada
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6
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South Carolina
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16
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Arizona
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16
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Kansas
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10
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New Hampshire
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8
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South Dakota
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3
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Arkansas
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9
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Kentucky
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13
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New Jersey
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28
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Tennessee
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24
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California
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89
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Louisiana
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14
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New Mexico
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3
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Texas
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72
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Colorado
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14
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Maine
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4
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New York
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62
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Utah
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12
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Connecticut
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18
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Maryland
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21
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North Carolina
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31
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Vermont
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3
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Delaware
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5
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Massachusetts
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33
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North Dakota
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4
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Virginia
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29
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Florida
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50
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Michigan
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35
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Ohio
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40
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Washington
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20
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Georgia
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34
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Minnesota
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22
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Oklahoma
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12
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West Virginia
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9
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Hawaii
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4
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Mississippi
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8
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Oregon
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11
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Wisconsin
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18
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Idaho
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4
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Missouri
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19
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Pennsylvania
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66
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Wyoming
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2
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Illinois
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37
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Montana
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2
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Puerto Rico
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5
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Canada
88 stores
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Alberta
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11
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New Brunswick
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4
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Ontario
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44
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British Columbia
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12
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Newfoundland
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2
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Quebec
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9
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Manitoba
|
|
|
2
|
|
|
Nova Scotia
|
|
|
2
|
|
|
Saskatchewan
|
|
|
2
|
|
|
|
|
|
|
|
Purchasing
We purchase merchandise from suppliers who either manufacture
their own merchandise, supply merchandise manufactured by others
or both. During Fiscal 2009, we purchased a majority of our
merchandise from non-North American suppliers.
All of our merchandise suppliers receive a vendor compliance
manual that describes our quality standards and shipping
instructions. We maintain a quality control department at our
distribution centers to inspect incoming merchandise shipments
for uniformity of sizes and colors and for overall quality of
manufacturing. Periodic inspections are also made by our
employees and agents at manufacturing facilities to identify
quality problems prior to shipment of merchandise.
Corporate
Responsibility
The Company is firmly committed to the principle that the people
who make our clothes should be treated with dignity and respect.
We seek to work with apparel suppliers throughout the world who
share our commitment to providing safe and healthy workplaces.
At a minimum, we require our suppliers to maintain a workplace
environment that complies with local legal requirements and
meets universally-accepted human rights standards.
Our Vendor Code of Conduct (the Code), which is
based on universally-accepted human rights principles, sets
forth our expectations for suppliers. The Code must be posted in
every factory that manufactures our clothes in the local
language of the workers. All suppliers must agree to abide by
the terms of our Code before we will place production with them.
We maintain an extensive factory inspection program to monitor
compliance with our Code. New garment factories must pass an
initial inspection in order to do business with us. Once new
factories are approved, we then strive to re-inspect them at
least once a year. We review the outcome of these inspections
with factory management
5
with the goal of helping them to continuously improve their
performance. In cases where a factory is unable or unwilling to
meet our standards, we will take steps up to and including the
severance of our business relationship.
In Fiscal 2007, we opened a compliance office in Hong Kong.
Today, the Hong Kong-based team validates the inspection
reporting of our third-party vendor compliance auditors and
works with new and existing factories on remediation of issues.
Also in Fiscal 2007, we instituted a process of pre-inspection
for facilities being considered for AE production and expanded
our annual re-audit program to strive to include all primary
existing facilities.
Security
Compliance
During recent years, there has been an increasing focus within
the international trade community on concerns related to global
terrorist activity. Various security issues and other terrorist
threats have brought increased demands from the Bureau of
Customs and Border Protection (CBP) and other
agencies within the Department of Homeland Security that
importers take responsible action to secure their supply chains.
In response, we became a certified member of the
Customs Trade Partnership Against Terrorism program
(C-TPAT) during 2004. C-TPAT is a voluntary program
offered by CBP in which an importer agrees to work with CBP to
strengthen overall supply chain security. Our internal security
procedures were reviewed by CBP during February 2005 and a
validation of processes with respect to our external partners
was completed in June 2005 and then re-evaluated in June 2008.
We received formal written validations of our security
procedures from CBP during the first quarter of Fiscal 2006 and
the second quarter of Fiscal 2008, each indicating the highest
level of benefits afforded to C-TPAT members.
Historically, we took significant steps to expand the scope of
our security procedures, including, but not limited to: a
significant increase in the number of factory audits performed;
a revision of the factory audit format to include a review of
all critical security issues as defined by CBP; a review of
security procedures of our other international trading partners,
including forwarders, consolidators, shippers and brokers; and a
requirement that all of our international trading partners be
members of C-TPAT. In Fiscal 2007, we further increased the
scope of our inspection program to strive to include
pre-inspections of all potential production facilities. In
Fiscal 2009, we again expanded the program to require all
suppliers that have passed pre-inspections and reached a
satisfactory level of security compliance through annual factory
re-audits to provide us with security self-assessments on at
least an annual basis. Additionally, in Fiscal 2009, we began
evaluating additional oversight options for high-risk security
countries.
Trade
Compliance
We act as the importer of record for substantially all of the
merchandise we purchase overseas from foreign suppliers.
Accordingly, we have an affirmative obligation to comply with
the rules and regulations established for importers by the CBP
regarding issues such as merchandise classification, valuation
and country of origin. We have developed and implemented a
comprehensive series of trade compliance procedures to assure
that we adhere to all CBP requirements. In its most recent
review and audit of our import operations and procedures, CBP
found no unacceptable risks of non-compliance.
Merchandise
Inventory, Replenishment and Distribution
Merchandise is normally shipped directly from our vendors and
routed to our two U.S. distribution centers, one in
Warrendale, Pennsylvania and the other in Ottawa, Kansas, or to
our Canadian distribution center in Mississauga, Ontario.
Upon receipt, merchandise is processed and prepared for shipment
to the stores or forwarded to a warehouse holding area to be
used as store replenishment goods. The allocation of merchandise
among stores varies based upon a number of factors, including
geographic location, customer demographics and store size.
Merchandise is shipped to our stores two to five times per week
depending upon the season and store requirements.
The expansion of our Kansas distribution center in Fiscal 2007
enabled us to bring fulfillment services for AEO Direct
in-house. The second phase of this expansion was completed in
Fiscal 2008 to enhance operating efficiency and support our
future growth.
6
Customer
Credit and Returns
We offer a co-branded credit card (the AE Visa Card)
and a private label credit card (the AE Credit Card)
under both the American Eagle and aerie brands. Both of these
credit cards are issued by a third-party bank (the
Bank), and we have no liability to the Bank for bad
debt expense, provided that purchases are made in accordance
with the Banks procedures. Once a customer is approved to
receive the AE Visa Card and the card is activated, the customer
is eligible to participate in our credit card rewards program.
Under the rewards program that expired on December 31,
2009, points are earned on purchases made with the AE Visa Card
at AE and aerie, and at other retailers where the card is
accepted. Points earned under the credit cards reward program
resulted in the issuance of an AE gift card when a certain point
threshold was reached. The AE gift card does not expire, however
points earned that have not been used towards the issuance of an
AE gift card expire after 36 months of no purchase
activity. On January 1, 2010, we modified the benefits on
the AE Visa and AE Credit Card programs to make both credit
cards a part of the rewards program. Customers who make
purchases at AE, aerie and 77kids earn discounts in the form of
savings certificates when certain purchase levels are reached.
Also AE Visa Card customers, who make purchases at other
retailers where the card is accepted, earn additional discounts.
Savings certificates are valid for 90 days from issuance.
AE Credit Card holders will still receive special promotional
offers and advance notice of all American Eagle in-store sales
events. The AE Visa Card is accepted in all of our stores and
AEO Direct sites, while the AE Credit Card is accepted at
American Eagle, aerie, ae.com, aerie.com and 77kids.com, only.
Our customers in the U.S. and Canada stores may also pay
for their purchases with American
Express®,
Discover®,
MasterCard®,
Visa®,
bank debit cards, cash or check. Our AEO Direct customers may
pay for their purchases using American
Express®,
Discover®,
MasterCard®
and
Visa®.
In addition, our ae.com, aerie.com, and 77kids.com customers may
pay for their purchases using
PayPal®
and Bill Me
Later®.
Customers may also use gift cards to pay for their purchases. AE
and aerie gift cards can be purchased in our American Eagle and
aerie stores, respectively, and can be used both in-store and
online. In addition, AE, aerie and 77kids gift cards are
available through ae.com, aerie.com or 77kids.com. MARTIN+OSA
gift cards can be used both in-store and online. When the
recipient uses the gift card, the value of the purchase is
electronically deducted from the card and any remaining value
can be used for future purchases. Our gift cards do not expire
and we do not charge a service fee on inactive gift cards.
We offer our retail customers a hassle-free return policy. We
believe that certain of our competitors offer similar credit
card and customer service policies.
Competition
The retail apparel industry, including retail stores and
e-commerce,
is highly competitive. We compete with various individual and
chain specialty stores, as well as the casual apparel and
footwear departments of department stores and discount
retailers, primarily on the basis of quality, fashion, service,
selection and price.
Trademarks
and Service Marks
We have registered AMERICAN EAGLE
OUTFITTERS®,
AMERICAN
EAGLE®,
AE®
and
AEO®
with the United States Patent and Trademark Office. We have also
registered or have applied to register these trademarks with the
registries of many of the foreign countries in which our
manufacturers are located
and/or where
our product is shipped.
We have registered AMERICAN EAGLE
OUTFITTERS®
and have applied to register AMERICAN
EAGLEtm
with the Canadian Intellectual Property Office. In addition, we
are exclusively licensed in Canada to use
AEtm
and
AEO®
in connection with the sale of a wide range of clothing products.
In the United States and around the world, we have also
registered, or have applied to register, a number of other marks
used in our business, including
aerie®,
MARTIN+OSA®
and 77kids by american
eagle®.
7
These trademarks are renewable indefinitely, as long as they are
still in use and their registrations are properly maintained. We
believe that the recognition associated with these trademarks
makes them extremely valuable and, therefore, we intend to use
and renew our trademarks in accordance with our business plans.
Employees
As of January 30, 2010, we had approximately
39,400 employees in the United States and Canada, of whom
approximately 33,000 were part-time and seasonal hourly
employees. We consider our relationship with our employees to be
good.
Seasonality
Historically, our operations have been seasonal, with a large
portion of net sales and operating income occurring in the third
and fourth fiscal quarter, reflecting increased demand during
the
back-to-school
and year-end holiday selling seasons, respectively. As a result
of this seasonality, any factors negatively affecting us during
the third and fourth fiscal quarters of any year, including
adverse weather or unfavorable economic conditions, could have a
material adverse effect on our financial condition and results
of operations for the entire year. Our quarterly results of
operations also may fluctuate based upon such factors as the
timing of certain holiday seasons, the number and timing of new
store openings, the acceptability of seasonal merchandise
offerings, the timing and level of markdowns, store closings and
remodels, competitive factors, weather and general economic
conditions.
Available
Information
Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports are available, free of charge,
under the About AEO, Inc. section of our website at
www.ae.com. These reports are available as soon as reasonably
practicable after such material is electronically filed with the
Securities and Exchange Commission (the SEC).
Our corporate governance materials, including our corporate
governance guidelines, the charters of our audit, compensation,
and nominating and corporate governance committees, and our code
of ethics may also be found under the About AEO,
Inc. section of our website at www.ae.com. Any amendments
or waivers to our code of ethics will also be available on our
website. A copy of the corporate governance materials is also
available upon written request.
Additionally, our investor presentations are available under the
About AEO, Inc. section of our website at
www.ae.com. These presentations are available as soon as
reasonably practicable after they are presented at investor
conferences.
Certifications
As required by the New York Stock Exchange (NYSE)
Corporate Governance Standards Section 303A.12(a), on
July 1, 2009 our Chief Executive Officer submitted to the
NYSE a certification that he was not aware of any violation by
the Company of NYSE corporate governance listing standards.
Additionally, we filed with this
Form 10-K,
the Principal Executive Officer and Principal Financial Officer
certifications required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002.
8
Our
ability to anticipate and respond to changing consumer
preferences and fashion trends in a timely manner
Our future success depends, in part, upon our ability to
identify and respond to fashion trends in a timely manner. The
specialty retail apparel business fluctuates according to
changes in the economy and customer preferences, dictated by
fashion and season. These fluctuations especially affect the
inventory owned by apparel retailers because merchandise
typically must be ordered well in advance of the selling season.
While we endeavor to test many merchandise items before ordering
large quantities, we are still susceptible to changing fashion
trends and fluctuations in customer demands.
In addition, the cyclical nature of the retail business requires
that we carry a significant amount of inventory, especially
during our peak selling seasons. We enter into agreements for
the manufacture and purchase of our private label apparel well
in advance of the applicable selling season. As a result, we are
vulnerable to changes in consumer demand, pricing shifts and the
timing and selection of merchandise purchases. The failure to
enter into agreements for the manufacture and purchase of
merchandise in a timely manner could, among other things, lead
to a shortage of inventory and lower sales. Changes in fashion
trends, if unsuccessfully identified, forecasted or responded to
by us, could, among other things, lead to lower sales, excess
inventories and higher markdowns, which in turn could have a
material adverse effect on our results of operations and
financial condition.
The
effect of economic pressures and other business
factors
The global recession that began during the second half of 2008
continues to cause uncertainty and a wide-ranging lack of
liquidity in the credit markets. This market uncertainty
continues to result in a lack of consumer confidence and
widespread reduction of business activity.
The success of our operations depends to a significant extent
upon a number of factors relating to discretionary consumer
spending, including economic conditions affecting disposable
consumer income such as employment, consumer debt, interest
rates, increases in energy costs and consumer confidence. There
can be no assurance that consumer spending will not be further
negatively affected by general or local economic conditions,
thereby adversely impacting our continued growth and results of
operations.
Our
ability to grow through new store openings and existing store
remodels and expansions
Our continued growth and success will depend in part on our
ability to open and operate new stores and expand and remodel
existing stores on a timely and profitable basis. During Fiscal
2010, we plan to open 14 new American Eagle stores in the
U.S. and Canada, 20 aerie stand-alone stores and five
77kids stores. Additionally, we plan to remodel or expand 20
existing American Eagle stores during Fiscal 2010. Accomplishing
our new and existing store expansion goals will depend upon a
number of factors, including the ability to obtain suitable
sites for new and expanded stores at acceptable costs, the
hiring and training of qualified personnel, particularly at the
store management level, the integration of new stores into
existing operations and the expansion of our buying and
inventory capabilities. There can be no assurance that we will
be able to achieve our store expansion goals, manage our growth
effectively, successfully integrate the planned new stores into
our operations or operate our new and remodeled stores
profitably.
Our
ability to achieve planned store financial performance
The results achieved by our stores may not be indicative of
long-term performance or the potential performance of stores in
other locations. The failure of stores to achieve acceptable
results could result in store asset impairment charges, which
could adversely affect our continued growth and results of
operations.
Our
ability to grow through the internal development of new
brands
We launched our new brand concepts, aerie and 77kids, during
Fiscal 2006 and Fiscal 2008, respectively. Our ability to
succeed in these new brands requires significant expenditures
and management attention. Additionally, any new brand is subject
to certain risks including customer acceptance, competition,
product differentiation, the
9
ability to attract and retain qualified personnel, including
management and designers, and the ability to obtain suitable
sites for new stores at acceptable costs. There can be no
assurance that these new brands will grow or become profitable.
If we are unable to succeed in developing profitable new brands,
this could adversely impact our continued growth and results of
operations.
Our
planned closure of MARTIN+OSA
On March 5, 2010, our Board approved managements
recommendation to proceed with the closure of MARTIN+OSA. The
decision to take this action resulted from an extensive
evaluation of the brand and review of strategic alternatives,
which revealed that it was not achieving performance levels that
warranted further investment. As a result of this decision, we
plan to close all 28 stores and cease all online and corporate
operations for the brand in Fiscal 2010. The timing of the store
closures is dependent on a number of factors including
negotiating third-party agreements, adherence to notification
requirements and local laws.
Store closures are expected to be substantially complete by the
end of the second quarter of Fiscal 2010. To the extent not
previously recognized, the charges associated with the decision
are expected to be recognized primarily over the first and
second quarters of Fiscal 2010. Our current estimates of the
charges are preliminary and are based on a number of significant
assumptions that could change materially. Any change in
estimates of the charges could adversely impact our consolidated
results of operations.
Refer to Note 15 to the Consolidated Financial Statements
for additional information regarding the planned closure of
MARTIN+OSA.
Our
international merchandise sourcing strategy
Substantially all of our merchandise is purchased from foreign
suppliers. Although we purchase a significant portion of our
merchandise through a single foreign buying agent, we do not
maintain any exclusive commitments to purchase from any vendor.
Since we rely on a small number of foreign sources for a
significant portion of our purchases, any event causing the
disruption of imports, including the insolvency of a significant
supplier or a significant labor dispute, could have an adverse
effect on our operations. Other events that could also cause a
disruption of imports include the imposition of additional trade
law provisions or import restrictions, such as increased duties,
tariffs, anti-dumping provisions, increased CBP enforcement
actions, or political or economic disruptions.
We have a Vendor Code of Conduct (the Code) that
provides guidelines for all of our vendors regarding working
conditions, employment practices and compliance with local laws.
A copy of the Code is posted on our website, www.ae.com, and is
also included in our vendor manual in English and multiple other
languages. We have a factory compliance program to audit for
compliance with the Code. However, there can be no assurance
that our factory compliance program will be fully effective in
discovering all violations. Publicity regarding violation of our
Code or other social responsibility standards by any of our
vendor factories could adversely affect our sales and financial
performance.
We believe that there is a risk of terrorist activity on a
global basis, and such activity might take the form of a
physical act that impedes the flow of imported goods or the
insertion of a harmful or injurious agent to an imported
shipment. We have instituted policies and procedures designed to
reduce the chance or impact of such actions including, but not
limited to, factory audits and factory self-assessments on
security measures; a factory audit protocol and factory
self-assessment protocol that includes all critical security
issues; the review of security procedures of our other
international trading partners, including forwarders,
consolidators, shippers and brokers; and the cancellation of
agreements with entities who fail to meet our security
requirements. In addition, the United States CBP has recognized
us as a validated, tier three member of the Customs
Trade Partnership Against Terrorism program, a voluntary program
in which an importer agrees to work with US Customs to
strengthen overall supply chain security. However, there can be
no assurance that terrorist activity can be prevented entirely
and we cannot predict the likelihood of any such activities or
the extent of their adverse impact on our operations.
10
Our
reliance on external vendors
Given the volatility and risk in the current markets, our
reliance on external vendors leaves us subject to certain risks
should one or more of these external vendors become insolvent.
Although we monitor the financial stability of our key vendors
and plan for contingencies, the financial failure of a key
vendor could disrupt our operations and have an adverse effect
on our cash flows, results of operations and financial condition.
Seasonality
Historically, our operations have been seasonal, with a large
portion of net sales and operating income occurring in the third
and fourth fiscal quarter, reflecting increased demand during
the
back-to-school
and year-end holiday selling seasons, respectively. As a result
of this seasonality, any factors negatively affecting us during
the third and fourth fiscal quarters of any year, including
adverse weather or unfavorable economic conditions, could have a
material adverse effect on our financial condition and results
of operations for the entire year. Our quarterly results of
operations also may fluctuate based upon such factors as the
timing of certain holiday seasons, the number and timing of new
store openings, the acceptability of seasonal merchandise
offerings, the timing and level of markdowns, store closings and
remodels, competitive factors, weather and general economic
conditions.
Our
reliance on our ability to implement and sustain information
technology systems
We regularly evaluate our information technology systems and are
currently implementing modifications
and/or
upgrades to the information technology systems that support our
business. Modifications include replacing legacy systems with
successor systems, making changes to legacy systems or acquiring
new systems with new functionality. We are aware of inherent
risks associated with replacing and modifying these systems,
including inaccurate system information and system disruptions.
