FORM 10-K
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 31, 2009
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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
(State or other jurisdiction
of
incorporation or organization)
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No. 13-2721761
(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
(Title of class)
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New York Stock Exchange
(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, and (2) has been subject to the filing
requirements for at the past
90 days. YES þ NO o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
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. (Check one):
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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 2, 2008 was $2,443,983,683.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: 206,380,486 Common Shares were outstanding at
March 13, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III Proxy Statement for 2009 Annual
Meeting of Stockholders, in part, as indicated.
AMERICAN
EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
1
PART I
General
American Eagle Outfitters, Inc., a Delaware corporation, is a
leading retailer that operates under the American Eagle
Outfitters®,
aerie®
by American Eagle,
77kidstm
by american eagle and MARTIN +
OSA®
brands.
American Eagle Outfitters designs, markets and sells its own
brand of high quality, on-trend clothing, accessories and
personal care products at affordable prices while targeting 15
to 25 year-old customers. We opened our first American
Eagle Outfitters store in the United States in 1977 and expanded
the brand into Canada in 2001. American Eagle Outfitters also
operates
ae.com®,
which offers additional sizes, colors and styles of favorite
AE®
merchandise and ships to 62 countries around the world. The
American Eagle Outfitters original collection includes standards
like jeans and graphic Ts, as well as essentials like
accessories, outerwear, footwear, basics and swimwear under our
American Eagle Outfitters, American
Eagle®
and AE brand names.
During Fiscal 2006, American Eagle Outfitters launched its new
intimates brand, aerie by American Eagle (aerie).
The aerie collection is available in aerie stores, predominantly
all American Eagle stores and at aerie.com. The collection
offers
Dormwear®
and intimates collections for the
AE®
girl. Designed to be subtly sexy, comfortable and cozy, the
aerie brand offers AE customers a new way to express their
personal style everyday, from the dormroom to the coffee shop to
the classroom.
We also introduced MARTIN +
OSA®
(M+O) during Fiscal 2006, a concept targeting 28 to
40 year-old women and men, which offers Refined
Casualtm
clothing and accessories, designed to be valuable, irresistible,
inspiring, authentic and adventurous. In Fiscal 2008, MARTIN +
OSA began offering merchandise online at martinandosa.com.
In October 2008, we launched a new childrens apparel
brand, 77kids by american
eagletm
(77kids). The 77kids brand offers kid
cool, durable clothing and accessories for kids ages two
to 10. The brand debuted worldwide online at 77kids.com during
Fiscal 2008, with future plans for stores in the U.S.
As used in this report, all references to we,
our, and the Company refer to American
Eagle Outfitters, 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 Fiscal 2006.
Bluenotes refers to the Bluenotes/Thriftys specialty
apparel chain which we operated in Canada prior to its
disposition during Fiscal 2004.
As of January 31, 2009, we operated 954 American Eagle
Outfitters stores in the United States and Canada, 116 aerie
stand-alone stores and 28 MARTIN + OSA stores.
Our financial year is a 52/53 week year that ends on the
Saturday nearest to January 31. As used herein,
Fiscal 2010 and Fiscal 2009 refer to the
52 week periods ending January 29, 2011 and
January 30, 2010, respectively. Fiscal 2008 and
Fiscal 2007 refer to the 52 week periods ended
January 31, 2009 and February 2, 2008, respectively.
Fiscal 2006 refers to the 53 week period ended
February 3, 2007. Fiscal 2005 and Fiscal
2004 refer to the 52 week periods ended
January 28, 2006 and January 29, 2005, respectively.
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.
Growth
Strategy
During Fiscal 2008, we continued to make significant progress on
our key growth initiatives. As we enter Fiscal 2009, 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
2
strengthen our financial performance. Our primary growth
strategies are focused on the following key areas of opportunity:
Real
Estate
We are continuing the expansion of our brands throughout the
United States. At the end of Fiscal 2008, we operated in all
50 states, the District of Columbia, Puerto Rico and
Canada. During Fiscal 2008, we opened 122 new stores, consisting
of 33 U.S. AE stores, two Canadian AE stores, 77 aerie
stores (including eight Canadian aerie stores) and 10 MARTIN +
OSA stores. These store openings, offset by 11 store closings,
increased our total store base by approximately 11% to 1,098
stores.
Additionally, our gross square footage increased by
approximately 11% during Fiscal 2008, with approximately 89%
attributable to new store openings and the remaining 11%
attributable to the incremental square footage from 30 AE store
remodels.
In Fiscal 2009, we will continue to open AE and aerie by
American Eagle stores. We plan to open 17 aerie stores, with an
average size of 4,200 gross square feet. Additionally, we
plan to open 11 new AE stores including a flagship location in
the Times Square area of New York, New York. We also plan to
remodel approximately 25 to 35 existing AE stores. Our square
footage growth is expected to be approximately 3%. 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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2008
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2007
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2006
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2005
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2004
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Consolidated stores at beginning of period
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987
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911
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869
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846
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805
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Consolidated stores opened during the period
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122
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80
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50
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36
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50
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Consolidated stores closed during the period
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(11
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(4
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(8
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(13
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(9
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Total consolidated stores at end 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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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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2008
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2007
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2006
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2005
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2004
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AE Brand stores at beginning of period
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929
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903
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869
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846
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805
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AE Brand stores opened during the period
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35
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30
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42
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36
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50
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AE Brand stores closed during the period
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(10
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(4
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(8
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(13
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(9
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Total AE Brand stores at end 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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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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2008
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2007
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2006
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2005
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2004
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aerie stores at beginning of period
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39
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3
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aerie stores opened during the period
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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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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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2008
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2007
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2006
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2005
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2004
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M+O stores at beginning of period
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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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19
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5
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3
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 2008, we remodeled 30 AE U.S. stores. Of the
30 remodeled stores, 18 stores were remodeled and expanded
within their existing locations, 10 stores were relocated to a
larger space within the mall and two 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.
AE
Brand
American Eagle is an established and leading brand for
15-25 year
olds, with a long heritage of quality merchandise offered at a
great value. We believe that we can leverage the success we have
had in making American Eagle a destination brand and increase
market-share in brand-defining key categories. In Fiscal 2009,
we expect to strengthen categories such as knit tops, jeans,
sweaters, dresses, shorts, fleece and accessories by offering AE
classics combined with relevant fashion. We have reinforced our
customer connection and increased our focus on identifying
emerging fashion trends that are embraced by the AE customer. We
will highlight AE value offerings by strengthening our everyday
value pricing, as well as with promotional events planned
throughout the year. Our customer loyalty program, the AE
All-Access
Pass®
serves as a critical
one-on-one
connection point with our best customers and rewards brand
loyalty.
aerie
by American Eagle
In the fall of 2006, we launched our new intimates brand, aerie
by American Eagle, which targets our core AE customers. The
aerie collection offers
Dormwear®
and intimates collections for the
AE®
girl. It is intended to drive store productivity by expanding
the product categories and building upon our experience. The
aerie collection is offered in 116 stand-alone stores,
predominantly all American Eagle stores and on aerie.com. aerie
also offers its customers a loyalty program, the aerie
a-list®.
aerie rewards its a-list members with a free special gift on any
Thursday of their choosing, once a month.
Based on the positive customer response to aerie, in Fiscal
2008, we accelerated our real estate strategy for this brand.
Our accelerated strategy included opening 77 stores during
Fiscal 2008. The aerie brand remains a focus in Fiscal 2009,
with planned openings of approximately 17 stores.
AEO
Direct
We sell merchandise via our
e-commerce
operations, ae.com and aerie.com, which are extensions of the
lifestyle that we convey in our stores. In Fiscal 2008, we
expanded AEO Direct through the addition of
e-commerce
operations for martinandosa.com and 77kids.com. During Fiscal
2008, we added 21 countries to our shipping destinations and
currently ship to 62 countries. In addition to purchasing items
online, customers can experience AEO Direct in-store. The
Company has implemented a new program called Store-to-Door,
which 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 sold
out at the time of their visit. The ordered items are shipped to
the customers home free of charge. During Fiscal 2008, we
began accepting 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, unique online content and
targeted marketing strategies.
4
MARTIN
+ OSA
In the fall of 2006, we launched MARTIN + OSA, a concept
targeting 28 to 40 year-old women and men. MARTIN + OSA
offers Refined
Casualtm
clothing and accessories designed to be valuable, irresistible,
inspiring, authentic and adventurous. During Fiscal 2008, we
opened 10 MARTIN + OSA stores. Additionally, in Fiscal 2008,
MARTIN + OSA began offering merchandise online at
martinandosa.com. At this time, our 2009 capital expenditures
projection does not include new M+O stores. We will continue to
strengthen our operating model with the 28 existing stores and
look for ongoing progress in merchandising and building consumer
awareness.