We believe we are taking appropriate action to mitigate the
risks through testing, training and staging implementation, as
well as securing appropriate commercial contracts with
third-party vendors supplying such technologies. Information
technology system disruptions and inaccurate system information,
if not anticipated and appropriately mitigated, could have a
material adverse effect on our results of operations.
Our
reliance on key personnel
Our success depends to a significant extent upon the continued
services of our key personnel, including senior management, as
well as our ability to attract and retain qualified key
personnel and skilled employees in the future. Our operations
could be adversely affected if, for any reason, one or more key
executive officers ceased to be active in our management.
Failure
to comply with regulatory requirements
As a public company, we are subject to numerous regulatory
requirements. Our policies, procedures and internal controls are
designed to comply with all applicable laws and regulations,
including those imposed by the Sarbanes-Oxley Act of 2002, the
SEC and the NYSE. Failure to comply with such laws and
regulations could have a material adverse effect on our
reputation, financial condition and on the market price of our
common stock.
Negative
conditions in global credit markets may further impair our
investment securities portfolio
Auction rate securities (ARS) are long-term debt
instruments with interest rates reset through periodic
short-term auctions. Holders of ARS can either sell into the
auctions; bid based on a desired interest rate or hold and
accept the reset rate. If there are insufficient buyers, then
the auction fails and holders are unable to liquidate their
investment through the auction. A failed auction is not a
default of the debt instrument, but does set a new interest rate
in accordance with the original terms of the debt instrument.
The result of a failed auction is that the ARS continues to pay
interest in accordance with its terms; however, liquidity for
holders is limited until there is a successful auction or until
such time as another market for ARS develops. ARS are generally
callable at any time by the issuer. Auctions continue to be held
as scheduled until the ARS matures or until it is called.
11
As a result of the global recession, we have been unable to
liquidate our holdings of certain ARS because the amount of
securities submitted for sale has exceeded the amount of
purchase orders for such securities and the auctions failed. For
failed auctions, we continue to earn interest on these
investments at the contractual rate. In the event we need to
access these funds, we will not be able to do so until a future
auction is successful, the issuer redeems the securities, a
buyer is found outside of the auction process or the securities
mature.
If our ARS holdings continue to be unable to clear successfully
at future auctions or if issuers do not redeem the securities,
we may be required to adjust the carrying value of the
securities and record additional impairment charges. If we
determine that the fair value of these ARS is temporarily
impaired, we would record a temporary impairment within other
comprehensive income, a component of stockholders equity.
If it is determined that the fair value of our ARS is
other-than-temporarily
impaired, we would record a loss in our Consolidated Statements
of Operations, which could materially adversely impact our
results of operations and financial condition.
Our ability to obtain
and/or
maintain our credit facilities due to the ramifications of the
global credit crisis and corresponding financial institution
failures
We believe that we have sufficient cash flows from operating
activities to meet our operating requirements. In addition, the
banks participating in our various credit facilities are
currently rated as investment grade, and substantially all of
the amounts under the credit facilities are currently available
to us. We draw on our credit facilities to increase our cash
position to add financial flexibility. Although we expect to
continue to generate positive cash flow despite the current
economy, there can be no assurance that we will be able to
successfully generate positive cash flow in the future.
Continued negative trends in the credit markets
and/or
continued financial institution failures could lead to lowered
credit availability as well as difficulty in obtaining
financing. In the event of limitations on our access to credit
facilities, our liquidity, continued growth and results of
operations could be adversely affected.
Our
efforts to expand internationally through franchising
We have entered into a franchise agreement with a franchisee to
open and operate a series of stores throughout the Middle East
over the next several years. While the franchise arrangement
does not involve a capital investment from us and requires
minimal operational involvement, the effect of this arrangement
on our business and results of operations is uncertain and will
depend upon various factors, including the demand for our
products in new markets internationally. Furthermore, although
we provide store operation training, literature and support, to
the extent that the franchisee does not operate its stores in a
manner consistent with our requirements regarding our brand and
customer experience standards, the value of our brand could be
negatively impacted. A failure to protect the value of our brand
or any other adverse actions by a franchisee could have an
adverse effect on our results of operations and our reputation.
Other
risk factors
Additionally, other factors could adversely affect our financial
performance, including factors such as: our ability to
successfully acquire and integrate other businesses; any
interruption of our key infrastructure systems; any disaster or
casualty resulting in the interruption of service from our
distribution centers or in a large number of our stores; any
interruption of our business related to an outbreak of a
pandemic disease in a country where we source or market our
merchandise; changes in weather patterns; the effects of changes
in current exchange rates and interest rates; and international
and domestic acts of terror.
The impact of any of the previously discussed factors, some of
which are beyond our control, may cause our actual results to
differ materially from expected results in these statements and
other forward-looking statements we may make from
time-to-time.
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
Not applicable.
12
We own a 186,000 square foot building in an urban
Pittsburgh, Pennsylvania location which houses our corporate
headquarters. Additionally, during Fiscal 2009, we completed
construction of a 152,000 square foot building on adjacent
land, which is used for the expansion of our corporate
headquarters. We lease three locations near our headquarters,
which are used primarily for store and corporate support
services, totaling approximately 68,000 square feet. These
leases expire with various terms through 2022.
We own a 490,000 square foot building located in a suburban
area near Pittsburgh, Pennsylvania, which houses our
distribution center and contains approximately
120,000 square feet of office space. We also own a
45,000 square foot building, which houses our data center
and additional office space. We lease an additional location of
approximately 18,000 square feet, which is used for storage
space. This lease expires in 2015.
We rent approximately 131,000 square feet of office space
in New York, New York for our designers and sourcing and
production teams. The lease for this space expires in May 2016.
We also lease an additional 60,000 square feet of office
space in New York, New York, with various terms expiring through
2018.
We own a distribution facility in Ottawa, Kansas consisting of
approximately 1,220,000 total square feet, including a
544,000 square foot expansion which was completed during
Fiscal 2007 and a 280,000 square foot expansion which was
completed during Fiscal 2008. This expanded facility is used to
support new and existing growth initiatives, including AEO
Direct, aerie and 77kids.
We lease a building in Mississauga, Ontario with approximately
294,000 square feet, which houses our Canadian distribution
center. The lease expires in 2017.
We also entered into a lease in Fiscal 2007 for a new flagship
store in the Times Square area of New York, New York. The
25,000 square foot location has an initial term of
15 years with three options to renew for five years each.
This flagship store opened in November 2009.
All of our stores in the United States and Canada are leased.
The store leases generally have initial terms of 10 years.
Certain leases also include early termination options, which can
be exercised under specific conditions. Most of these leases
provide for base rent and require the payment of a percentage of
sales as additional contingent rent when sales reach specified
levels. Under our store leases, we are typically responsible for
tenant occupancy costs, including maintenance and common area
charges, real estate taxes and certain other expenses. We have
generally been successful in negotiating renewals as leases near
expiration.
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ITEM 3.
|
LEGAL
PROCEEDINGS.
|
We are a party to various legal actions incidental to our
business, including certain actions in which we are the
plaintiff. At this time, our management does not expect the
results of any of the legal actions to be material to our
financial position or results of operations.
13
PART II
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ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Our common stock is traded on the NYSE under the symbol
AEO. The following table sets forth the range of
high and low closing prices of the common stock as reported on
the NYSE during the periods indicated. As of March 19,
2010, there were 668 stockholders of record. However, when
including associates who own shares through our employee stock
purchase plan, and others holding shares in broker accounts
under street name, we estimate the stockholder base at
approximately 55,000.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
Cash Dividends per
|
For the Quarters Ended
|
|
High
|
|
Low
|
|
Common Share
|
|
January 30, 2010
|
|
$
|
18.06
|
|
|
$
|
14.54
|
|
|
$
|
0.10
|
|
October 31, 2009
|
|
$
|
19.62
|
|
|
$
|
13.37
|
|
|
$
|
0.10
|
|
August 1, 2009
|
|
$
|
15.53
|
|
|
$
|
12.80
|
|
|
$
|
0.10
|
|
May 2, 2009
|
|
$
|
15.60
|
|
|
$
|
8.44
|
|
|
$
|
0.10
|
|
January 31, 2009
|
|
$
|
10.91
|
|
|
$
|
7.11
|
|
|
$
|
0.10
|
|
November 1, 2008
|
|
$
|
16.69
|
|
|
$
|
9.40
|
|
|
$
|
0.10
|
|
August 2, 2008
|
|
$
|
19.05
|
|
|
$
|
12.13
|
|
|
$
|
0.10
|
|
May 3, 2008
|
|
$
|
23.45
|
|
|
$
|
15.79
|
|
|
$
|
0.10
|
|
During Fiscal 2009 and Fiscal 2008, we paid quarterly dividends
as shown in the table above. The payment of future dividends is
at the discretion of our Board and is based on future earnings,
cash flow, financial condition, capital requirements, changes in
U.S. taxation and other relevant factors. It is anticipated
that any future dividends paid will be declared on a quarterly
basis.
14
Performance
Graph
The following Performance Graph and related information shall
not be deemed soliciting material or to be filed
with the SEC, nor shall such information be incorporated by
reference into any future filing under the Securities Act of
1933 or Securities Exchange Act of 1934, each as amended, except
to the extent that we specifically incorporate it by reference
into such filing.
The following graph compares the changes in the cumulative total
return to holders of our common stock with that of the S&P
Midcap 400 and the Dynamic Retail Intellidex. The comparison of
the cumulative total returns for each investment assumes that
$100 was invested in our common stock and the respective index
on January 29, 2005 and includes reinvestment of all
dividends. The plotted points are based on the closing price on
the last trading day of the fiscal year indicated.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN
Among American Eagle Outfitters, Inc., The S&P Midcap 400
Index
And A Peer Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/29/05
|
|
|
1/28/06
|
|
|
2/3/07
|
|
|
2/2/08
|
|
|
1/31/09
|
|
|
1/30/10
|
American Eagle Outfitters, Inc.
|
|
|
|
100.00
|
|
|
|
|
106.42
|
|
|
|
|
200.06
|
|
|
|
|
147.96
|
|
|
|
|
58.40
|
|
|
|
|
105.80
|
|
S&P Midcap 400
|
|
|
|
100.00
|
|
|
|
|
122.31
|
|
|
|
|
132.05
|
|
|
|
|
129.11
|
|
|
|
|
81.37
|
|
|
|
|
116.66
|
|
Dynamic Retail Intellidex
|
|
|
|
100.00
|
|
|
|
|
102.28
|
|
|
|
|
104.44
|
|
|
|
|
87.58
|
|
|
|
|
55.20
|
|
|
|
|
87.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Issuer
Purchases of Equity Securities
The following table provides information regarding our
repurchases of our common stock during the three months ended
January 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
Total
|
|
|
Average
|
|
|
Shares Purchased as
|
|
|
Shares that May
|
|
|
|
Number of
|
|
|
Price Paid
|
|
|
Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Shares Purchased
|
|
|
per Share
|
|
|
Announced Programs
|
|
|
Under the Program
|
|
Period
|
|
(1)
|
|
|
(2)
|
|
|
(1)(3)
|
|
|
(3)
|
|
|
Month #1 (November 1, 2009 through November 28, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,250,000
|
|
Month #2 (November 29, 2009 through January 2, 2010)
|
|
|
1,031
|
|
|
$
|
16.98
|
|
|
|
|
|
|
|
41,250,000
|
|
Month #3 (January 3, 2010 through January 30, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,031
|
|
|
$
|
16.98
|
|
|
|
|
|
|
|
41,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares purchased during Month #2 were all repurchased from
employees for the payment of taxes in connection with the
vesting of share-based payments. |
|
(2) |
|
Average price paid per share excludes any broker commissions
paid. |
|
(3) |
|
Of the 41.3 million shares that may yet be purchased under
the program, the authorization relating to 11.3 million
shares expired at the end of Fiscal 2009 and the authorization
relating to 30.0 million shares expires at the end of
Fiscal 2010. |
Equity
Compensation Plan Table
The following table sets forth additional information as of the
end of Fiscal 2009, about shares of our common stock that may be
issued upon the exercise of options and other rights under our
existing equity compensation plans and arrangements, divided
between plans approved by our stockholders and plans or
arrangements not submitted to the Companys stockholders
for approval. The information includes the number of shares
covered by and the weighted average exercise price of,
outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be
issued upon exercise of outstanding options, warrants, and other
rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column (a)
|
|
|
Column (b)
|
|
|
Column (c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
for Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Equity Compensation
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
Plans (Excluding
|
|
|
|
Options,
|
|
|
Warrants and
|
|
|
Securities Reflected
|
|
|
|
Warrants and Rights(1)
|
|
|
Rights(1)
|
|
|
in Column (a))(1)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
14,904,942
|
|
|
$
|
15.01
|
|
|
|
28,395,557
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,904,942
|
|
|
$
|
15.01
|
|
|
|
28,395,557
|
|
|
|
|
(1) |
|
Equity compensation plans approved by stockholders include the
1994 Stock Option Plan, the 1999 Stock Incentive Plan and the
2005 Stock Award and Incentive Plan. |
16
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA.
|
The following Selected Consolidated Financial Data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations,
included under Item 7 below and the Consolidated Financial
Statements and Notes thereto, included in Item 8 below.
Most of the selected data presented below is derived from our
Consolidated Financial Statements, which are filed in response
to Item 8 below. The selected Consolidated Statement of
Operations data for the years ended February 3, 2007 and
January 28, 2006 and the selected Consolidated Balance
Sheet data as of February 2, 2008, February 3, 2007
and January 28, 2006 are derived from audited Consolidated
Financial Statements not included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended(1)
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share amounts, ratios and other
financial information)
|
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(2)
|
|
$
|
2,990,520
|
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
|
$
|
2,794,409
|
|
|
$
|
2,321,962
|
|
Comparable store sales (decrease) increase(3)
|
|
|
(4
|
)%
|
|
|
(10
|
)%
|
|
|
1
|
%
|
|
|
12
|
%
|
|
|
16
|
%
|
Gross profit
|
|
$
|
1,158,049
|
|
|
$
|
1,174,101
|
|
|
$
|
1,423,138
|
|
|
$
|
1,340,429
|
|
|
$
|
1,077,749
|
|
Gross profit as a percentage of net sales
|
|
|
38.7
|
%
|
|
|
39.3
|
%
|
|
|
46.6
|
%
|
|
|
48.0
|
%
|
|
|
46.4
|
%
|
Operating income(4)
|
|
$
|
238,393
|
|
|
$
|
302,140
|
|
|
$
|
598,755
|
|
|
$
|
586,790
|
|
|
$
|
458,689
|
|
Operating income as a percentage of net sales
|
|
|
8.0
|
%
|
|
|
10.1
|
%
|
|
|
19.6
|
%
|
|
|
21.0
|
%
|
|
|
19.8
|
%
|
Income from continuing operations
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
|
$
|
293,711
|
|
Income from continuing operations as a percentage of net sales
|
|
|
5.7
|
%
|
|
|
6.0
|
%
|
|
|
13.1
|
%
|
|
|
13.9
|
%
|
|
|
12.7
|
%
|
Per Share Results (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share-basic
|
|
$
|
0.82
|
|
|
$
|
0.87
|
|
|
$
|
1.85
|
|
|
$
|
1.74
|
|
|
$
|
1.29
|
|
Income from continuing operations per common share-diluted
|
|
$
|
0.81
|
|
|
$
|
0.86
|
|
|
$
|
1.82
|
|
|
$
|
1.70
|
|
|
$
|
1.26
|
|
Weighted average common shares outstanding basic
|
|
|
206,171
|
|
|
|
205,169
|
|
|
|
216,119
|
|
|
|
222,662
|
|
|
|
227,406
|
|
Weighted average common shares outstanding diluted
|
|
|
209,512
|
|
|
|
207,582
|
|
|
|
220,280
|
|
|
|
228,384
|
|
|
|
233,031
|
|
Cash dividends per common share
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
0.38
|
|
|
$
|
0.28
|
|
|
$
|
0.18
|
|
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and short-term investments
|
|
$
|
698,635
|
|
|
$
|
483,853
|
|
|
$
|
619,939
|
|
|
$
|
813,813
|
|
|
$
|
751,518
|
|
Long-term investments
|
|
$
|
197,773
|
|
|
$
|
251,007
|
|
|
$
|
165,810
|
|
|
$
|
264,944
|
|
|
$
|
145,744
|
|
Total assets(6)
|
|
$
|
2,138,148
|
|
|
$
|
1,963,676
|
|
|
$
|
1,867,680
|
|
|
$
|
1,979,558
|
|
|
$
|
1,605,649
|
|
Short-term debt
|
|
$
|
30,000
|
|
|
$
|
75,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stockholders equity
|
|
$
|
1,578,517
|
|
|
$
|
1,409,031
|
|
|
$
|
1,340,464
|
|
|
$
|
1,417,312
|
|
|
$
|
1,155,552
|
|
Working capital(6)
|
|
$
|
758,075
|
|
|
$
|
523,596
|
|
|
$
|
644,656
|
|
|
$
|
724,490
|
|
|
$
|
725,294
|
|
Current ratio(6)
|
|
|
2.85
|
|
|
|
2.30
|
|
|
|
2.71
|
|
|
|
2.56
|
|
|
|
3.06
|
|
Average return on stockholders equity
|
|
|
11.3
|
%
|
|
|
13.0
|
%
|
|
|
29.0
|
%
|
|
|
30.1
|
%
|
|
|
27.8
|
%
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended(1)
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
February 3,
|
|
January 28,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share amounts, ratios and other
financial information)
|
|
Other Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores at year-end
|
|
|
1,103
|
|
|
|
1,098
|
|
|
|
987
|
|
|
|
911
|
|
|
|
869
|
|
Capital expenditures
|
|
$
|
127,419
|
|
|
$
|
265,335
|
|
|
$
|
250,407
|
|
|
$
|
225,939
|
|
|
$
|
81,545
|
|
Net sales per average selling square foot(7)
|
|
$
|
519
|
|
|
$
|
521
|
|
|
$
|
638
|
|
|
$
|
642
|
|
|
$
|
577
|
|
Total selling square feet at end of period
|
|
|
5,133,923
|
|
|
|
5,072,612
|
|
|
|
4,595,649
|
|
|
|
4,220,929
|
|
|
|
3,896,441
|
|
Net sales per average gross square foot(7)
|
|
$
|
416
|
|
|
$
|
446
|
|
|
$
|
517
|
|
|
$
|
524
|
|
|
$
|
471
|
|
Total gross square feet at end of period
|
|
|
6,403,859
|
|
|
|
6,328,167
|
|
|
|
5,709,932
|
|
|
|
5,173,065
|
|
|
|
4,772,487
|
|
Number of employees at end of period
|
|
|
39,400
|
|
|
|
37,500
|
|
|
|
38,700
|
|
|
|
27,600
|
|
|
|
23,000
|
|
|
|
|
(1) |
|
Except for the fiscal year ended February 3, 2007, which
includes 53 weeks, all fiscal years presented include
52 weeks. |
|
(2) |
|
Amount for the fiscal years ended January 30, 2010,
January 31, 2009, February 2, 2008 and
February 3, 2007 include proceeds from merchandise
sell-offs. Refer to Note 2 to the accompanying Consolidated
Financial Statements for additional information regarding the
components of net sales. |
|
(3) |
|
The comparable store sales increase for the period ended
February 2, 2008 is compared to the corresponding
52 week period in Fiscal 2006. The comparable store sales
increase for the period ended February 3, 2007 is compared
to the corresponding 53 week period in Fiscal 2005. |
|
(4) |
|
All amounts presented exclude gift card service fee income,
which was reclassified to other income, net during Fiscal 2006.
Refer to Note 2 to the accompanying Consolidated Financial
Statements for additional information regarding gift cards. |
|
(5) |
|
Per share results for all periods presented reflect the
three-for-two
stock split distributed on December 18, 2006. |
|
(6) |
|
Amounts for the year ended January 28, 2006 reflect certain
assets of NLS as
held-for-sale. |
|
(7) |
|
Net sales per average square foot is calculated using retail
store sales for the year divided by the straight average of the
beginning and ending square footage for the year. |
18
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
The following discussion and analysis of financial condition
and results of operations are based upon our Consolidated
Financial Statements and should be read in conjunction with
those statements and notes thereto.