77kids
by american eagle
In October 2008, we launched a new childrens apparel
brand, 77kids. The 77kids brand offers kid cool,
durable clothing and accessories for kids ages two to 10. The
brand debuted worldwide online at 77kids.com during Fiscal 2008,
with future plans for stores in the U.S.
Consolidated
Store Locations
Our stores average approximately 5,800 gross square feet
and approximately 4,600 on a selling square foot basis. As of
January 31, 2009, we operated 1,098 stores in the United
States and Canada under the American Eagle Outfitters, aerie and
MARTIN + OSA brands as shown below:
United
States, including the District of Columbia and the Commonwealth
of Puerto Rico 1,012 stores
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Alabama
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19
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Illinois
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36
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Montana
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2
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Puerto Rico
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2
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Alaska
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5
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Indiana
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21
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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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Arizona
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17
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Iowa
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12
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Nevada
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7
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South Carolina
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15
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Arkansas
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8
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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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California
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92
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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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Colorado
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16
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Louisiana
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15
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New Mexico
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3
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Texas
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71
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Connecticut
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18
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Maine
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4
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New York
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58
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Utah
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12
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Delaware
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4
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Maryland
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21
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North Carolina
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30
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Vermont
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3
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District of Columbia
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1
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Massachusetts
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34
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North Dakota
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4
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Virginia
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30
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Florida
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52
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Michigan
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35
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Ohio
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41
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Washington
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20
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Georgia
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33
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Minnesota
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20
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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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18
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Pennsylvania
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67
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Wyoming
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2
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Canada 86 stores
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Alberta
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10
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New Brunswick
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4
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Ontario
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43
|
|
|
|
|
|
|
|
British Columbia
|
|
|
12
|
|
|
Newfoundland
|
|
|
2
|
|
|
Quebec
|
|
|
9
|
|
|
|
|
|
|
|
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 2008, 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.
5
Corporate
Social Responsibility
We are firmly committed to the goal of using highly regarded and
efficient suppliers throughout the world. We require our
suppliers to provide a workplace environment that not only meets
basic human rights standards, but also one that complies with
local legal requirements and treats workers with dignity and
respect.
For many years, we have had a policy to inspect factories
throughout the world where goods are produced to our order. This
inspection process is an important component of our
comprehensive vendor compliance program that was developed with
the assistance of an internationally recognized consulting firm.
This program contractually requires all suppliers to meet our
global workplace standards, including human rights standards, as
set forth in our Vendor Code of Conduct. The Vendor Code of
Conduct is required to be posted in all factories in the local
language. The program utilizes third party inspectors to audit
compliance by vendor factories with our workplace standards and
Vendor Code of Conduct. A copy of the Vendor Code of Conduct is
also posted on our website at www.ae.com. In Fiscal 2007, we
opened a compliance office in Hong Kong. The key functions
performed by the AE team there are to validate the inspection
reporting of our third-party auditors, and to work 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.
Additionally, we took significant steps to expand the scope of
our security procedures during 2004, 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
and re-audits of all primary existing facilities.
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
Purchase orders are entered into the merchandise system at the
time of order. Merchandise is normally shipped directly from
vendors and routed to our two US distribution centers, one in
Warrendale, Pennsylvania and the other in Ottawa, Kansas, or to
our Canadian distribution center in Mississauga, Ontario.
6
Upon receipt, merchandise is entered into the merchandise
system, then 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.
Customer
Credit and Returns
In April 2008, we introduced a new co-branded credit card (the
AE Visa Card) and re-launched our private label
credit card (the AE Credit Card). 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, 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 result in the issuance of an AE gift card when a
certain point threshold is 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. AE Credit Card holders 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®.
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 and are
available for purchase in our MARTIN + OSA stores and at
martinandosa.com. 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.
7
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
eagletm.
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 31, 2009, we had approximately
37,500 employees in the United States and Canada, of whom
approximately 31,000 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 AE 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 New York Stock Exchange (NYSE)
Corporate Governance Standards Section 303A.12(a), on
July 9, 2008 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
During the second half of 2008, the global recession caused
uncertainty and a wide-ranging lack of liquidity in the credit
markets. This market uncertainty has resulted 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
2009, we plan to open 11 new American Eagle stores in the
U.S. and Canada and 17 aerie stand-alone stores.