This report contains various forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent our
expectations or beliefs concerning future events, including the
following:
|
|
|
|
|
the planned opening of 14 new American Eagle stores, 20 new
aerie stores, and five new 77kids stores in the United States
and Canada during Fiscal 2010;
|
|
|
|
the selection of approximately 20 American Eagle stores in the
United States and Canada for remodeling during Fiscal 2010;
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the planned closure of 15 to 25 American Eagle stores in the
United States and Canada during Fiscal 2010;
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the planned opening of two new franchised American Eagle stores
in the Middle East during Fiscal 2010;
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the planned closure of all 28 MARTIN+OSA stores and cessation of
all online and corporate operations for the brand in Fiscal 2010;
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the success of aerie by American Eagle and aerie.com;
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the success of 77kids by american eagle and 77kids.com;
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the expected payment of a dividend in future periods;
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the possibility of growth through acquisitions, internally
developing additional new brands,
and/or
engaging in future franchise agreements;
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the possibility that we may be required to take additional
temporary impairment charges or net impairment losses recognized
in earnings relating to our investment securities;
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the possibility that the amounts drawn on our demand borrowing
agreements will be called for repayment and that the facilities
may not be available for future borrowings; and
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the possibility that we may be required to take additional store
impairment charges related to underperforming stores.
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We caution that these forward-looking statements, and those
described elsewhere in this report, involve material risks and
uncertainties and are subject to change based on factors beyond
our control, as discussed within Part I, Item 1A of
this
Form 10-K.
Accordingly, our future performance and financial results may
differ materially from those expressed or implied in any such
forward-looking statement.
Critical
Accounting Policies
Our Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the United
States (GAAP), which require us to make estimates
and assumptions that may affect the reported financial condition
and results of operations should actual results differ from
these estimates. We base our estimates and assumptions on the
best available information and believe them to be reasonable for
the circumstances. We believe that of our significant accounting
policies, the following involve a higher degree of judgment and
complexity. Refer to Note 2 to the Consolidated Financial
Statements for a complete discussion of our significant
accounting policies. Management has reviewed these critical
accounting policies and estimates with the Audit Committee of
our Board.
Revenue Recognition. We record revenue for
store sales upon the purchase of merchandise by customers. Our
e-commerce
operation records revenue upon the estimated customer receipt
date of the merchandise. Revenue is not recorded on the purchase
of gift cards. A current liability is recorded upon purchase,
and revenue is recognized when the gift card is redeemed for
merchandise.
19
Revenue is recorded net of estimated and actual sales returns
and deductions for coupon redemptions and other promotions. The
estimated sales return reserve is based on projected merchandise
returns determined through the use of historical average return
percentages. We do not believe there is a reasonable likelihood
that there will be a material change in the future estimates or
assumptions we use to calculate our sales return reserve.
However, if the actual rate of sales returns increases
significantly, our operating results could be adversely affected.
During Fiscal 2007, we discontinued assessing a service fee on
inactive gift cards. As a result, we estimate gift card breakage
and recognize revenue in proportion to actual gift card
redemptions as a component of net sales. We determine an
estimated gift card breakage rate by continuously evaluating
historical redemption data and the time when there is a remote
likelihood that a gift card will be redeemed.
Merchandise Inventory. Merchandise inventory
is valued at the lower of average cost or market, utilizing the
retail method. Average cost includes merchandise design and
sourcing costs and related expenses. The Company records
merchandise receipts at the time merchandise is delivered to the
foreign shipping port by the manufacturer (FOB port). This is
the point at which title and risk of loss transfer to the
Company.
We review our inventory in order to identify slow-moving
merchandise and generally use markdowns to clear merchandise.
Additionally, we estimate a markdown reserve for future planned
markdowns related to current inventory. If inventory exceeds
customer demand for reasons of style, seasonal adaptation,
changes in customer preference, lack of consumer acceptance of
fashion items, competition, or if it is determined that the
inventory in stock will not sell at its currently ticketed
price, additional markdowns may be necessary. These markdowns
may have a material adverse impact on earnings, depending on the
extent and amount of inventory affected.
We estimate an inventory shrinkage reserve for anticipated
losses for the period between the last physical count and the
balance sheet date. The estimate for the shrinkage reserve is
calculated based on historical percentages and can be affected
by changes in merchandise mix and changes in actual shrinkage
trends. We do not believe there is a reasonable likelihood that
there will be a material change in the future estimates or
assumptions we use to calculate our inventory shrinkage reserve.
However, if actual physical inventory losses differ
significantly from our estimate, our operating results could be
adversely affected.
Asset Impairment. In accordance with Financial
Accounting Standards Board (FASB) Accounting
Standard Codification (ASC) 360, Property, Plant,
and Equipment, we evaluate long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying value of an asset might not be recoverable. Assets are
evaluated for impairment by comparing the projected undiscounted
future cash flows of the asset, over its remaining useful life,
to the carrying value. If the future undiscounted cash flows are
projected to be less than the carrying value of the asset, we
adjust the asset value to its estimated fair value and an
impairment loss is recorded as a component of operating income
under loss on impairment of assets.
Our impairment loss calculations require management to make
assumptions and to apply judgment to estimate future cash flows
and asset fair values, including forecasting useful lives of the
assets and selecting the discount rate that reflects the risk
inherent in future cash flows. We do not believe there is a
reasonable likelihood that there will be a material change in
the estimates or assumptions we use to calculate long-lived
asset impairment losses. However, if actual results are not
consistent with our estimates and assumptions, our operating
results could be adversely affected.
Investment Securities. In accordance with ASC
820, Fair Value Measurements and Disclosures
(ASC 820), we measure our investment
securities using Level 1, Level 2 and Level 3
inputs. Level 1 and Level 2 inputs are valued using
quoted market prices while we use a discounted cash flow
(DCF) model to determine the fair value of our
Level 3 investments. The assumptions in our DCF model
include different recovery periods depending on the type of
security and varying discount factors for yield and illiquidity.
These assumptions are subjective and they are based on our
current judgment and our view of current market conditions. The
use of different assumptions would result in a different
valuation and related charge. Future adverse changes in market
conditions, continued poor operating results of underlying
investments or other factors could result in further losses that
may not be reflected in an investments current carrying
value, possibly requiring an additional net impairment loss
recognized in earnings in the future. Any such charge could
materially affect our results of operations.
20
We evaluate our investments for impairment in accordance with
ASC 320, Investments Debt and Equity Securities
(ASC 320). ASC 320 provides guidance for
determining when an investment is considered impaired, whether
impairment is
other-than-temporary,
and measurement of an impairment loss. An investment is
considered impaired if the fair value of the investment is less
than its cost. If, after consideration of all available evidence
to evaluate the realizable value of its investment, impairment
is determined to be
other-than-temporary,
then an impairment loss is recognized in the Consolidated
Statement of Operations equal to the difference between the
investments cost and its fair value. As of May 3,
2009, we adopted ASC
320-10-65,
Transition Related to FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary-Impairments
(ASC
320-10-65),
which modifies the requirements for recognizing
other-than-temporary
impairment (OTTI) and changes the impairment model
for debt securities. In addition, ASC
320-10-65
requires additional disclosures relating to debt and equity
securities both in the interim and annual periods as well as
requires us to present total OTTI in the Consolidated Statements
of Operations, with an offsetting reduction for any non-credit
loss impairment amount recognized in other comprehensive income
(OCI).
Share-Based Payments. We account for
share-based payments in accordance with the provisions of ASC
718, Compensation Stock Compensation
(ASC 718). To determine the fair value of our
stock option awards, we use the Black-Scholes option pricing
model, which requires management to apply judgment and make
assumptions to determine the fair value of our awards. These
assumptions include estimating the length of time employees will
retain their vested stock options before exercising them (the
expected term) and the estimated volatility of the
price of our common stock over the expected term.
We calculate a weighted-average expected term based on
historical experience. Expected stock price volatility is based
on a combination of historical volatility of our common stock
and implied volatility. We chose to use a combination of
historical and implied volatility as we believe that this
combination is more representative of future stock price trends
than historical volatility alone. Changes in these assumptions
can materially affect the estimate of the fair value of our
share-based payments and the related amount recognized in our
Consolidated Financial Statements.
Income Taxes. We calculate income taxes in
accordance with ASC 740, Income Taxes (ASC
740), which requires the use of the asset and liability
method. Under this method, deferred tax assets and liabilities
are recognized based on the difference between the Consolidated
Financial Statement carrying amounts of existing assets and
liabilities and their respective tax bases as computed pursuant
to ASC 740. Deferred tax assets and liabilities are measured
using the tax rates, based on certain judgments regarding
enacted tax laws and published guidance, in effect in the years
when those temporary differences are expected to reverse. A
valuation allowance is established against the deferred tax
assets when it is more likely than not that some portion or all
of the deferred taxes may not be realized. Changes in our level
and composition of earnings, tax laws or the deferred tax
valuation allowance, as well as the results of tax audits may
materially impact the effective tax rate.
Effective February 4, 2007, we adopted the accounting
pronouncement now codified in ASC 740 regarding accounting for
unrecognized tax benefits. This pronouncement prescribes a
comprehensive model for recognizing, measuring, presenting and
disclosing in the financial statements tax positions taken or
expected to be taken on a tax return, including a decision
whether to file or not to file in a particular jurisdiction.
Under ASC 740, a tax benefit from an uncertain position may be
recognized only if it is more likely than not that
the position is sustainable based on its technical merits.
The calculation of the deferred tax assets and liabilities, as
well as the decision to recognize a tax benefit from an
uncertain position and to establish a valuation allowance
require management to make estimates and assumptions. The
Company believes that its assumptions and estimates are
reasonable, although actual results may have a positive or
negative material impact on the balances of deferred tax assets
and liabilities, valuation allowances or net income.
21
Key
Performance Indicators
Our management evaluates the following items, which are
considered key performance indicators, in assessing our
performance:
Comparable store sales Comparable store sales
provide a measure of sales growth for stores open at least one
year over the comparable prior year period. In fiscal years
following those with 53 weeks, including Fiscal 2007, the
prior year period is shifted by one week to compare similar
calendar weeks. A store is included in comparable store sales in
the thirteenth month of operation. However, stores that have a
gross square footage increase of 25% or greater due to a remodel
are removed from the comparable store sales base, but are
included in total sales. These stores are returned to the
comparable store sales base in the thirteenth month following
the remodel. Sales from American Eagle, aerie and MARTIN+OSA
stores are included in comparable store sales. Sales from AEO
Direct are not included in comparable store sales.
Our management considers comparable store sales to be an
important indicator of our current performance. Comparable store
sales results are important to achieve leveraging of our costs,
including store payroll, store supplies, rent, etc. Comparable
store sales also have a direct impact on our total net sales,
cash and working capital.
Gross profit Gross profit measures whether we
are optimizing the price and inventory levels of our merchandise
and achieving an optimal level of sales. Gross profit is the
difference between net sales and cost of sales. Cost of sales
consists of: merchandise costs, including design, sourcing,
importing and inbound freight costs, as well as markdowns,
shrinkage, certain promotional costs and buying, occupancy and
warehousing costs. Buying, occupancy and warehousing costs
consist of: compensation, employee benefit expenses and travel
for our buyers and certain senior merchandising executives; rent
and utilities related to our stores, corporate headquarters,
distribution centers and other office space; freight from our
distribution centers to the stores; compensation and supplies
for our distribution centers, including purchasing, receiving
and inspection costs; and shipping and handling costs related to
our
e-commerce
operation. The inability to obtain acceptable levels of sales,
initial markups or any significant increase in our use of
markdowns could have an adverse effect on our gross profit and
results of operations.
Operating income Our management views
operating income as a key indicator of our success. The key
drivers of operating income are comparable store sales, gross
profit, our ability to control selling, general and
administrative expenses and our level of capital expenditures.
Store productivity Store productivity,
including net sales per average square foot, sales per
productive hour, average unit retail price, conversion rate, the
number of transactions per store, the number of units sold per
store and the number of units per transaction, is evaluated by
our management in assessing our operational performance.
Inventory turnover Our management evaluates
inventory turnover as a measure of how productively inventory is
bought and sold. Inventory turnover is important as it can
signal slow moving inventory. This can be critical in
determining the need to take markdowns on merchandise.
Cash flow and liquidity Our management
evaluates cash flow from operations, investing and financing in
determining the sufficiency of our cash position. Cash flow from
operations has historically been sufficient to cover our uses of
cash. Our management believes that cash flow from operations
will be sufficient to fund anticipated capital expenditures and
working capital requirements.
Results
of Operations
Overview
Fiscal 2009 started with numerous challenges, including a
difficult consumer environment, which impacted store traffic and
transaction volume. This, combined with weak demand for AE
merchandise, resulted in a sales and earnings decline during the
first two quarters of Fiscal 2009 compared to Fiscal 2008. We
made improvements to our product assortments and business
stabilized, particularly during the second half of the year.
Although third quarter operating results declined compared to
2008, we began to see an improved customer response to certain
core
22
categories such as AE jeans and graphic t-shirts. The business
continued to strengthen with the holiday merchandise assortment,
driving fourth quarter sales and earnings increases compared to
2008.
Fiscal 2009 net sales of approximately $3.0 billion
increased slightly compared to Fiscal 2008. Annual comparable
store sales decreased 4%. A higher merchandise margin reflected
lower markdowns, due to the improvement during the fall and
holiday seasons. Buying, occupancy and warehousing expenses
increased as a result of rent related to new store growth. Total
selling, general and administrative expenses increased 2%.
Expense reductions in advertising and travel were offset by the
accrual of incentive costs, which were not earned in Fiscal 2008.
Operating income as a percent to net sales was 8.0% for Fiscal
2009 compared to 10.1% for Fiscal 2008.
For Fiscal 2009, net income decreased to $169.0 million. As
a percent to net sales, net income was 5.7% during Fiscal 2009
and 6.0% during Fiscal 2008. Net income per diluted share was
$0.81 and $0.86 during Fiscal 2009 and Fiscal 2008, respectively.
We ended Fiscal 2009 with $896.4 million in cash,
short-term and long-term investments, an increase of
$161.5 million from last year. During the year, we
continued to make investments in our business, including
$127.4 million in capital expenditures. These expenditures
related primarily to our new and remodeled stores in the
U.S. and Canada, as well as headquarters, distribution
center and information technology projects.
The following table shows, for the periods indicated, the
percentage relationship to net sales of the listed items
included in our Consolidated Statements of Operations.
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For the Fiscal Years Ended
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January 30,
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January 31,
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February 2,
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2010
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2009
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2008
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Net sales
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100.0
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%
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100.0
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%
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100.0
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%
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Cost of sales, including certain buying, occupancy and
warehousing expenses
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61.3
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60.7
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53.4
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Gross profit
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38.7
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39.3
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46.6
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Selling, general and administrative expenses
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25.2
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24.6
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23.4
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Loss on impairment of assets
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0.6
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0.2
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Depreciation and amortization expense
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4.9
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4.4
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3.6
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Operating income
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8.0
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10.1
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19.6
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Other (expense) income, net
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(0.2
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)
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0.6
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1.2
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Net impairment loss recognized in earnings
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(0.8
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)
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Income before income taxes
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7.8
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|
9.9
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20.8
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Provision for income taxes
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2.1
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3.9
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7.7
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Net income
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5.7
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%
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6.0
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%
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13.1
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%
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Our operations are conducted in one reportable segment, which
includes our 938 U.S. and Canadian AE retail stores, 137
aerie by American Eagle retail stores, 28 MARTIN+OSA retail
stores and AEO Direct, as of January 30, 2010.
Comparison
of Fiscal 2009 to Fiscal 2008
Net
Sales
Net sales increased slightly to $2.991 billion from
$2.989 billion. The increase resulted primarily from an
increase in our conversion rate driven primarily by strong
holiday sales. For Fiscal 2009, comparable store sales declined
in the mid-single digits for both the AE Brand womens and
mens business compared to Fiscal 2008.
23
Gross
Profit
Gross profit decreased 1% to $1.158 billion from
$1.174 billion in Fiscal 2008. Gross profit as a percent to
net sales decreased by 60 basis points to 38.7% from 39.3%
last year. The percentage decrease was attributed to a
140 basis point increase in buying, occupancy and
warehousing costs as a percent to net sales, partially offset by
an 80 basis point increase in the merchandise margin rate
as a percent to net sales. Merchandise margin increased for the
period due primarily to decreased markdowns.
Buying, occupancy and warehousing expenses increased
140 basis points as a percent to net sales. This was
primarily due to a 120 basis point increase in rent as a
percent to net sales, driven by new store openings. Share-based
payment expense included in gross profit increased to
approximately $12.9 million compared to $5.7 million
last year.
Our gross profit may not be comparable to that of other
retailers, as some retailers include all costs related to their
distribution network, as well as design costs in cost of sales.
Other retailers may exclude a portion of these costs from cost
of sales, including them in a line item such as selling, general
and administrative expenses. Refer to Note 2 to the
Consolidated Financial Statements for a description of our
accounting policy regarding cost of sales, including certain
buying, occupancy and warehousing expenses.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased 3% to
$756.3 million from $734.0 million. As a percent to
net sales, selling, general and administrative expenses
increased by 60 basis points to 25.2% from 24.6% last year.
The higher rate this year is primarily due to incentive
compensation of 90 basis points partially offset by
improvement in advertising and travel expenses. Share-based
payment expense included in selling, general and administrative
expenses increased to approximately $24.0 million compared
to $14.6 million last year.
Loss
on Impairment of Assets
Loss on impairment of assets in Fiscal 2009 was
$18.0 million, or 0.6% as a rate to net sales, compared to
$6.7 million, or 0.2% as a rate to net sales in Fiscal
2008. This impairment relates primarily to underperforming M+O
stores.
Refer to Note 15 to the Consolidated Financial Statements
for additional information regarding the planned closure of
MARTIN+OSA.
Depreciation
and Amortization Expense
Depreciation and amortization expense increased 11% to
$145.4 million from $131.2 million last year. This
increase is primarily due to a greater property and equipment
base driven by our level of capital expenditures. As a percent
to net sales, depreciation and amortization expense increased to
4.9% from 4.4% due to the increased expense as well as the
impact of the comparable store sales decline.
Other
(Expense) Income, Net
Other (expense) income, net decreased to $(5.1) million
from $17.8 million, due primarily to lower interest income
and a realized loss on the sale of preferred securities in
Fiscal 2009 as well as a non-cash, non-operating foreign
currency loss related to holding U.S. dollars in our
Canadian subsidiary in anticipation of repatriation recorded
this year.
Net
Impairment Loss Recognized in Earnings
Net impairment loss recognized in earnings relating to our
investment securities was $0.9 million compared to
$22.9 million for Fiscal 2008.
Refer to the Fair Value Measurements caption below for
additional information.
24
Provision
for Income Taxes
The effective income tax rate decreased to approximately 27% in
Fiscal 2009 from 40% in Fiscal 2008. The decrease in the
effective income tax rate was primarily the result of the tax
benefit associated with the repatriation of foreign earnings
from Canada as well as federal and state income tax settlements
and other changes in income tax reserves. Additionally, the
effective income tax rate was higher in Fiscal 2008 primarily as
a result of the impairment charge recorded in connection with
the valuation of certain ARS and auction rate preferred
securities (ARPS) in which no income tax benefit was
recognized. The repatriation of foreign earnings from Canada in
Fiscal 2009 was a discrete event and has not changed the
Companys intention to indefinitely reinvest the earnings
of our Canadian subsidiaries to the extent not repatriated.
Refer to Note 13 to the Consolidated Financial Statements
for additional information regarding our accounting for income
taxes.
Net
Income
Net income decreased to $169.0 million in Fiscal 2009 from
$179.1 million in Fiscal 2008. As a percent to net sales,
net income was 5.7% and 6.0% for Fiscal 2009 and Fiscal 2008.
Net income per diluted share was $0.81 compared to $0.86 last
year. The decrease in net income was attributable to the factors
noted above.
Comparison
of Fiscal 2008 to Fiscal 2007
Net
Sales
Net sales decreased 2% to $2.989 billion from
$3.055 billion. The decrease resulted primarily from a 10%
decrease in comparable store sales despite an increase in sales
from our
e-commerce
operation and an increase in gross square feet due to new and
remodeled stores.
During Fiscal 2008, our AE Brand average transaction value was
flat compared to Fiscal 2007. This was driven by a mid-single
digit increase in units per transaction offset by a mid-single
digit decline in average unit retail price. Comparable store
sales were essentially flat in the AE Brand mens business
and declined in the high teens in the AE Brand womens
business compared to Fiscal 2007.
Gross
Profit
Gross profit decreased 17% to $1.174 billion from
$1.423 billion in Fiscal 2007. Gross margin as a percent to
net sales decreased by 730 basis points to 39.3% from 46.6%
last year. The percentage decrease was attributed to a
560 basis point decrease in the merchandise margin rate and
a 170 basis point increase in buying, occupancy and
warehousing costs as a percent to net sales. Merchandise margin
decreased for the period due primarily to increased markdowns as
well as an increase in merchandise costs.
Buying, occupancy and warehousing expenses increased
170 basis points as a percent to net sales. This was
primarily due to a 160 basis point increase in rent as a
percent to net sales, driven by new store openings and the
negative comparable store sales, as well as higher utilities.
These increases were partially offset by lower distribution and
warehousing service costs due to bringing our AEO Direct
fulfillment and Canadian distribution services in-house.
Share-based payment expense included in gross profit decreased
to approximately $5.7 million in Fiscal 2008 compared to
$6.2 million in Fiscal 2007.
Our gross profit may not be comparable to that of other
retailers, as some retailers include all costs related to their
distribution network, as well as design costs in cost of sales.
Other retailers may exclude a portion of these costs from cost
of sales, including them in a line item such as selling, general
and administrative expenses. Refer to Note 2 to the
Consolidated Financial Statements for a description of our
accounting policy regarding cost of sales, including certain
buying, occupancy and warehousing expenses.
25
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased 3% to
$734.0 million from $714.6 million. As a percent to
net sales, selling, general and administrative expenses
increased by 120 basis points to 24.6% in Fiscal 2008 from
23.4% in Fiscal 2007.
The higher rate in Fiscal 2008 is primarily due to the
comparable store sales decline, partially offset by an
improvement in incentive compensation of 100 basis points.
Share-based payment expense included in selling, general and
administrative expenses decreased to approximately
$14.6 million in Fiscal 2008 compared to $27.5 million
Fiscal 2007.
Loss
on Impairment of Assets
Loss on impairment of assets in Fiscal 2008 was
$6.7 million, or 0.2% as a rate to net sales, and relates
primarily to underperforming M+O stores. This compares to
$0.6 million in Fiscal 2007.
Depreciation
and Amortization Expense
Depreciation and amortization expense increased 20% to
$131.2 million in Fiscal 2008 from $109.2 million in
Fiscal 2007. This increase is primarily due to a greater
property and equipment base driven by our level of capital
expenditures. As a percent to net sales, depreciation and
amortization expense increased to 4.4% from 3.6% due to the
increased expense as well as the impact of the comparable store
sales decline during Fiscal 2008.
Other
Income, Net
Other income, net decreased to $17.8 million from
$37.6 million, due primarily to interest income decreasing
to $18.9 million from $39.3 million. This resulted
from decreased interest rates and lower investment balances
compared to Fiscal 2007. Additionally, interest expense relating
to our borrowings increased. Partially offsetting this decrease
was a net $1.1 million foreign currency transaction gain
compared to a $1.2 million loss during Fiscal 2007. This
was the result of a stronger U.S. dollar.
Net
Impairment Loss Recognized in Earnings
Net impairment loss recognized in earnings relating to our
investment securities was $22.9 million for Fiscal 2008.
There was no net impairment loss recognized in earnings during
Fiscal 2007.
Refer to the Fair Value Measurements caption below for
additional information.
Provision
for Income Taxes
The effective income tax rate increased to approximately 40% in
Fiscal 2008 from 37% in Fiscal 2007. The increase in the
effective income tax rate was primarily related to the
impairment charges recorded in connection with the valuation of
certain ARS and ARPS investments in which no income tax benefit
was recognized.
Refer to Note 13 to the Consolidated Financial Statements
for additional information regarding our accounting for income
taxes.
Net
Income
Net income in Fiscal 2008 decreased 55% to $179.1 million,
or 6.0% as a percent to net sales, from $400.0 million, or
13.1% as a percent to net sales in Fiscal 2007. Net income per
diluted share decreased to $0.86 in Fiscal 2008 from $1.82 in
Fiscal 2007. The decrease in net income was attributable to the
factors noted above. The decrease in net income per diluted
share was attributable to the factors noted above partially
offset by a lower weighted average share count in Fiscal 2008
compared to Fiscal 2007 as a result of share repurchases during
Fiscal 2007, as well as a lower average price of our common
stock during Fiscal 2008.
26
MARTIN+OSA
Fiscal 2009 Results of Operations
On March 5, 2010, our Board approved managements
recommendation to proceed with the closure M+O. We notified
employees and issued a press release announcing this decision on
March 9, 2010. The decision to take this action resulted
from an extensive evaluation of the brand and review of
strategic alternatives, which revealed that it was not achieving
performance levels that warranted further investment.
In Fiscal 2009, M+O recorded net sales from store and online
operations of approximately $50 million and generated an
after-tax loss of approximately $44 million, including a
non-cash impairment charge of approximately $11 million,
net of tax. The results of operations include store, online,
corporate and other expenses directly attributable to M+O
operations.
Fiscal
2010 Outlook
Looking ahead, we expect consumers to remain cautious and highly
sensitive to pricing. However, our outlook for Fiscal 2010 is
more favorable than for Fiscal 2009, based on improvements
across merchandising and design. We believe that on-trend
merchandise assortments, more frequent flow of new merchandise
and strong value offerings should drive sales and earnings
growth. We are continuing to control expenses and have planned
capital spending below Fiscal 2009. We believe that our current
cash holdings and cash generated from operations in Fiscal 2010
will be sufficient to fund anticipated capital expenditures and
working capital requirements.
Fair
Value Measurements
ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. Fair value is defined
under ASC 820 as the exit price associated with the sale of an
asset or transfer of a liability in an orderly transaction
between market participants at the measurement date. We have
adopted the provisions of ASC 820 as of February 3, 2008,
for our items measured at fair value on a recurring basis, which
include ARS. We have adopted the provisions of ASC
820-10-65 as
of February 1, 2009 for items measured at fair value on a
nonrecurring basis, including goodwill and property and
equipment. Additionally, we adopted the provisions of ASC
320-10-65 as
of May 3, 2009 for our financial instruments measured at
fair value.
Financial
Instruments
Valuation techniques used to measure fair value under ASC 820
must maximize the use of observable inputs and minimize the use
of unobservable inputs. In addition, ASC 820 establishes this
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include:
|
|
|
|
|
Level 1 Quoted prices in active markets
for identical assets or liabilities
|
|
|
|
Level 2 Inputs other than Level 1
that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
|
|
|
|
Level 3 Unobservable inputs (i.e.
projections, estimates, interpretations, etc.) that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
|
As of January 30, 2010, we held certain assets that are
required to be measured at fair value on a recurring basis.
These include cash equivalents and short and long-term
investments, including ARS.
27
In accordance with ASC 820, the following table represents the
fair value hierarchy for our financial assets (cash equivalents
and investments) measured at fair value on a recurring basis as
of January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 30, 2010
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
|
|
|
Significant
|
|
|
|
Carrying Amount
|
|
|
Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
as of January 30,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
144,391
|
|
|
$
|
144,391
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
25,420
|
|
|
|
25,420
|
|
|
|
|
|
|
|
|
|
Treasury bills
|
|
|
119,988
|
|
|
|
119,988
|
|
|
|
|
|
|
|
|
|
Money-market
|
|
|
404,161
|
|
|
|
404,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
693,960
|
|
|
$
|
693,960
|
|
|
$
|
|
|
|
$
|
|
|
Short-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
400
|
|
State and local government ARS
|
|
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-term Investments
|
|
$
|
4,675
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,675
|
|
Long-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
149,031
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
149,031
|
|
State and local government ARS
|
|
|
35,969
|
|
|
|
|
|
|
|
|
|
|
|
35,969
|
|
Auction rate preferred securities
|
|
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Investments
|
|
$
|
197,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
197,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
896,408
|
|
|
$
|
693,960
|
|
|
$
|
|
|
|
$
|
202,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total
|
|
|
100.0
|
%
|
|
|
77.4
|
%
|
|
|
0.0
|
%
|
|
|
22.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used a discounted cash flow (DCF) model to value
our Level 3 investments. The assumptions in our model
included different recovery periods, ranging from 0.5 year
to 11 years, depending on the type of security and varying
discount factors for yield, ranging from 0.3% to 6.6%, and
illiquidity, ranging from 0.3% to 4.0%. These assumptions are
subjective. They are based on our current judgment and our view
of current market conditions. The use of different assumptions
would result in a different valuation and related charge. For
example, an increase in the recovery period by one year would
reduce the fair value of our investment in ARS by approximately
$1.4 million. An increase to the discount rate and
illiquidity premium of 100 basis points would reduce the
estimated fair value of our investment in auction rate
securities by approximately $5.6 million.
As a result of the discounted cash flow analysis for Fiscal
2009, we recorded a net recovery of $25.0 million
($15.5 million, net of tax) which reduced the total
cumulative impairment recognized in other comprehensive income
(OCI) as of January 30, 2010 to
$10.3 million ($6.4 million, net of tax) from
$35.3 million ($21.8 million, net of tax) at the end
of Fiscal 2008. The reversal of temporary impairment was
primarily driven by calls at par for the Companys
private-insured student loan ARS. As a result of the
settlements, the securities which were previously impaired were
revalued at par. These amounts were recorded in OCI and resulted
in an increase in the investments estimated fair values.
The net increase in fair value was partially offset by
$0.9 million of net impairment loss recognized in earnings
during Fiscal 2009 as a result of credit rating downgrades.
28
The following table presents a rollforward of the amount of net
impairment loss recognized in earnings related to credit losses:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 30, 2010
|
|
|
|
(In thousands)
|
|
|
Beginning balance of credit losses previously recognized in
earnings
|
|
$
|
|
|
Year-to-date
OTTI credit losses recognized in earnings
|
|
|
940
|
|
|
|
|
|
|
Ending balance of cumulative credit losses recognized in earnings
|
|
$
|
940
|
|
|
|
|
|
|
The reconciliation of our assets measured at fair value on a
recurring basis using unobservable inputs (Level 3) is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 (Unobservable Inputs)
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan-
|
|
|
|
|
|
|
|
|
|
Auction-
|
|
|
Backed
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Auction-
|
|
|
Auction-Rate
|
|
|
|
|
|
|
Municipal
|
|
|
Rate
|
|
|
Preferred
|
|
|
|
Total
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In thousands)
|
|
|
Carrying value at January 31, 2009
|
|
$
|
251,007
|
|
|
$
|
69,970
|
|
|
$
|
169,254
|
|
|
$
|
11,783
|
|
Settlements
|
|
|
(72,600
|
)
|
|
|
(29,900
|
)
|
|
|
(42,700
|
)
|
|
|
|
|
Gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings
|
|
|
(940
|
)
|
|
|
|
|
|
|
|
|
|
|
(940
|
)
|
Reported in OCI
|
|
|
24,981
|
|
|
|
174
|
|
|
|
22,877
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
$
|
202,448
|
|
|
$
|
40,244
|
|
|
$
|
149,431
|
|
|
$
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes 3 and 4 to the Consolidated Financial
Statements for additional information on our investment
securities, including a description of the securities and a
discussion of the uncertainties relating to their liquidity.
Non-Financial
Assets
Our non-financial assets, which include goodwill and property
and equipment, are not required to be measured at fair value on
a recurring basis. However, if certain triggering events occur,
or if an annual impairment test is required and we are required
to evaluate the non-financial instrument for impairment, a
resulting asset impairment would require that the non-financial
asset be recorded at the estimated fair value. Resulting from
our annual goodwill impairment test performed as of
January 30, 2010, we concluded that our goodwill was not
impaired.
Additionally, certain long-lived assets were measured at
estimated fair value on a nonrecurring basis using Level 3
inputs as defined in ASC 820. Based on our review of the
operating performance and projections of underperforming stores,
we determined that certain underperforming stores would not be
able to generate sufficient cash flow over the life of the
related leases to recover our initial investment in them. The
estimated fair value of those stores was determined by
estimating the amount and timing of net future cash flows and
discounting them using a risk-adjusted rate of interest. We
estimate future cash flows based on our experience and knowledge
of the market in which the store is located. During Fiscal 2009,
certain long-lived assets with a carrying value of
$18.0 million, primarily related to 10 M+O stores, were
determined to be unable to recover their respective carrying
values and, therefore, were written down to their estimated fair
value, resulting in a loss on impairment of assets of
$18.0 million.
Liquidity
and Capital Resources
Our uses of cash are generally for working capital, the
construction of new stores and remodeling of existing stores,
information technology upgrades, distribution center
improvements and expansion, the purchase of both short and
long-term investments, the repurchase of common stock and the
payment of dividends. Historically, these uses of cash have been
funded with cash flow from operations and existing cash on hand.
Additionally, our uses of cash include the completion of our new
corporate headquarters, the development of aerie by American
Eagle and
29
the development of 77kids by american eagle. We expect to be
able to fund our future cash requirements through current cash
holdings as well as cash generated from operations. In the
future, we expect that our uses of cash will also include
further development of aerie by American Eagle and 77kids by
american eagle.
Our growth strategy includes internally developing new brands
and the possibility of further franchising arrangements or
acquisitions. We periodically consider and evaluate these
options to support future growth. In the event we do pursue such
options, we could require additional equity or debt financing.
There can be no assurance that we would be successful in closing
any potential transaction, or that any endeavor we undertake
would increase our profitability.
The following sets forth certain measures of our liquidity:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
January 31,
|
|
|
2010
|
|
2009
|
|
Working Capital (in 000s)
|
|
$
|
758,075
|
|
|
$
|
523,596
|
|
Current Ratio
|
|
|
2.85
|
|
|
|
2.30
|
|
The increase of our working capital and current ratio as of
January 30, 2010 compared to January 31, 2009, is
primarily related to an increase in cash and cash equivalents as
a result of cash from operations as well as the liquidation of
long-term investments.
Cash
Flows from Operating Activities
Net cash provided by operating activities totaled
$386.5 million during Fiscal 2009 compared to
$303.3 million during Fiscal 2008 and $464.7 million
during Fiscal 2007. Our major source of cash from operations was
merchandise sales. Our primary outflows of cash from operations
were for the purchase of inventory and operational costs.
The increase in net cash provided by operating activities of
$83.2 million from the prior year was driven primarily by
an increase in accrued compensation due to incentive
compensation accruals during Fiscal 2009 as well as an increase
in prepaid taxes due to the timing of payments.
Cash
Flows from Investing Activities
Investing activities for Fiscal 2009 included
$127.4 million for capital expenditures partially offset by
$80.4 million from the sale of investments classified as
available-for-sale.
Investing activities for Fiscal 2008 included
$344.9 million from the net sale of investments classified
as
available-for-sale,
partially offset by $265.3 million for capital
expenditures. Investing activities for Fiscal 2007 primarily
included $354.2 million for the net sale of investments
classified as
available-for-sale
as well as $250.4 million for capital expenditures.
We invest our cash primarily in liquid money market funds. We
also have investments, made under our prior investment policy,
in auction rate and auction rate preferred securities, with an
original contractual maturity of up to 39 years and an
expected rate of return of approximately a 0.8% taxable
equivalent yield. All investments made under our new investment
policy must have a highly liquid secondary market at the time of
purchase and an effective maturity not exceeding two years.
Cash
Flows from Financing Activities
During Fiscal 2009, cash used for financing activities resulted
primarily from $83.0 million used for the payment of
dividends and the partial repayment of $45.0 million in
borrowings against our demand line of credit. During Fiscal
2008, cash used for financing activities resulted primarily from
$82.4 million used for the payment of dividends partially
offset by $75.0 million in borrowings against our demand
line of credit. During Fiscal 2007, cash used for financing
activities resulted primarily from $438.3 million used for
the repurchase of our common stock as part of our publicly
announced repurchase program and $80.8 million used for the
payment of dividends.
ASC 718 requires that cash flows resulting from the benefits of
tax deductions in excess of recognized compensation cost for
share-based payments be classified as financing cash flows.
Accordingly, for Fiscal 2009,
30
2008 and 2007, the excess tax benefit from share-based payments
of $2.8 million, $0.7 million and $6.2 million,
respectively, are classified as financing cash flows.
Capital
Expenditures
Fiscal 2009 capital expenditures were $127.4 million, which
reflected a significant reduction compared to Fiscal 2008
capital expenditures of $265.3 million. Fiscal 2009
expenditures included $80.7 million related to investments
in our AE stores, including 29 new AE and aerie stores in the
United States and Canada, 22 remodeled stores in the United
States and fixtures and visual investments. Additionally, we
continued to support our infrastructure growth by investing in
home office projects including the construction of our corporate
headquarters in Pittsburgh, Pennsylvania ($23.5 million),
the expansion and improvement of our distribution centers
($12.0 million) and information technology
($11.2 million).
For Fiscal 2010, we will continue with our reduced spending
plan. We expect capital expenditures to be in the range of
$100.0 million to $120.0 million with approximately
half of the amount relating to store growth and renovation.
Credit
Facilities
We have borrowing agreements with four separate financial
institutions under which we may borrow an aggregate of
$325.0 million United States dollars (USD) and
$25.0 million Canadian dollars (CAD). Of this
amount, $200.0 million USD can be used for demand letter of
credit facilities, $100.0 million USD and
$25.0 million CAD can be used for demand line borrowings
and the remaining $25.0 million USD can be used for either
letters of credit or demand line borrowings at our discretion.
The $100.0 million USD of demand line credit is comprised
of two facilities each with $50.0 million USD of borrowing
capacity. The expiration dates of the two demand line facilities
are April 21, 2010 and May 22, 2010. The
$25.0 million CAD of demand line credit was established
during Fiscal 2009, and is provided at the discretion of the
lender.
During Fiscal 2009, we reduced the amount of credit available
that could be used for either letters of credit or as a demand
line from $100.0 million USD to $25.0 million USD.
This request was made by the lender due to our low utilization
of this credit facility. The reduction was effective
July 3, 2009 and had no material impact on our consolidated
financial statements or on our ability to fund our operations.
Additionally, during Fiscal 2009, we increased our borrowing
capacity for demand letters of credit from $150.0 million
USD to $200.0 million USD.
As of January 30, 2010 we had outstanding trade and standby
letters of credit of $51.5 million USD and demand line
borrowings of $30.0 million USD, which reflects a
$45.0 million USD reduction in outstanding borrowings, as a
result of a voluntary partial repayment made during Fiscal 2009.
The outstanding amounts on the demand line borrowings can be
called for repayment by the financial institutions at any time.
Additionally, the availability of any remaining borrowings is
subject to acceptance by the respective financial institutions.
The average borrowing rate on the demand lines for Fiscal 2009
was 2.5% and we have incorporated the outstanding demand line
borrowings into working capital.
Stock
Repurchases
During Fiscal 2007, our Board authorized a total of
60.0 million shares of our common stock for repurchase
under our share repurchase program with expiration dates
extending into Fiscal 2010. During Fiscal 2007, we repurchased
18.7 million shares as part of our publicly announced
repurchase program for approximately $438.3 million, at a
weighted average price of $23.38 per share. We did not
repurchase any common stock as part of our publicly announced
repurchase program during Fiscal 2008 or Fiscal 2009. At
January 30, 2010, the authorization to repurchase
11.3 million shares of our common stock under our share
repurchase program expired. As of March 26, 2010, we had
30.0 million shares remaining authorized for repurchase.
These shares will be repurchased at our discretion. The
authorization relating to the remaining 30.0 million shares
expires at the end of Fiscal 2010.
During Fiscal 2009 and Fiscal 2008, we repurchased approximately
18,000 and 0.2 million shares, respectively, from certain
employees at market prices totaling $0.2 million and
$3.4 million, respectively. These shares
31
were repurchased for the payment of taxes in connection with the
vesting of share-based payments, as permitted under the 2005
Stock Award and Incentive Plan.
The aforementioned share repurchases have been recorded as
treasury stock.
Dividends
A $0.10 per share dividend was paid during each quarter of
Fiscal 2009 and Fiscal 2008. Subsequent to the fourth quarter of
Fiscal 2009, our Board declared a quarterly cash dividend of
$0.10 per share, payable on April 9, 2010, to stockholders
of record at the close of business on March 29, 2010. The
payment of future dividends is at the discretion of our Board
and is based on future earnings, cash flow, financial condition,
capital requirements, changes in U.S. taxation and other
relevant factors. It is anticipated that any future dividends
paid will be declared on a quarterly basis.
Obligations
and Commitments
Disclosure
about Contractual Obligations
The following table summarizes our significant contractual
obligations as of January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Operating leases(1)
|
|
$
|
1,744,507
|
|
|
$
|
242,859
|
|
|
$
|
437,375
|
|
|
$
|
371,225
|
|
|
$
|
693,048
|
|
Unrecognized tax benefits(2)
|
|
|
38,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,618
|
|
Purchase obligations(3)
|
|
|
376,900
|
|
|
|
369,527
|
|
|
|
3,078
|
|
|
|
3,514
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,160,025
|
|
|
$
|
612,386
|
|
|
$
|
440,453
|
|
|
$
|
374,739
|
|
|
$
|
732,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating lease obligations consist primarily of future minimum
lease commitments related to store operating leases (Refer to
Note 9 to the Consolidated Financial Statements). Operating
lease obligations do not include common area maintenance,
insurance or tax payments for which we are also obligated. |
|
(2) |
|
The amount of unrecognized tax benefits as of January 30,
2010 was $38.6 million, including approximately
$7.0 million of accrued interest and penalties.
Unrecognized tax benefits are positions taken or expected to be
taken on an income tax return that may result in additional
payments to tax authorities. The Company does not anticipate
that any significant unrecognized tax benefits will be realized
within one year. Accordingly, the balance of the unrecognized
tax benefits are included in the More than
5 Years column as we are not able to reasonably
estimate the timing of the potential future payments. |
|
(3) |
|
Purchase obligations primarily include binding commitments to
purchase merchandise inventory as well as other legally binding
commitments made in the normal course of business. Included in
the above purchase obligations are inventory commitments
guaranteed by outstanding letters of credit, as shown in the
table below. |
Disclosure
about Commercial Commitments
The following table summarizes our significant commercial
commitments as of January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period
|
|
|
|
Total Amount
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Committed
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Letters of credit(1)
|
|
$
|
51,468
|
|
|
$
|
51,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
51,468
|
|
|
$
|
51,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Letters of credit represent commitments, guaranteed by a bank,
to pay vendors for merchandise upon presentation of documents
demonstrating that the merchandise has shipped. |
32
Off-Balance
Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
Recent
Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 2 of
the Consolidated Financial Statements.
Certain
Relationships and Related Party Transactions
Refer to Part III, Item 13 of this
Form 10-K
for information regarding related party transactions.
Impact of
Inflation/Deflation
We do not believe that inflation has had a significant effect on
our net sales or our profitability. Substantial increases in
cost, however, could have a significant impact on our business
and the industry in the future. Additionally, while deflation
could positively impact our merchandise costs, it could have an
adverse effect on our average unit retail price, resulting in
lower sales and profitability.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We have market risk exposure related to interest rates and
foreign currency exchange rates. Market risk is measured as the
potential negative impact on earnings, cash flows or fair values
resulting from a hypothetical change in interest rates or
foreign currency exchange rates over the next year.
Interest
Rate Risk
Our earnings are affected by changes in market interest rates as
a result of our investments in money market funds and auction
rate securities, which have long-term contractual maturities but
feature variable interest rates that reset at short-term
intervals. If our Fiscal 2009 average yield rate decreases by
10% in Fiscal 2010, our income before taxes will decrease by
approximately $0.2 million. Comparatively, if our Fiscal
2008 portfolio average yield rate had decreased by 10% in Fiscal
2009, our income before taxes would have decreased by
approximately $0.8 million. These amounts are determined by
considering the impact of the hypothetical yield rates on our
cash, short-term and long-term investment balances.
Additionally, borrowings under our demand lines, which expire on
April 21, 2010 and May 22, 2010, bear interest at
variable rates based on the prime rate or LIBOR. At
January 30, 2010, the weighted average interest rate on our
borrowings was 2.1%. Based upon a sensitivity analysis as of
January 30, 2010, assuming average outstanding borrowing
during Fiscal 2009 of $62.7 million, a 50 basis point
increase in interest rates would have resulted in a potential
increase in interest expense of approximately $313,000.
These analyses do not consider the effects of the reduced level
of overall investments that could happen in such an environment.
Further, in the event of a change of such magnitude, management
would likely take actions to further mitigate its exposure to
the change. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in our investments
structure.
Foreign
Exchange Rate Risk
We are exposed to the impact of foreign exchange rate risk
primarily through our Canadian operations where the functional
currency is the Canadian dollar. We do not utilize hedging
instruments to mitigate foreign currency exchange risks. We
believe our foreign currency translation risk is minimal as a
hypothetical 10% change in the Canadian foreign exchange rate
would not materially affect our results of operations or cash
flows.
33
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
Index to
Consolidated Financial Statements
34
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
American Eagle Outfitters, Inc.
We have audited the accompanying consolidated balance sheets of
American Eagle Outfitters, Inc. (the Company) as of
January 30, 2010 and January 31, 2009, and the related
consolidated statements of operations, comprehensive income,
stockholders equity, and cash flows for each of the three
years in the period ended January 30, 2010. These financial
statements are the responsibility of the Companys
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, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Eagle Outfitters, Inc. at
January 30, 2010 and January 31, 2009, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended January 30,
2010, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 13 to the consolidated financial
statements, the Company changed its accounting for income tax
uncertainties effective February 4, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
American Eagle Outfitters, Inc.s internal control over
financial reporting as of January 30, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 26, 2010
expressed an unqualified opinion.
Pittsburgh, Pennsylvania
March 26, 2010
35
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
693,960
|
|
|
$
|
473,342
|
|
Short-term investments
|
|
|
4,675
|
|
|
|
10,511
|
|
Merchandise inventory
|
|
|
326,454
|
|
|
|
294,928
|
|
Accounts receivable
|
|
|
34,746
|
|
|
|
41,471
|
|
Prepaid expenses and other
|
|
|
47,039
|
|
|
|
59,660
|
|
Deferred income taxes
|
|
|
60,156
|
|
|
|
45,447
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,167,030
|
|
|
|
925,359
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost, net of accumulated depreciation
and amortization
|
|
|
713,142
|
|
|
|
740,240
|
|
Goodwill
|
|
|
11,210
|
|
|
|
10,706
|
|
Long-term investments
|
|
|
197,773
|
|
|
|
251,007
|
|
Non-current deferred income taxes
|
|
|
27,305
|
|
|
|
15,001
|
|
Other assets, net
|
|
|
21,688
|
|
|
|
21,363
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,138,148
|
|
|
$
|
1,963,676
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
158,526
|
|
|
$
|
152,068
|
|
Note payable
|
|
|
30,000
|
|
|
|
75,000
|
|
Accrued compensation and payroll taxes
|
|
|
55,144
|
|
|
|
29,417
|
|
Accrued rent
|
|
|
68,866
|
|
|
|
64,695
|
|
Accrued income and other taxes
|
|
|
20,585
|
|
|
|
6,259
|
|
Unredeemed gift cards and gift certificates
|
|
|
39,389
|
|
|
|
42,299
|
|
Current portion of deferred lease credits
|
|
|
17,388
|
|
|
|
13,726
|
|
Other liabilities and accrued expenses
|
|
|
19,057
|
|
|
|
18,299
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
408,955
|
|
|
|
401,763
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease credits
|
|
|
89,591
|
|
|
|
88,314
|
|
Non-current accrued income taxes
|
|
|
38,618
|
|
|
|
39,898
|
|
Other non-current liabilities
|
|
|
22,467
|
|
|
|
24,670
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
150,676
|
|
|
|
152,882
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 600,000 shares
authorized; 249,561 and 249,328 shares issued; 206,832 and
205,281 shares outstanding, respectively
|
|
|
2,486
|
|
|
|
2,485
|
|
Contributed capital
|
|
|
554,399
|
|
|
|
513,574
|
|
Accumulated other comprehensive income (loss)
|
|
|
16,838
|
|
|
|
(14,389
|
)
|
Retained earnings
|
|
|
1,764,049
|
|
|
|
1,694,161
|
|
Treasury stock, 41,737 and 43,248 shares, respectively, at
cost
|
|
|
(759,255
|
)
|
|
|
(786,800
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,578,517
|
|
|
|
1,409,031
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,138,148
|
|
|
$
|
1,963,676
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
36
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
2,990,520
|
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
Cost of sales, including certain buying, occupancy and
warehousing expenses
|
|
|
1,832,471
|
|
|
|
1,814,765
|
|
|
|
1,632,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,158,049
|
|
|
|
1,174,101
|
|
|
|
1,423,138
|
|
Selling, general and administrative expenses
|
|
|
756,256
|
|
|
|
734,029
|
|
|
|
714,588
|
|
Loss on impairment of assets
|
|
|
17,992
|
|
|
|
6,713
|
|
|
|
592
|
|
Depreciation and amortization expense
|
|
|
145,408
|
|
|
|
131,219
|
|
|
|
109,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
238,393
|
|
|
|
302,140
|
|
|
|
598,755
|
|
Other (expense) income, net
|
|
|
(5,062
|
)
|
|
|
17,790
|
|
|
|
37,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairment losses
|
|
|
(4,413
|
)
|
|
|
(22,889
|
)
|
|
|
|
|
Portion of loss recognized in other comprehensive income, before
tax
|
|
|
3,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss recognized in earnings
|
|
|
(940
|
)
|
|
|
(22,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
232,391
|
|
|
|
297,041
|
|
|
|
636,381
|
|
Provision for income taxes
|
|
|
63,369
|
|
|
|
117,980
|
|
|
|
236,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.82
|
|
|
$
|
0.87
|
|
|
$
|
1.85
|
|
Diluted income per common share
|
|
$
|
0.81
|
|
|
$
|
0.86
|
|
|
$
|
1.82
|
|
Weighted average common shares outstanding basic
|
|
|
206,171
|
|
|
|
205,169
|
|
|
|
216,119
|
|
Weighted average common shares outstanding diluted
|
|
|
209,512
|
|
|
|
207,582
|
|
|
|
220,280
|
|
Refer to Notes to Consolidated Financial Statements
37
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary recovery (impairment) related to investment
securities, net of tax
|
|
|
14,506
|
|
|
|
(22,795
|
)
|
|
|
|
|
Reclassification adjustment for OTTI charges realized in net
income related to ARS
|
|
|
940
|
|
|
|
751
|
|
|
|
|
|
Reclassification adjustment for losses realized in net income
due to the sale of
available-for-sale
securities, net of tax
|
|
|
|
|
|
|
197
|
|
|
|
242
|
|
Unrealized (loss) gain on investments, net of tax
|
|
|
|
|
|
|
(378
|
)
|
|
|
947
|
|
Foreign currency translation adjustment
|
|
|
15,781
|
|
|
|
(27,649
|
)
|
|
|
12,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
31,227
|
|
|
|
(49,874
|
)
|
|
|
13,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
200,249
|
|
|
$
|
129,187
|
|
|
$
|
413,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
38
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Contributed
|
|
|
Retained
|
|
|
Treasury
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
|
|
|
(1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock(2)
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
Balance at February 3, 2007
|
|
|
221,284
|
|
|
|
2,461
|
|
|
|
453,418
|
|
|
|
1,302,345
|
|
|
|
(362,626
|
)
|
|
|
21,714
|
|
|
|
1,417,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC 740 regarding accounting for unrecognized tax
benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,304
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 4, 2007
|
|
|
221,284
|
|
|
|
2,461
|
|
|
|
453,418
|
|
|
|
1,289,041
|
|
|
|
(362,626
|
)
|
|
|
21,714
|
|
|
|
1,404,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
1,092
|
|
|
|
20
|
|
|
|
39,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,997
|
|
|
|
|
|
Repurchase of common stock as part of publicly announced programs
|
|
|
(18,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438,291
|
)
|
|
|
|
|
|
|
(438,291
|
)
|
|
|
|
|
Repurchase of common stock from employees
|
|
|
(415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,310
|
)
|
|
|
|
|
|
|
(12,310
|
)
|
|
|
|
|
Reissuance of treasury stock
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
(6,480
|
)
|
|
|
20,546
|
|
|
|
|
|
|
|
14,066
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,019
|
|
|
|
|
|
|
|
|
|
|
|
400,019
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,771
|
|
|
|
13,771
|
|
|
|
|
|
Cash dividends ($0.38 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,796
|
)
|
|
|
|
|
|
|
|
|
|
|
(80,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
|
204,480
|
|
|
$
|
2,481
|
|
|
$
|
493,395
|
|
|
$
|
1,601,784
|
|
|
$
|
(792,681
|
)
|
|
$
|
35,485
|
|
|
$
|
1,340,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
453
|
|
|
|
4
|
|
|
|
20,179
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
20,603
|
|
|
|
|
|
Repurchase of common stock from employees
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
|
|
Reissuance of treasury stock
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
(4,710
|
)
|
|
|
9,313
|
|
|
|
|
|
|
|
4,603
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,061
|
|
|
|
|
|
|
|
|
|
|
|
179,061
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,874
|
)
|
|
|
(49,874
|
)
|
|
|
|
|
Cash dividends ($0.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,394
|
)
|
|
|
|
|
|
|
|
|
|
|
(82,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
205,281
|
|
|
$
|
2,485
|
|
|
$
|
513,574
|
|
|
$
|
1,694,161
|
|
|
$
|
(786,800
|
)
|
|
$
|
(14,389
|
)
|
|
$
|
1,409,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
41
|
|
|
|
1
|
|
|
|
40,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,826
|
|
|
|
|
|
Repurchase of common stock from employees
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247
|
)
|
|
|
|
|
|
|
(247
|
)
|
|
|
|
|
Reissuance of treasury stock
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
(15,228
|
)
|
|
|
27,792
|
|
|
|
|
|
|
|
12,564
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,022
|
|
|
|
|
|
|
|
|
|
|
|
169,022
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,227
|
|
|
|
31,227
|
|
|
|
|
|
Cash dividends and dividend equivalents ($0.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,906
|
)
|
|
|
|
|
|
|
|
|
|
|
(83,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
|
206,832
|
|
|
$
|
2,486
|
|
|
$
|
554,399
|
|
|
$
|
1,764,049
|
|
|
$
|
(759,255
|
)
|
|
$
|
16,838
|
|
|
$
|
1,578,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
600,000 authorized, 249,561 issued and 206,832 outstanding
(excluding 992 shares of non-vested restricted stock),
$0.01 par value common stock at January 30, 2010;
600,000 authorized, 249,328 issued and 205,281 outstanding
(excluding 799 shares of non-vested restricted stock),
$0.01 par value common stock at January 31, 2009;
600,000 authorized, 248,763 issued and 204,480 outstanding
(excluding 687 shares of non-vested restricted stock),
$0.01 par value common stock at February 2, 2008; The
Company has 5,000 authorized, with none issued or outstanding,
$0.01 par value preferred stock at January 30, 2010,
January 31, 2009 and February 2, 2008. |
|
(2) |
|
41,737 shares, 43,248 shares and 43,596 shares at
January 30, 2010, January 31, 2009 and
February 2, 2008, respectively. During Fiscal 2009 Fiscal
2008 and Fiscal 2007, 1,528 shares, 512 shares and
1,269 shares, respectively, were reissued from treasury
stock for the issuance of share-based payments. |
Refer to Notes to Consolidated Financial Statements
39
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
147,483
|
|
|
|
133,141
|
|
|
|
110,753
|
|
Share-based compensation
|
|
|
36,900
|
|
|
|
20,296
|
|
|
|
33,670
|
|
Provision for deferred income taxes
|
|
|
(36,027
|
)
|
|
|
24,469
|
|
|
|
(8,147
|
)
|
Tax benefit from share-based payments
|
|
|
7,995
|
|
|
|
1,121
|
|
|
|
7,260
|
|
Excess tax benefit from share-based payments
|
|
|
(2,812
|
)
|
|
|
(693
|
)
|
|
|
(6,156
|
)
|
Foreign currency transaction loss (gain)
|
|
|
6,477
|
|
|
|
(1,141
|
)
|
|
|
1,221
|
|
Loss on impairment of assets
|
|
|
17,992
|
|
|
|
6,713
|
|
|
|
592
|
|
Net impairment loss recognized in earnings
|
|
|
940
|
|
|
|
22,889
|
|
|
|
|
|
Realized loss on sale of investment securities
|
|
|
2,749
|
|
|
|
1,117
|
|
|
|
393
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventory
|
|
|
(27,994
|
)
|
|
|
(13,735
|
)
|
|
|
(19,074
|
)
|
Accounts receivable
|
|
|
7,052
|
|
|
|
(10,094
|
)
|
|
|
(5,660
|
)
|
Prepaid expenses and other
|
|
|
13,063
|
|
|
|
(24,781
|
)
|
|
|
(1,334
|
)
|
Other assets, net
|
|
|
1,146
|
|
|
|
390
|
|
|
|
(3,242
|
)
|
Accounts payable
|
|
|
4,992
|
|
|
|
(3,053
|
)
|
|
|
(15,559
|
)
|
Unredeemed gift cards and gift certificates
|
|
|
(3,430
|
)
|
|
|
(11,392
|
)
|
|
|
(699
|
)
|
Deferred lease credits
|
|
|
4,173
|
|
|
|
18,887
|
|
|
|
4,640
|
|
Accrued compensation and payroll taxes
|
|
|
25,528
|
|
|
|
(19,799
|
)
|
|
|
(9,144
|
)
|
Accrued income and other taxes
|
|
|
12,862
|
|
|
|
(20,697
|
)
|
|
|
(31,416
|
)
|
Accrued liabilities
|
|
|
(1,649
|
)
|
|
|
611
|
|
|
|
6,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
217,440
|
|
|
|
124,249
|
|
|
|
64,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
386,462
|
|
|
|
303,310
|
|
|
|
464,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(127,419
|
)
|
|
|
(265,335
|
)
|
|
|
(250,407
|
)
|
Purchase of
available-for-sale
securities
|
|
|
|
|
|
|
(48,655
|
)
|
|
|
(1,772,653
|
)
|
Sale of
available-for-sale
securities
|
|
|
80,353
|
|
|
|
393,559
|
|
|
|
2,126,891
|
|
Other investing activities
|
|
|
(2,003
|
)
|
|
|
(2,297
|
)
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(49,069
|
)
|
|
|
77,272
|
|
|
|
102,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital leases
|
|
|
(2,015
|
)
|
|
|
(2,177
|
)
|
|
|
(1,912
|
)
|
Proceeds from issuance of note payable
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
Partial repayment of note payable
|
|
|
(45,000
|
)
|
|
|
|
|
|
|
|
|
Repurchase of common stock as part of publicly announced programs
|
|
|
|
|
|
|
|
|
|
|
(438,291
|
)
|
Repurchase of common stock from employees
|
|
|
(247
|
)
|
|
|
(3,432
|
)
|
|
|
(12,310
|
)
|
Net proceeds from stock options exercised
|
|
|
7,630
|
|
|
|
3,799
|
|
|
|
13,183
|
|
Excess tax benefit from share-based payments
|
|
|
2,812
|
|
|
|
693
|
|
|
|
6,156
|
|
Cash dividends paid
|
|
|
(82,985
|
)
|
|
|
(82,394
|
)
|
|
|
(80,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(119,805
|
)
|
|
|
(8,511
|
)
|
|
|
(513,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
3,030
|
|
|
|
(14,790
|
)
|
|
|
3,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
220,618
|
|
|
|
357,281
|
|
|
|
56,324
|
|
Cash and cash equivalents beginning of period
|
|
|
473,342
|
|
|
|
116,061
|
|
|
|
59,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
693,960
|
|
|
$
|
473,342
|
|
|
$
|
116,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
40
AMERICAN
EAGLE OUTFITTERS, INC.
FOR THE YEAR ENDED JANUARY 30, 2010
American Eagle Outfitters, Inc., a Delaware corporation, (the
Company), operates under the American
Eagle®
(AE),
aerie®
by American Eagle, 77kids by american
eagle®
and
MARTIN+OSA®
brands.
Founded in 1977, American Eagle Outfitters is a leading apparel
and accessories retailer that operates more than 1,000 retail
stores in the U.S. and Canada, and online at
ae.com®.
Through its family of brands, AEO, Inc. offers high quality,
on-trend clothing, accessories and personal care products at
affordable prices. The Companys online business, AEO
Direct, ships to 75 countries worldwide.
American Eagle
Outfitters®
boasts a passionate and loyal customer base ranging from college
students to Hollywood celebrities. The Company focuses on
delivering the right product at the right price, combined with a
philosophy of operational excellence and discipline across the
organization.
AE
Brand
The American Eagle
Outfitters®
brand targets 15- to
25-year old
girls and guys, achieving the perfect combination of American
prep and current fashion. Denim is the cornerstone of the
American
Eagle®
product assortment, which is completed by other key categories
including sweaters, graphic t-shirts, fleece, outerwear and
accessories. The American
Eagle®
attitude is honest, real, individual and fun. American
Eagle®
is priced to be worn by everyone, everyday, delivering value
through quality and style.
aerie
by American Eagle
In the fall of 2006, the Company launched
aerie®
by American Eagle (aerie), a collection of
Dormwear®,
intimates, and personal care products for the 15- to
25-year-old
AE®
girl. The collection is available in 137 standalone aerie
stores throughout the country, online at aerie.com, and at
select American
Eagle®
stores.
aerie®
features a complete fitness line called aerie
f.i.t.tm,
as well as a personal care collection that includes fragrance,
body care and cosmetics to complement the aerie lifestyle.
Designed to be sexy, comfortable and cozy,
aerie®
offers
AE®
customers a new way to express their personal style everyday.
77kids
by american eagle
Introduced in October of 2008 as an online-only brand,
77kids®
by american
eagle®
(77kids) offers on-trend, high-quality clothing and
accessories for kids ages two to 10. The Company plans to open
five
77kids®
brick-and-mortar
stores in Fiscal 2010. The brand draws from the strong heritage
of American Eagle
Outfitters®,
with a
point-of-view
thats thoughtful, playful and real. Like American
Eagle®
clothing, 77kids focuses on great fit, value and style.
MARTIN+OSA
MARTIN+OSA®
(M+O) provides clothing and accessories for 28- to
40-year old
men and women at its 28 stores and online at
www.martinandosa.com.
Refer to Note 15 to the Consolidated Financial Statements
for additional information regarding the planned closure of
MARTIN+OSA.
AEO
Direct
We sell merchandise via our
e-commerce
operations, ae.com, aerie.com, 77kids.com and martinandosa.com,
which are extensions of the lifestyle that we convey in our
stores. We currently ship to 75 countries.
41
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Merchandise
Mix
The following table sets forth the approximate consolidated
percentage of net sales attributable to each merchandise group
for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Mens apparel and accessories
|
|
|
40
|
%
|
|
|
42
|
%
|
|
|
38
|
%
|
Womens apparel and accessories (excluding aerie)
|
|
|
51
|
%
|
|
|
50
|
%
|
|
|
55
|
%
|
aerie
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The Consolidated Financial Statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
At January 30, 2010, the Company operated in one reportable
segment.
Fiscal
Year
The Companys financial year is a 52/53 week year that
ends on the Saturday nearest to January 31. As used herein,
Fiscal 2010 refers to the 52 week periods
ending January 29, 2011. Fiscal
2009,Fiscal 2008 and Fiscal 2007
refer to the 52 week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008, respectively.
Fiscal 2006 refers to the 53 week period ended
February 3, 2007. Fiscal 2005 refers to the
52 week periods ended January 28, 2006.
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) requires the Companys
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 revenues and expenses
during the reporting period. Actual results could differ from
those estimates. On an ongoing basis, our management reviews its
estimates based on currently available information. Changes in
facts and circumstances may result in revised estimates.
Recent
Accounting Pronouncements
In July 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement
No. 162 The Hierarchy of Generally Accepted Accounting
Principles. SFAS 168 establishes the FASB Accounting
Standard Codification (ASC) as the single source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Effective July
2009, the FASB ASC is considered the single source of
authoritative U.S. accounting and reporting standards,
except for additional authoritative rules and interpretive
releases issued by the Securities and Exchange Commission
(SEC). The Company adopted SFAS 168, as
codified in ASC 105, Generally Accepted Accounting
Principles, as of October 31, 2009. All accounting
references within this Annual Report on
Form 10-K
have been updated and, therefore, previous references to GAAP
have been replaced with references to GAAP as codified in the
ASC.
42
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2009, the FASB approved the consensus on Emerging
Issues Task Force (EITF)
08-1,
Revenue Arrangements with Multiple Deliverables,
primarily codified under ASC 605, Revenue Recognition,
as Accounting Standards Update (ASU)
2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (ASU
2009-13).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated among the various deliverables in a multi-element
transaction using the relative selling price method. This
guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning after
June 15, 2010. The Company is currently evaluating the
impact that the adoption of ASU
2009-13 will
have on its Consolidated Financial Statements.
In January 2010, the FASB issued ASU
2010-06,
Fair Value Measurements and Disclosures Topic 820: Improving
Disclosures about Fair Value Measurements (ASU
2010-06).
ASU 2010-06
requires new disclosures regarding transfers in and out of the
Level 1 and 2 and activity within Level 3 fair value
measurements and clarifies existing disclosures of inputs and
valuation techniques for Level 2 and 3 fair value
measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting
periods beginning after December 15, 2009, except for the
disclosure of activity within Level 3 fair value
measurements, which is effective for fiscal years beginning
after December 15, 2010, and for interim reporting periods
within those years. The Company is currently evaluating the
impact that the adoption of ASU
2010-06 will
have on its Consolidated Financial Statements and disclosures.
Foreign
Currency Translation
The Canadian dollar is the functional currency for the Canadian
business. In accordance with ASC 830, Foreign Currency
Matters, assets and liabilities denominated in foreign
currencies were translated into U.S. dollars (the reporting
currency) at the exchange rate prevailing at the balance sheet
date. Revenues and expenses denominated in foreign currencies
were translated into U.S. dollars at the monthly average
exchange rate for the period. Gains or losses resulting from
foreign currency transactions are included in the results of
operations, whereas, related translation adjustments are
reported as an element of other comprehensive income in
accordance with ASC 220, Comprehensive Income (refer to
Note 10 to the Consolidated Financial Statements).
Cash
and Cash Equivalents, Short-term Investments and Long-term
Investments
Cash includes cash equivalents. The Company considers all highly
liquid investments purchased with a maturity of three months or
less to be cash equivalents.
As of January 30, 2010, short-term investments included
auction rate securities (ARS) classified as
available for sale that the Company expects to be redeemed at
par within 12 months, based on notice from the issuer.
As of January 30, 2010, long-term investments included
investments with remaining maturities of greater than
12 months and consisted of ARS classified as
available-for-sale
that have experienced failed auctions or have long-term auction
resets. The remaining contractual maturities of our long-term
investments are approximately 17 months to 38 years.
The weighted average contractual maturity for our long-term
investments is approximately 25 years.
Unrealized gains and losses on the Companys
available-for-sale
securities are excluded from earnings and are reported as a
separate component of stockholders equity, within
accumulated other comprehensive income, until realized. The
components of
other-than-temporary
impairment (OTTI) losses related to credit losses,
as defined by ASC 320 Investments Debt and Equity
Securities (ASC 320), are considered by the
Company to be realized losses. When
available-for-sale
securities are sold, the cost of the securities is specifically
identified and is used to determine any realized gain or loss.
Refer to Note 3 to the Consolidated Financial Statements
for information regarding cash and cash equivalents, short-term
investments and long-term investments.
43
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other-than-Temporary
Impairment
The Company evaluates its investments for impairment in
accordance with ASC 320. ASC 320 provides guidance for
determining when an investment is considered impaired, whether
impairment is
other-than-temporary,
and measurement of an impairment loss. An investment is
considered impaired if the fair value of the investment is less
than its cost. If, after consideration of all available evidence
to evaluate the realizable value of its investment, impairment
is determined to be
other-than-temporary,
then an impairment loss is recognized in the Consolidated
Statement of Operations equal to the difference between the
investments cost and its fair value. As of May 3,
2009, the Company adopted ASC
320-10-65,
Transition Related to FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary-Impairments
(ASC
320-10-65),
which modifies the requirements for recognizing OTTI and changes
the impairment model for debt securities. In addition, ASC
320-10-65
requires additional disclosures relating to debt and equity
securities both in the interim and annual periods as well as
requires the Company to present total OTTI in the Consolidated
Statements of Operations, with an offsetting reduction for any
non-credit loss impairment amount recognized in other
comprehensive income (OCI). During Fiscal 2009, the
Company recorded net impairment loss recognized in earnings
related to credit losses on its investment securities of
$0.9 million. During Fiscal 2008, the Company recorded net
impairment loss recognized in earnings of $22.9 million in
earnings related to certain investment securities.
Refer to Notes 3 and 4 to the Consolidated Financial
Statements for additional information regarding net impairment
loss recognized in earnings.
Merchandise
Inventory
Merchandise inventory is valued at the lower of average cost or
market, utilizing the retail method. Average cost includes
merchandise design and sourcing costs and related expenses. The
Company records merchandise receipts at the time merchandise is
delivered to the foreign shipping port by the manufacturer (FOB
port). This is the point at which title and risk of loss
transfer to the Company.
The Company reviews its inventory levels to identify slow-moving
merchandise and generally uses markdowns to clear merchandise.
Additionally, the Company estimates a markdown reserve for
future planned permanent markdowns related to current inventory.
Markdowns may occur when inventory exceeds customer demand for
reasons of style, seasonal adaptation, changes in customer
preference, lack of consumer acceptance of fashion items,
competition, or if it is determined that the inventory in stock
will not sell at its currently ticketed price. Such markdowns
may have a material adverse impact on earnings, depending on the
extent and amount of inventory affected. The Company also
estimates a shrinkage reserve for the period between the last
physical count and the balance sheet date. The estimate for the
shrinkage reserve, based on historical results, can be affected
by changes in merchandise mix and changes in actual shrinkage
trends.
Property
and Equipment
Property and equipment is recorded on the basis of cost with
depreciation computed utilizing the straight-line method over
the assets estimated useful lives. The useful lives of our
major classes of assets are as follows:
|
|
|
Buildings
|
|
25 years
|
Leasehold improvements
|
|
Lesser of 10 years or the term of the lease
|
Fixtures and equipment
|
|
5 years
|
In accordance with ASC 360, Property, Plant, and
Equipment, the Companys management evaluates the value
of leasehold improvements and store fixtures associated with
retail stores, which have been open for a period of time
sufficient to reach maturity. The Company evaluates long-lived
assets for impairment at the individual store level, which is
the lowest level at which individual cash flows can be
identified. Impairment losses are recorded on long-lived assets
used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the
carrying amounts of the assets.
44
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
When events such as these occur, the impaired assets are
adjusted to their estimated fair value and an impairment loss is
recorded separately as a component of operating income under
loss on impairment of assets.
During Fiscal 2009, the Company recorded asset impairment
charges of $18.0 million related primarily to the
impairment of 10 M+O stores. During Fiscal 2008 the Company
recorded asset impairment charges of $6.7 million related
primarily to the impairment of five M+O stores. Based on the
Companys review of the operating performance and
projections of future performance of these stores, the Company
determined that these stores would not be able to generate
sufficient cash flow over the life of the related leases to
recover the Companys initial investment in them. During
Fiscal 2007, the Company recognized impairment losses of
$0.6 million related to AE stores.
When the Company closes, remodels or relocates a store prior to
the end of its lease term, the remaining net book value of the
assets related to the store is recorded as a write-off of
assets. During Fiscal 2009, Fiscal 2008 and Fiscal 2007, the
Company recorded $2.3 million, $4.9 million and
$6.7 million related to asset write-offs within
depreciation and amortization expense.
Refer to Note 15 to the Consolidated Financial Statements
for additional information regarding the planned closure of
MARTIN+OSA.
Goodwill
As of January 30, 2010, the Company had approximately
$11.2 million of goodwill compared to $10.7 million as
of January 31, 2009. The Companys goodwill is
primarily related to the acquisition of its importing operations
on January 31, 2000, as well as the acquisition of its
Canadian business on November 29, 2000. The increase in
goodwill is due to the fluctuation in the foreign exchange spot
rate at which the Canadian goodwill is translated. In accordance
with ASC 350, Intangibles-Goodwill and Other, the Company
evaluates goodwill for possible impairment on at least an annual
basis and last performed an annual impairment test as of
January 30, 2010. Resulting from the Companys annual
goodwill impairment test performed as of January 30, 2010,
the Company concluded that its goodwill was not impaired.
Other
Assets, Net
Other assets, net consist primarily of assets related to our
deferred compensation plans and trademark costs, net of
accumulated amortization. Trademark costs are amortized over
five to 15 years.
Deferred
Lease Credits
Deferred lease credits represent the unamortized portion of
construction allowances received from landlords related to the
Companys retail stores. Construction allowances are
generally comprised of cash amounts received by the Company from
its landlords as part of the negotiated lease terms. The Company
records a receivable and a deferred lease credit liability at
the lease commencement date (date of initial possession of the
store). The deferred lease credit is amortized on a
straight-line basis as a reduction of rent expense over the term
of the original lease (including the pre-opening, build-out
period) and any subsequent renewal terms. The receivable is
reduced as amounts are received from the landlord.
Self-Insurance
Liability
The Company is self-insured for certain losses related to
employee medical benefits and workers compensation. Costs
for self-insurance claims filed and claims incurred but not
reported are accrued based on known claims and historical
experience. Management believes that it has adequately reserved
for its self-insurance liability, which is capped through the
use of stop loss contracts with insurance companies. However,
any significant variation of future claims from historical
trends could cause actual results to differ from the accrued
liability.
45
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Co-branded
Credit Card and Customer Loyalty Program
The Company offers a co-branded credit card (the AE Visa
Card) and a private label credit card (the AE Credit
Card) under both the American Eagle and aerie brands. Both
of these credit cards are issued by a third-party bank (the
Bank), and the Company has no liability to the Bank
for bad debt expense, provided that purchases are made in
accordance with the Banks procedures. Once a customer is
approved to receive the AE Visa Card and the card is activated,
the customer is eligible to participate in the Companys
credit card rewards program. Under the rewards program that
expired on December 31, 2009, points were earned on
purchases made with the AE Visa Card at AE and aerie, and at
other retailers where the card is accepted. Points earned under
this credit card reward program resulted in the issuance of an
AE gift card when a certain point threshold was reached. The AE
gift card does not expire; however, points earned that have not
been used towards the issuance of an AE gift card expire after
36 months of no purchase activity. On January 1, 2010,
the Company modified the benefits on the AE Visa and AE Credit
Card programs to make both credit cards a part of the rewards
program. Customers who make purchases at AE, aerie and 77kids
earn discounts in the form of savings certificates when certain
purchase levels are reached. Also, AE Visa Card customers, who
make purchases at other retailers where the card is accepted,
earn additional discounts. Savings certificates are valid for
90 days from issuance.
Points earned under the credit card rewards program on purchases
at AE and aerie are accounted for by analogy to ASC
605-25,
Revenue Recognition, Multiple Element Arrangements
(ASC
605-25).
The Company believes that points earned under its point and
loyalty programs represent deliverables in a multiple element
arrangement rather than a rebate or refund of cash. Accordingly,
the portion of the sales revenue attributed to the award points
is deferred and recognized when the award is redeemed or when
the points expire. Additionally, credit card reward points
earned on non-AE or aerie purchases are accounted for in
accordance with ASC
605-25. As
the points are earned, a current liability is recorded for the
estimated cost of the award, and the impact of adjustments is
recorded in cost of sales.
Through December 31, 2009, the Company offered its
customers the AE All-Access Pass, a customer loyalty program. On
January 1, 2010, the Company replaced the Pass with the
AEREWARD$sm
Loyalty Program (the Program). Under either loyalty
program, customers accumulate points based on purchase activity
and earn rewards by reaching certain point thresholds during
three-month earning periods. Rewards earned during these periods
are valid through the stated expiration date, which is
approximately one month from the mailing date. These rewards can
be redeemed for a discount on a purchase of merchandise. Rewards
not redeemed during the one-month redemption period are
forfeited. The Company determined that rewards earned using the
Pass and the Program should be accounted for in accordance with
ASC 605-25.
Accordingly, the portion of the sales revenue attributed to the
award credits is deferred and recognized when the awards are
redeemed or expire.
Stock
Repurchases
During Fiscal 2007, the Companys Board of Directors
(the Board) authorized a total of 60.0 million
shares of its common stock for repurchase under its share
repurchase program with expiration dates extending into Fiscal
2010. During Fiscal 2007, the Company repurchased
18.7 million shares as part of its publicly announced
repurchase programs for approximately $438.3 million, at a
weighted average price of $23.38 per share. The Company did not
repurchase any common stock as part of its publicly announced
repurchase program during Fiscal 2009 or Fiscal 2008. At
January 30, 2010, the authorization to repurchase
11.3 million shares of the Companys common stock
under its share repurchase program expired. As of March 26,
2010, the Company had 30.0 million shares remaining
authorized for repurchase. These shares will be repurchased at
the Companys discretion. The authorization relating to the
remaining 30.0 million shares expires at the end of Fiscal
2010.
During Fiscal 2009 and Fiscal 2008, the Company repurchased
approximately 18,000 and 0.2 million shares, respectively,
from certain employees at market prices totaling
$0.2 million and $3.4 million, respectively. These
shares were repurchased for the payment of taxes in connection
with the vesting of share-based payments, as permitted under the
2005 Stock Award and Incentive Plan, as amended (the 2005
Plan).
46
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aforementioned share repurchases have been recorded as
treasury stock.
Income
Taxes
The Company calculates income taxes in accordance with ASC 740,
Income Taxes (ASC 740), which requires the
use of the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized based on the
difference between the Consolidated Financial Statement carrying
amounts of existing assets and liabilities and their respective
tax bases as computed pursuant to ASC 740. Deferred tax assets
and liabilities are measured using the tax rates, based on
certain judgments regarding enacted tax laws and published
guidance, in effect in the years when those temporary
differences are expected to reverse. A valuation allowance is
established against the deferred tax assets when it is more
likely than not that some portion or all of the deferred taxes
may not be realized. Changes in the Companys level and
composition of earnings, tax laws or the deferred tax valuation
allowance, as well as the results of tax audits, may materially
impact the Companys effective tax rate.
Effective February 4, 2007, the Company adopted the
accounting pronouncement now codified in ASC 740 regarding
accounting for unrecognized tax benefits. This pronouncement
prescribes a comprehensive model for recognizing, measuring,
presenting and disclosing in the financial statements tax
positions taken or expected to be taken on a tax return,
including a decision whether to file or not to file in a
particular jurisdiction. Under ASC 740, a tax benefit from an
uncertain position may be recognized only if it is more
likely than not that the position is sustainable based on
its technical merits.
The calculation of the deferred tax assets and liabilities, as
well as the decision to recognize a tax benefit from an
uncertain position and to establish a valuation allowance
require management to make estimates and assumptions. The
Company believes that its assumptions and estimates are
reasonable, although actual results may have a positive or
negative material impact on the balances of deferred tax assets
and liabilities, valuation allowances or net income.
Revenue
Recognition
Revenue is recorded for store sales upon the purchase of
merchandise by customers. The Companys
e-commerce
operation records revenue upon the estimated customer receipt
date of the merchandise. Shipping and handling revenues are
included in net sales. Sales tax collected from customers is
excluded from revenue and is included as part of accrued income
and other taxes on the Companys Consolidated Balance
Sheets.
Revenue is recorded net of estimated and actual sales returns
and deductions for coupon redemptions and other promotions. The
Company records the impact of adjustments to its sales return
reserve quarterly within net sales and cost of sales. The sales
return reserve reflects an estimate of sales returns based on
projected merchandise returns determined through the use of
historical average return percentages.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
4,092
|
|
|
$
|
4,683
|
|
Returns
|
|
|
(74,540
|
)
|
|
|
(81,704
|
)
|
Provisions
|
|
|
75,293
|
|
|
|
81,113
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,845
|
|
|
$
|
4,092
|
|
|
|
|
|
|
|
|
|
|
Revenue is not recorded on the purchase of gift cards. A current
liability is recorded upon purchase, and revenue is recognized
when the gift card is redeemed for merchandise. Additionally,
the Company recognizes revenue on unredeemed gift cards based on
an estimate of the amounts that will not be redeemed (gift
card breakage), determined through historical redemption
trends. Gift card breakage revenue is recognized in
47
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
proportion to actual gift card redemptions as a component of net
sales. For further information on the Companys gift card
program, refer to the Gift Cards caption below.
The Company sells off
end-of-season,
overstock, and irregular merchandise to a third-party. The
proceeds from these sales are presented on a gross basis, with
proceeds and cost of sell-offs recorded in net sales and cost of
sales, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Proceeds from sell-offs
|
|
$
|
31,889
|
|
|
$
|
38,240
|
|
|
$
|
23,775
|
|
Marked-down cost of merchandise disposed of via sell-offs
|
|
$
|
31,345
|
|
|
$
|
38,012
|
|
|
$
|
25,805
|
|
Cost
of Sales, Including Certain Buying, Occupancy and Warehousing
Expenses
Cost of sales consists of merchandise costs, including design,
sourcing, importing and inbound freight costs, as well as
markdowns, shrinkage and certain promotional costs (collectively
merchandise costs) and buying, occupancy and
warehousing costs. Buying, occupancy and warehousing costs
consist of compensation, employee benefit expenses and travel
for our buyers and certain senior merchandising executives; rent
and utilities related to our stores, corporate headquarters,
distribution centers and other office space; freight from our
distribution centers to the stores; compensation and supplies
for our distribution centers, including purchasing, receiving
and inspection costs; and shipping and handling costs related to
our
e-commerce
operation. Merchandise margin is the difference between net
sales and merchandise costs. Gross profit is the difference
between net sales and cost of sales.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist of
compensation and employee benefit expenses, including salaries,
incentives and related benefits associated with our stores and
corporate headquarters. Selling, general and administrative
expenses also include advertising costs, supplies for our stores
and home office, communication costs, travel and entertainment,
leasing costs and services purchased. Selling, general and
administrative expenses do not include compensation, employee
benefit expenses and travel for our design, sourcing and
importing teams, our buyers and our distribution centers as
these amounts are recorded in cost of sales.
Advertising
Costs
Certain advertising costs, including direct mail, in-store
photographs and other promotional costs are expensed when the
marketing campaign commences. As of January 30, 2010 and
January 31, 2009, the Company had prepaid advertising
expense of $5.4 million and $2.9 million,
respectively. All other advertising costs are expensed as
incurred. The Company recognized $68.9 million,
$79.7 million and $74.9 million in advertising expense
during Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.
Design
Costs
The Company has certain design costs, including compensation,
rent, depreciation, travel, supplies and samples, which are
included in cost of sales as the respective inventory is sold.
Store
Pre-Opening Costs
Store pre-opening costs consist primarily of rent, advertising,
supplies and payroll expenses. These costs are expensed as
incurred.
48
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
(Expense) Income, Net
Other (expense) income, net consists primarily of a realized
investment loss, interest income/expense and foreign currency
transaction gain/loss.
Gift
Cards
The value of a gift card is recorded as a current liability upon
purchase and revenue is recognized when the gift card is
redeemed for merchandise. Prior to July 8, 2007, if a gift
card remained inactive for greater than 24 months, the
Company assessed the recipient a one-dollar per month service
fee, where allowed by law, which was automatically deducted from
the remaining value of the card. For those jurisdictions where
assessing a service fee was not allowable by law, the estimated
breakage was recorded in a manner consistent with that described
above, starting after 24 months of inactivity. Both gift
card service fees and breakage estimates were recorded within
other (expense) income, net.
On July 8, 2007, the Company discontinued assessing a
service fee on active gift cards. As a result, the Company
estimates gift card breakage and recognizes revenue in
proportion to actual gift card redemptions as a component of net
sales. The Company determines an estimated gift card breakage
rate by continuously evaluating historical redemption data and
the time when there is a remote likelihood that a gift card will
be redeemed.
Legal
Proceedings and Claims
The Company is subject to certain legal proceedings and claims
arising out of the conduct of its business. In accordance with
ASC 450, Contingencies (ASC 450), the Company
records a reserve for estimated losses when the loss is probable
and the amount can be reasonably estimated. If a range of
possible loss exists and no anticipated loss within the range is
more likely than any other anticipated loss, the Company records
the accrual at the low end of the range, in accordance with ASC
450. As the Company believes that it has provided adequate
reserves, it anticipates that the ultimate outcome of any matter
currently pending against the Company will not materially affect
the consolidated financial position, results of operations or
consolidated cash flows of the Company.
Supplemental
Disclosures of Cash Flow Information
The table below shows supplemental cash flow information for
cash amounts paid during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 2,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
61,869
|
|
|
$
|
132,234
|
|
|
$
|
260,615
|
|
Interest
|
|
$
|
1,879
|
|
|
$
|
1,947
|
|
|
$
|
|
|
Segment
Information
In accordance with ASC 280, Segment Reporting (ASC
280), the Company has identified four operating segments
(American Eagle Brand US and Canadian stores, aerie by American
Eagle retail stores, MARTIN+OSA retail stores and AEO Direct)
that reflect the basis used internally to review performance and
allocate resources. All of the operating segments have been
aggregated and are presented as one reportable segment, as
permitted by ASC 280.
49
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present summarized geographical information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,715,583
|
|
|
$
|
2,707,261
|
|
|
$
|
2,770,119
|
|
Foreign(1)
|
|
|
274,937
|
|
|
|
281,605
|
|
|
|
285,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,990,520
|
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent sales from American Eagle and aerie Canadian
retail stores, as well as AEO Direct sales, that are billed to
and/or shipped to foreign countries. |
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
Long-lived assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
678,385
|
|
|
$
|
708,180
|
|
Foreign
|
|
|
45,967
|
|
|
|
42,766
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets, net
|
|
$
|
724,352
|
|
|
$
|
750,946
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
Certain reclassifications have been made to the Consolidated
Financial Statements for prior periods in order to conform to
the current period presentation.
|
|
3.
|
Cash and
Cash Equivalents, Short-term Investments and Long-term
Investments
|
The following table summarizes the fair market value of our cash
and marketable securities, which are recorded as cash and cash
equivalents on the Consolidated Balance Sheets, our short-term
investments and our long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Balance
|
|
|
Holding Gains
|
|
|
Holding Losses
|
|
|
|
(In thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
144,391
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
25,420
|
|
|
|
|
|
|
|
|
|
Treasury bills
|
|
|
119,988
|
|
|
|
|
|
|
|
|
|
Money-market
|
|
|
404,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
693,960
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
|
|
State and local government ARS
|
|
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
4,675
|
|
|
$
|
|
|
|
$
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
149,031
|
|
|
$
|
|
|
|
$
|
(8,569
|
)
|
State and local government ARS
|
|
|
35,969
|
|
|
|
|
|
|
|
(456
|
)
|
Auction rate preferred securities
|
|
|
12,773
|
|
|
|
|
|
|
|
(1,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
197,773
|
|
|
$
|
|
|
|
$
|
(10,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
896,408
|
|
|
$
|
|
|
|
$
|
(10,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Balance
|
|
|
Holding Gains
|
|
|
Holding Losses
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
61,355
|
|
|
$
|
|
|
|
$
|
|
|
Money-market
|
|
|
411,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
473,342
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
$
|
6,219
|
|
|
$
|
|
|
|
$
|
|
|
Auction rate preferred securities
|
|
|
4,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
10,511
|
|
|
$
|
|
|
|
$
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
169,254
|
|
|
$
|
|
|
|
$
|
(31,446
|
)
|
State and local government ARS
|
|
|
69,970
|
|
|
|
|
|
|
|
(630
|
)
|
Auction rate preferred securities
|
|
|
11,783
|
|
|
|
|
|
|
|
(3,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
251,007
|
|
|
$
|
|
|
|
$
|
(35,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
734,860
|
|
|
$
|
|
|
|
$
|
(35,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of
available-for-sale
securities were $80.4 million, $393.6 million and
$2.127 billion for Fiscal 2009, Fiscal 2008 and Fiscal
2007, respectively. There were no purchases of investments
during Fiscal 2009. The proceeds from the sale of
available-for-sale
securities for Fiscal 2008 and Fiscal 2007 are offset against
purchases of $48.7 million and $1.773 billion,
respectively. In addition to the net impairment loss recognized
in earnings discussed below for Fiscal 2009 and Fiscal 2008, the
Company recorded net realized losses related to the sale of
available-for-sale
securities of $2.7 million, $1.1 million and
$0.4 million for Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively, in other (expense) income, net.
The following tables present the length of time
available-for-sale
securities were in continuous unrealized loss positions but were
not deemed to be
other-than-temporarily
impaired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than
|
|
|
|
Less than
|
|
|
or Equal
|
|
|
|
12 Months
|
|
|
to 12 Months
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
Holding Losses
|
|
|
Fair Value
|
|
|
Holding Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
January 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
(1,643
|
)
|
|
$
|
9,203
|
|
|
$
|
(6,926
|
)
|
|
$
|
50,228
|
|
State and local government ARS
|
|
|
(273
|
)
|
|
|
8,096
|
|
|
|
(183
|
)
|
|
|
20,922
|
|
Auction rate preferred securities
|
|
|
|
|
|
|
|
|
|
|
(1,287
|
)
|
|
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$
|
(1,916
|
)
|
|
$
|
17,299
|
|
|
$
|
(8,396
|
)
|
|
$
|
83,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
(31,446
|
)
|
|
$
|
169,254
|
|
|
$
|
|
|
|
$
|
|
|
State and local government ARS
|
|
|
(630
|
)
|
|
|
61,570
|
|
|
|
|
|
|
|
|
|
Auction rate preferred securities
|
|
|
(3,217
|
)
|
|
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$
|
(35,293
|
)
|
|
$
|
242,607
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Fair value excludes $101.2 million as of January 30,
2010 and $8.4 million as of January 31, 2009 of
investments whose fair value approximates par. Additionally, as
of January 31, 2009, fair value excludes $10.5 million
of securities on which net impairment loss recognized in
earnings has been recorded. |
As of January 30, 2010, we had a total of
$896.4 million in cash and cash equivalents, short-term and
long-term investments, which included $189.6 million of
investments in ARS and $12.8 million of auction rate
preferred securities (ARPS), net of
$10.3 million ($6.4 million net of tax) of temporary
impairment and $0.9 million in net impairment loss
recognized in earnings. Our short-term and long-term investments
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Cumulative Losses
|
|
|
|
|
|
|
No. of
|
|
|
|
|
|
Losses Recognized
|
|
|
Recognized in
|
|
|
Carrying Value as of
|
|
|
|
Issues
|
|
|
Par Value
|
|
|
in OCI
|
|
|
Earnings
|
|
|
January 30, 2010
|
|
|
|
(In thousands, except no. of issues amount)
|
|
|
Auction rate securities (ARS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end municipal fund ARS
|
|
|
5
|
|
|
$
|
17,025
|
|
|
$
|
(9
|
)
|
|
$
|
|
|
|
$
|
17,016
|
|
Municipal Bond ARS
|
|
|
5
|
|
|
|
23,675
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
23,228
|
|
Auction rate preferred securities
|
|
|
2
|
|
|
|
15,000
|
|
|
|
(1,287
|
)
|
|
|
(940
|
)
|
|
|
12,773
|
|
Federally-insured student loan ARS
|
|
|
16
|
|
|
|
148,000
|
|
|
|
(6,012
|
)
|
|
|
|
|
|
|
141,988
|
|
Private-insured student loan ARS
|
|
|
1
|
|
|
|
10,000
|
|
|
|
(2,557
|
)
|
|
|
|
|
|
|
7,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Auction rate securities
|
|
|
29
|
|
|
$
|
213,700
|
|
|
$
|
(10,312
|
)
|
|
$
|
(940
|
)
|
|
$
|
202,448
|
|
Lehman Brothers Holding, Inc. (Lehman) acted as a
broker and auction agent for all of the Companys ARPS.
Lehman filed for Chapter 11 bankruptcy protection during
September 2008, resulting in the dissolution of the investment
trusts for most of the Companys ARPS. As a result, the
Company received 760,000 preferred shares in Fiscal 2008 and an
additional 576,000 preferred shares in Fiscal 2009. During the
13 weeks ended May 2, 2009, the Company liquidated all
1.3 million shares for $7.8 million and recorded an
incremental loss of $2.7 million. The total realized loss
on the sale of these securities was $25.6 million, of which
$22.9 million was recorded as a net impairment loss
recognized in earnings in Fiscal 2008.
The Company continues to monitor the market for ARS and ARPS and
consider the impact, if any, on the fair value of its
investments. If current market conditions deteriorate further,
or the anticipated recovery in market values does not occur, we
may be required to record additional impairment.
|
|
4.
|
Fair
Value Measurements
|
ASC 820, Fair Value Measurement Disclosures (ASC
820), defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. Fair value is defined
under ASC 820 as the exit price associated with the sale of an
asset or transfer of a liability in an orderly transaction
between market participants at the measurement date. The Company
adopted the provisions of ASC 820 as of February 3, 2008,
for items measured at fair value on a recurring basis, which
consist of financial instruments including ARS and ARPS. The
Company adopted the provisions of ASC
820-10-65
Fair Value Measurements, Transition and Open Effective Date
Information, Transition related to FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157 as of
February 1, 2009 for items measured at fair value on a
nonrecurring basis, including goodwill and property and
equipment. Additionally, the Company adopted the provisions of
ASC
320-10-65
and
ASC 820-10-65
Fair Value Measurements, Transition and Open Effective Date
Information, Transition related to FASB Staff Position
157-4,
Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability
52
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Have Significantly Decreased and Identifying Transactions
That Are Not Orderly as of May 3, 2009 for its
financial instruments measured at fair value. The impact of
adopting these was not significant on the Companys
accompanying financial statements.
Financial
Instruments
Valuation techniques used to measure fair value under ASC 820
must maximize the use of observable inputs and minimize the use
of unobservable inputs. In addition, ASC 820 establishes this
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include:
|
|
|
|
|
Level 1 Quoted prices in active markets
for identical assets or liabilities.
|
|
|
|
Level 2 Inputs other than Level 1
that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
|
|
|
|
Level 3 Unobservable inputs (i.e.
projections, estimates, interpretations, etc.) that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
|
As of January 30, 2010 and January 31, 2009, the
Company held certain assets that are required to be measured at
fair value on a recurring basis. These include cash equivalents
and short and long-term investments, including ARS and ARPS.
In accordance with ASC 820, the following tables represent the
fair value hierarchy for the Companys financial assets
(cash equivalents and investments) measured at fair value on a
recurring basis as of January 30, 2010 and January 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 30, 2010
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Prices in Active
|
|
|
|
|
|
Significant
|
|
|
|
Amount as
|
|
|
Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
of January 30,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
144,391
|
|
|
$
|
144,391
|
|
|
$
|
|
|
|
$
|
|
|
Commercial paper
|
|
|
25,420
|
|
|
|
25,420
|
|
|
|
|
|
|
|
|
|
Treasury bills
|
|
|
119,988
|
|
|
|
119,988
|
|
|
|
|
|
|
|
|
|
Money-market
|
|
|
404,161
|
|
|
|
404,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
693,960
|
|
|
$
|
693,960
|
|
|
$
|
|
|
|
$
|
|
|
Short-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
400
|
|
State and local government ARS
|
|
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-term Investments
|
|
$
|
4,675
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,675
|
|
Long-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
149,031
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
149,031
|
|
State and local government ARS
|
|
|
35,969
|
|
|
|
|
|
|
|
|
|
|
|
35,969
|
|
Auction rate preferred securities
|
|
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Investments
|
|
$
|
197,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
197,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
896,408
|
|
|
$
|
693,960
|
|
|
$
|
|
|
|
$
|
202,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total
|
|
|
100.0
|
%
|
|
|
77.4
|
%
|
|
|
0.0
|
%
|
|
|
22.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 31, 2009
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying Amount
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
as of January 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
61,355
|
|
|
$
|
61,355
|
|
|
$
|
|
|
|
$
|
|
|
Money-market
|
|
|
411,987
|
|
|
|
411,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
473,342
|
|
|
$
|
473,342
|
|
|
$
|
|
|
|
$
|
|
|
Short-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
$
|
6,219
|
|
|
$
|
6,219
|
|
|
$
|
|
|
|
$
|
|
|
Auction rate preferred securities
|
|
|
4,292
|
|
|
|
|
|
|
|
4,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-term Investments
|
|
$
|
10,511
|
|
|
$
|
6,219
|
|
|
$
|
4,292
|
|
|
$
|
|
|
Long-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
169,254
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,254
|
|
State and local government ARS
|
|
|
69,970
|
|
|
|
|
|
|
|
|
|
|
|
69,970
|
|
Auction rate preferred securities
|
|
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Investments
|
|
$
|
251,007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
251,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
734,860
|
|
|
$
|
479,561
|
|
|
$
|
4,292
|
|
|
$
|
251,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total
|
|
|
100.0
|
%
|
|
|
65.3
|
%
|
|
|
0.6
|
%
|
|
|
34.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company used a discounted cash flow (DCF) model
to value our Level 3 investments. For Fiscal 2009, the
assumptions in the Companys model included different
recovery periods, ranging from 0.5 year to 11 years,
depending on the type of security and varying discount factors
for yield, ranging from 0.3% to 6.6%, and illiquidity, ranging
from 0.3% to 4.0%. For Fiscal 2008, the assumptions in the
Companys model included different recovery periods,
ranging from 1.1 years to 11 years, depending on the
type of security and varying discount factors for yield, ranging
from 1.7% to 18.8%, and illiquidity, ranging from 0.0% to 1.0%.
These assumptions are subjective. They are based on the
Companys current judgment and view of current market
conditions. The use of different assumptions would result in a
different valuation and related charge. As a result of the
discounted cash flow analysis for Fiscal 2009, the Company
recorded a net recovery of $25.0 million
($15.5 million, net of tax) which reduced the total
cumulative impairment recognized in other comprehensive income
(OCI) as of January 30, 2010 to
$10.3 million ($6.4 million, net of tax) from
$35.3 million ($21.8 million, net of tax) at the end
of Fiscal 2008. The reversal of temporary impairment was
primarily driven by calls at par for the Companys
private-insured student loan ARS. As a result of the calls, the
securities which were previously impaired were revalued at par.
These amounts were recorded in OCI and resulted in an increase
in the investments estimated fair values. The net increase
in fair value was partially offset by $0.9 million of net
impairment loss recognized in earnings during Fiscal 2009 as a
result of credit rating downgrades.
54
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents a rollforward of the amount of net
impairment loss recognized in earnings related to credit losses:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 30, 2010
|
|
|
|
(In thousands)
|
|
|
Beginning balance of credit losses previously recognized in
earnings
|
|
$
|
|
|
Year-to-date
OTTI credit losses recognized in earnings
|
|
|
940
|
|
|
|
|
|
|
Ending balance of cumulative credit losses recognized in earnings
|
|
$
|
940
|
|
|
|
|
|
|
The reconciliation of our assets measured at fair value on a
recurring basis using unobservable inputs (Level 3) is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 (Unobservable Inputs)
|
|
|
|
|
|
|
|
|
|
Student
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan-
|
|
|
|
|
|
|
|
|
|
Auction-
|
|
|
Backed
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Auction-
|
|
|
Auction-Rate
|
|
|
|
|
|
|
Municipal
|
|
|
Rate
|
|
|
Preferred
|
|
|
|
Total
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Carrying value at February 2, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additions to Level 3 upon adoption of ASC 820(1)
|
|
|
340,475
|
|
|
|
84,575
|
|
|
|
212,000
|
|
|
|
43,900
|
|
Settlements
|
|
|
(29,875
|
)
|
|
|
(18,575
|
)
|
|
|
(11,300
|
)
|
|
|
|
|
Additions to Level 3(2)
|
|
|
4,600
|
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3(3)
|
|
|
(28,900
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,900
|
)
|
Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses reported in OCI
|
|
|
(35,293
|
)
|
|
|
(630
|
)
|
|
|
(31,446
|
)
|
|
|
(3,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
251,007
|
|
|
$
|
69,970
|
|
|
$
|
169,254
|
|
|
$
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(72,600
|
)
|
|
|
(29,900
|
)
|
|
|
(42,700
|
)
|
|
|
|
|
Gains and (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings
|
|
|
(940
|
)
|
|
|
|
|
|
|
|
|
|
|
(940
|
)
|
Reported in OCI
|
|
|
24,981
|
|
|
|
174
|
|
|
|
22,877
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
$
|
202,448
|
|
|
$
|
40,244
|
|
|
$
|
149,431
|
|
|
$
|
12,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts transferred upon the adoption of ASC 820
during the first quarter of Fiscal 2008. |
|
(2) |
|
Additions to Level 3 include securities previously
classified as Level 2, which were securities that had
experienced partial calls prior to the fourth quarter of 2008
and were previously valued at par. |
|
(3) |
|
Transfers out of Level 3 include preferred securities (into
Level 1) and ARPS (into Level 2). The transfers
to Level 1 occurred due to the Company acquiring exchange
traded preferred shares as a result of the ARPS trusts
liquidating. The transfers to Level 2 occurred as a result
of the Company determining that it was more appropriate to value
these investments using observable market prices of the
underlying securities. The OTTI charge of $22.9 million
that was reported in earnings was taken on Level 1 and
Level 2 securities transferred from Level 3. |
Non-Financial
Assets
The Companys non-financial assets, which include goodwill
and property and equipment, are not required to be measured at
fair value on a recurring basis. However, if certain triggering
events occur, or if an annual impairment test is required and
the Company is required to evaluate the non-financial instrument
for impairment, a resulting asset impairment would require that
the non-financial asset be recorded at the estimated fair value.
55
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Resulting from the Companys annual goodwill impairment
test performed as of January 30, 2010, the Company
concluded that its goodwill was not impaired.
Certain long-lived assets were measured at fair value on a
nonrecurring basis using Level 3 inputs as defined in ASC
820. Based on the Companys review of the operating
performance and projections of underperforming stores, the
Company determined that certain underperforming stores would not
be able to generate sufficient cash flow over the life of the
related leases to recover the Companys initial investment
in them. The fair value of those stores were determined by
estimating the amount and timing of net future cash flows and
discounting them using a risk-adjusted rate of interest. The
Company estimates future cash flows based on its experience and
knowledge of the market in which the store is located. During
Fiscal 2009, certain long-lived assets with a carrying value of
$18.0 million, primarily related to 10 M+O stores, were
determined to be unable to recover their respective carrying
values and, therefore, were written down to their fair value,
resulting in a loss on impairment of assets of
$18.0 million.
ASC
260-10-45,
Participating Securities and the Two-Class Method
(ASC
260-10-45),
addresses whether awards granted in unvested share-based payment
transactions that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating
securities and therefore are included in computing earnings per
share under the two-class method, as described in ASC 260,
Earnings Per Share. Participating securities are
securities that may participate in dividends with common stock
and the two-class method is an earnings allocation formula that
treats a participating security as having rights to earnings
that would otherwise have been available to common shareholders.
Under the two-class method, earnings for the period are
allocated between common shareholders and other shareholders,
based on their respective rights to receive dividends.
Restricted stock awards granted to certain employees under the
Companys 2005 Plan are considered participating securities
as these employees receive non-forfeitable dividends at the same
rate as common stock. ASC
260-10-45
was adopted and retrospectively applied at the beginning of
Fiscal 2009. For Fiscal 2009, Fiscal 2008 and Fiscal 2007, the
application of ASC
260-10-45
resulted in no material change to basic EPS or diluted EPS.
The following is a reconciliation between basic and diluted
weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding
|
|
|
206,171
|
|
|
|
205,169
|
|
|
|
216,119
|
|
Dilutive effect of stock options and non-vested restricted stock
|
|
|
3,341
|
|
|
|
2,413
|
|
|
|
4,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive number of common shares outstanding
|
|
|
209,512
|
|
|
|
207,582
|
|
|
|
220,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
Less: Income allocated to participating securities
|
|
|
365
|
|
|
|
364
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
168,657
|
|
|
$
|
178,697
|
|
|
$
|
399,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.82
|
|
|
$
|
0.87
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
169,022
|
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
Less: Income allocated to participating securities
|
|
|
360
|
|
|
|
360
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
168,662
|
|
|
$
|
178,701
|
|
|
$
|
399,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive net income per common share
|
|
$
|
0.81
|
|
|
$
|
0.86
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity awards to purchase approximately 6.6 million,
7.6 million, and 2.5 million shares of common stock
during the Fiscal 2009, Fiscal 2008 and Fiscal 2007,
respectively, were outstanding, but were not included in the
computation of weighted average diluted common share amounts as
the effect of doing so would have been anti-dilutive.
Additionally, for Fiscal 2009 and Fiscal 2008, approximately
0.4 million and 0.8 million shares, respectively, of
performance-based restricted stock were not included in the
computation of weighted average diluted common share amounts
because the number of shares ultimately issued is contingent on
the Companys performance compared to pre-established
annual performance goals.
Accounts receivable are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Construction allowances
|
|
$
|
11,132
|
|
|
$
|
11,139
|
|
Merchandise sell-offs
|
|
|
8,063
|
|
|
|
17,057
|
|
Interest income
|
|
|
217
|
|
|
|
1,355
|
|
Marketing cost reimbursements
|
|
|
2,556
|
|
|
|
2,363
|
|
Credit card receivable
|
|
|
7,832
|
|
|
|
5,175
|
|
Merchandise vendor receivables
|
|
|
375
|
|
|
|
2,899
|
|
Gift card receivable
|
|
|
1,413
|
|
|
|
115
|
|
Franchise receivable
|
|
|
1,419
|
|
|
|
|
|
Other
|
|
|
1,739
|
|
|
|
1,368
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,746
|
|
|
$
|
41,471
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Property
and Equipment
|
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
6,364
|
|
|
$
|
6,364
|
|
Buildings
|
|
|
151,484
|
|
|
|
122,414
|
|
Leasehold improvements
|
|
|
645,794
|
|
|
|
605,299
|
|
Fixtures and equipment
|
|
|
590,610
|
|
|
|
536,009
|
|
Construction in progress
|
|
|
554
|
|
|
|
28,543
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,394,806
|
|
|
$
|
1,298,629
|
|
Less: Accumulated depreciation and amortization
|
|
|
(681,664
|
)
|
|
|
(558,389
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
713,142
|
|
|
$
|
740,240
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Depreciation expense
|
|
$
|
144,883
|
|
|
$
|
130,802
|
|
|
$
|
108,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Note
Payable and Other Credit Arrangements
|
The Company has borrowing agreements with four separate
financial institutions under which it may borrow an aggregate of
$325.0 million United States dollars (USD) and
$25.0 million Canadian dollars (CAD). Of this
amount, $200.0 million USD can be used for demand letter of
credit facilities, $100.0 million USD and
$25.0 million CAD can be used for demand line borrowings
and the remaining $25.0 million USD can be used for either
letters of credit or demand line borrowings at the
Companys discretion. The $100.0 million USD of demand
line credit is comprised of two facilities each with
$50.0 million USD of borrowing capacity. The expiration
dates of the two demand line facilities are April 21, 2010
and May 22, 2010. The $25.0 million CAD of demand line
credit was established during Fiscal 2009, and is provided at
the discretion of the lender.
During Fiscal 2009, the Company reduced the amount of credit
available that could be used for either letters of credit or as
a demand line from $100.0 million USD to $25.0 million
USD. This request was made by the lender due to the
Companys low utilization of this credit facility. The
reduction was effective July 3, 2009 and had no material
impact on the Companys Consolidated Financial Statements
or on the Companys ability to fund its operations.
Additionally, during Fiscal 2009, the Company increased its
borrowing capacity for demand letters of credit from
$150.0 million USD to $200.0 million USD.
As of January 30, 2010, the Company had outstanding trade
and standby letters of credit of $51.5 million USD and
demand line borrowings of $30.0 million USD, which reflects
a $45.0 million USD reduction from January 31, 2009,
as a result of a voluntary partial repayment made during Fiscal
2009. The outstanding amounts on the demand line borrowings can
be called for repayment by the financial institutions at any
time. Additionally, the availability of any remaining borrowings
is subject to acceptance by the respective financial
institutions. The average borrowing rate on the demand lines for
Fiscal 2009 was 2.5% and the Company has incorporated the
outstanding demand line borrowings into working capital.
The Company leases all store premises, some of its office space
and certain information technology and office equipment. The
store leases generally have initial terms of 10 years. Most
of these store leases provide for base rentals and the payment
of a percentage of sales as additional contingent rent when
sales exceed specified levels. Additionally, most leases contain
construction allowances
and/or rent
holidays. In recognizing landlord incentives and minimum rent
expense, the Company amortizes the charges on a straight-line
basis over the lease term (including the pre-opening build-out
period). These leases are classified as operating leases.
A summary of fixed minimum and contingent rent expense for all
operating leases follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Store rent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed minimum
|
|
$
|
229,428
|
|
|
$
|
197,820
|
|
|
$
|
167,051
|
|
Contingent
|
|
|
7,873
|
|
|
|
11,767
|
|
|
|
17,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total store rent, excluding common area maintenance charges,
real estate taxes and certain other expenses
|
|
$
|
237,301
|
|
|
$
|
209,587
|
|
|
$
|
184,677
|
|
Offices, distribution facilities, equipment and other
|
|
|
18,664
|
|
|
|
18,260
|
|
|
|
17,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense
|
|
$
|
255,965
|
|
|
$
|
227,847
|
|
|
$
|
201,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company is typically responsible under its
store, office and distribution center leases for tenant
occupancy costs, including maintenance costs, common area
charges, real estate taxes and certain other expenses.
58
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes future minimum lease obligations,
consisting of fixed minimum rent, under operating leases in
effect at January 30, 2010:
|
|
|
|
|
|
|
Future Minimum
|
|
Fiscal years:
|
|
Lease Obligations
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
242,859
|
|
2011
|
|
|
226,699
|
|
2012
|
|
|
210,676
|
|
2013
|
|
|
194,613
|
|
2014
|
|
|
176,612
|
|
Thereafter
|
|
|
693,048
|
|
|
|
|
|
|
Total
|
|
$
|
1,744,507
|
|
|
|
|
|
|
|
|
10.
|
Other
Comprehensive Income (Loss)
|
The accumulated balances of other comprehensive income (loss)
included as part of the Consolidated Statements of
Stockholders Equity follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Tax
|
|
|
Accumulated Other
|
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Comprehensive Income
|
|
|
|
Amount
|
|
|
Benefit
|
|
|
(Loss)
|
|
|
|
(In thousands)
|
|
|
Balance at February 3, 2007
|
|
$
|
21,201
|
|
|
$
|
513
|
|
|
$
|
21,714
|
|
Unrealized gain on investments
|
|
|
1,538
|
|
|
|
(591
|
)
|
|
|
947
|
|
Reclassification adjustment for net losses realized in net
income related to sale of
available-for-sale
securities
|
|
|
393
|
|
|
|
(151
|
)
|
|
|
242
|
|
Foreign currency translation adjustment
|
|
|
12,582
|
|
|
|
|
|
|
|
12,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
$
|
35,714
|
|
|
$
|
(229
|
)
|
|
$
|
35,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary impairment related to ARS
|
|
|
(36,825
|
)
|
|
|
14,030
|
|
|
|
(22,795
|
)
|
Reclassification adjustment for losses realized in net income
related to sale of ARS
|
|
|
318
|
|
|
|
(121
|
)
|
|
|
197
|
|
Reclassification adjustment for OTTI charges realized in net
income related to ARS
|
|
|
1,214
|
|
|
|
(463
|
)
|
|
|
751
|
|
Unrealized loss on investments
|
|
|
(607
|
)
|
|
|
229
|
|
|
|
(378
|
)
|
Foreign currency translation adjustment
|
|
|
(27,649
|
)
|
|
|
|
|
|
|
(27,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
(27,835
|
)
|
|
$
|
13,446
|
|
|
$
|
(14,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary reversal of impairment related to ARS
|
|
|
24,041
|
|
|
|
(9,535
|
)
|
|
|
14,506
|
|
Reclassification adjustment for OTTI charges realized in net
income related to ARS
|
|
|
940
|
|
|
|
|
|
|
|
940
|
|
Foreign currency translation adjustment
|
|
|
15,781
|
|
|
|
|
|
|
|
15,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2010
|
|
$
|
12,927
|
|
|
$
|
3,911
|
|
|
$
|
16,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of accumulated other comprehensive income (loss)
were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net unrealized (loss) gain on
available-for-sale
securities, net of tax(1)
|
|
$
|
(6,401
|
)
|
|
$
|
(21,847
|
)
|
Foreign currency translation adjustment
|
|
|
23,239
|
|
|
|
7,458
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income
|
|
$
|
16,838
|
|
|
$
|
(14,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are shown net of tax of $3.9 million and
$13.4 million for Fiscal 2009 and Fiscal 2008, respectively. |
At January 30, 2010, the Company had awards outstanding
under three share-based compensation plans, which are described
below.
The Company accounts for share-based compensation under the
provisions of ASC 718, Compensation Stock
Compensation (ASC 718), which requires the
Company to measure and recognize compensation expense for all
share-based payments at fair value. Total share-based
compensation expense included in the Consolidated Statements of
Operations for Fiscal 2009, Fiscal 2008 and Fiscal 2007 was
$36.9 million ($22.8 million, net of tax),
$20.3 million ($12.5 million, net of tax) and
$33.7 million ($20.7 million, net of tax),
respectively.
ASC 718 requires recognition of compensation cost under a
non-substantive vesting period approach. Accordingly, the
Company recognizes compensation expense over the period from the
grant date to the date retirement eligibility is achieved, if
that is expected to occur during the nominal vesting period.
Additionally, for awards granted to retirement eligible
employees, the full compensation cost of an award must be
recognized immediately upon grant.
Share-based
compensation plans
1994
Stock Option Plan
On February 10, 1994, the Companys Board adopted the
American Eagle Outfitters, Inc. 1994 Stock Option Plan (the
1994 Plan). The 1994 Plan provided for the grant of
12.2 million incentive or non-qualified options to purchase
common stock. The 1994 Plan was subsequently amended to increase
the shares available for grant to 24.3 million shares.
Additionally, the amendment provided that the maximum number of
options that may be granted to any individual may not exceed
8.1 million shares. The options granted under the 1994 Plan
were approved by the Compensation Committee of the Board,
primarily vest over five years, and expire 10 years from
the date of grant. The 1994 Plan terminated on January 2,
2004 with all rights of the optionees and all unexpired options
continuing in force and operation after the termination.
1999
Stock Incentive Plan
The 1999 Stock Option Plan (the 1999 Plan) was
approved by the stockholders on June 8, 1999. The 1999 Plan
authorized 18.0 million shares for issuance in the form of
stock options, stock appreciation rights (SAR),
restricted stock awards, performance units or performance
shares. The 1999 Plan was subsequently amended to increase the
shares available for grant to 33.0 million. Additionally,
the 1999 Plan provided that the maximum number of shares awarded
to any individual may not exceed 9.0 million shares. The
1999 Plan allowed the Compensation Committee to determine which
employees and consultants received awards and the terms and
conditions of these awards. The 1999 Plan provided for a grant
of 1,875 stock options quarterly (not to be adjusted for stock
splits) to each director who is not an officer or employee of
the Company starting in August 2003. The Company ceased making
these quarterly stock option grants in June 2005. Under this
plan, 33.2 million non-
60
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
qualified stock options and 6.7 million shares of
restricted stock were granted to employees and certain
non-employees (without considering cancellations to date of
awards for 7.9 million shares). Approximately 33% of the
options granted were to vest over eight years after the date of
grant but were accelerated as the Company met annual performance
goals. Approximately 34% of the options granted under the 1999
Plan vest over three years, 23% vest over five years and the
remaining grants vest over one year. All options expire after
10 years. Performance-based restricted stock was earned if
the Company met established performance goals. The 1999 Plan
terminated on June 15, 2005 with all rights of the awardees
and all unexpired awards continuing in force and operation after
the termination.
2005
Stock Award and Incentive Plan
The 2005 Plan was approved by the stockholders on June 15,
2005. The 2005 Plan authorized 18.4 million shares for
issuance, of which 6.4 million shares are available for
full value awards in the form of restricted stock awards,
restricted stock units or other full value stock awards and
12.0 million shares are available for stock options, SAR,
dividend equivalents, performance awards or other non-full value
stock awards. The 2005 Plan was subsequently amended and
restated on June 16, 2009 to, among other things, increase the
shares available for grant to 31.9 million effective as of
January 31, 2009 without taking into consideration of 9.1
million non-qualified stock options, 2.9 million shares of
restricted stock and 0.2 million shares of common stock that had
been previously granted under the 2005 plan to employees and
directors (without considering cancellations as of January 31,
2009 of awards for 2.9 million shares). The 2005 Plan provides
that the maximum number of shares awarded to any individual may
not exceed 6.0 million shares per year for options and SAR
and no more than 4.0 million shares may be granted with
respect to each of restricted shares of stock and restricted
stock units plus any unused carryover limit from the previous
year. The 2005 Plan allows the Compensation Committee of the
Board to determine which employees receive awards and the terms
and conditions of the awards that are mandatory under the 2005
Plan. The 2005 Plan provides for grants to directors who are not
officers or employees of the Company, which are not to exceed
20,000 shares per year (not to be adjusted for stock
splits). Through January 30, 2010, 12.6 million
non-qualified stock options, 4.6 million shares of
restricted stock and 0.2 million shares of common stock had
been granted under the 2005 Plan to employees and directors
(without considering cancellations to date of awards for
4.6 million shares). Approximately 99% of the options
granted under the 2005 Plan vest over three years and 1% vest
over five years. Options were granted for ten and seven year
terms. Approximately 97% of the restricted stock awards are
performance-based and are earned if the Company meets
established performance goals. The remaining 3% of the
restricted stock awards are time-based and vest over three years.
Stock
Option Grants
The Company grants both time-based and performance-based stock
options under the 2005 Plan. Time-based stock option awards vest
over the requisite service period of the award or to an
employees eligible retirement date, if earlier.
Performance-based stock option awards vest over three years and
are earned if the Company meets pre-established performance
goals during each year.
61
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys stock option activity under all
plans for Fiscal 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended January 30, 2010
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
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