Additionally, we plan to remodel or expand 25 to 35 existing
American Eagle stores during Fiscal 2009. 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, MARTIN + OSA and aerie by
American Eagle, during Fiscal 2006. Additionally, in Fiscal
2008, we launched 77kids. 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
9
acceptance, competition, product differentiation, the 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
ability to develop the MARTIN + OSA brand
We plan to continue our investment in the operations of MARTIN +
OSA, however, consistent with our lower 2009 capital spending
plan, we are not opening any new MARTIN + OSA stores during
Fiscal 2009. We will continue to strengthen our operating model
with the 28 existing stores and look for ongoing progress in
merchandising and consumer awareness. Our strategy includes a
targeted marketing plan to drive traffic and brand awareness in
several key markets; repositioning the brand by establishing
MARTIN + OSA as a destination for sweaters, knits, and denim;
and refining our merchandise collection, styles and prices. In
light of this strategy, we will continue to evaluate the growth
and performance of MARTIN + OSA. There can be no assurance that
our strategy will be successful or lead to long-term growth or
profitability. If we are unable to succeed in repositioning the
brand, this will adversely impact our continued growth and
results of operations potentially including restructuring and
additional asset impairment charges. Additionally, in the event
that we were to determine in the future to exit this business,
or close any stores, we may be required to record inventory
impairment
and/or lease
termination charges at that time.
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 Customs
enforcement actions, or political or economic disruptions.
We have a Vendor Code of Conduct that provides guidelines for
all of our vendors regarding working conditions, employment
practices and compliance with local laws. A copy of the Vendor
Code of Conduct is posted on our website, www.ae.com. We have a
factory compliance program to audit for compliance with the
Vendor Code of Conduct. However, there can be no assurance that
our factory compliance program will be effective in discovering
violations. Publicity regarding violation of our Vendor Code of
Conduct 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, a significant increase in the number of factory
audits performed; a strengthening of our factory audit protocol
to include 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, U.S. Customs 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
Customs to strengthen overall supply chain security. However,
there can be no assurance that terrorist activity can be
prevented and we cannot predict the likelihood of any such
activities or the extent of their adverse impact on our
operations.
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
10
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 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.
Our
ability to successfully complete important infrastructure
projects
We implemented multiple infrastructure projects in Fiscal 2008
and will continue to implement new projects in Fiscal 2009. The
major projects in Fiscal 2009 include:
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the construction and opening of our 25,000 square foot
flagship store in the Times Square area of New York, New
York; and
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the construction and integration of the second phase of our new
corporate headquarters in Pittsburgh, Pennsylvania.
|
We rely upon our facilities and information systems to support
the management of our operations. Any delays or difficulties in
these important projects could have a material adverse impact on
our business.
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.
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
11
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.
In addition to ARS, we hold auction rate preferred securities
(ARPS). In the event of default or liquidation of
the collateral by an ARPS issuer or trustee, we are entitled to
receive non-convertible preferred shares in the ARPS issuer. As
a result of the Lehman Bankruptcy, during Fiscal 2008, four ARPS
were dissolved and we received 760,000 preferred shares of four
companies. Furthermore, it is probable that that the trusts
relating to three additional ARPS will dissolve in the first
quarter of Fiscal 2009. The four ARPS that were dissolved and
the three ARPS that are likely to be dissolved all have
underlying preferred stock that is publicly traded. The value of
these preferred shares have declined significantly in comparison
to their par value.
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.
Additionally, if the publicly traded preferred stock that we
hold or the underlying publicly traded preferred stock of our
ARPS continues to decline in value, or if we sell our preferred
stock holdings below their carrying value as of January 31,
2009, we may be required to record additional impairment. If we
determine that the fair values of the securities are temporarily
impaired, we would record a temporary impairment within other
comprehensive income, a component of stockholders equity.
If it is determined that the fair values of the securities are
other-than-temporarily impaired, or if we sell the preferred
shares below carrying value, 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 the entire 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 a slowing 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.
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 business 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.
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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, we began construction of a
152,000 square foot building on adjacent land, which will
also be 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, which is used for storage space. This
lease expires in 2010.
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, MARTIN + OSA and 77kids.
We lease a building in Mississagua, 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.
We anticipate this store to open in late Fiscal 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.
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ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
Not applicable.
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 sales prices of the common stock as reported on the
NYSE during the periods indicated. As of March 16, 2009,
there were 717 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 60,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
|
Cash Dividends per
|
|
For the Quarters Ended
|
|
High
|
|
|
Low
|
|
|
Common Share
|
|
|
January 31, 2009
|
|
$
|
10.91
|
|
|
$
|
7.11
|
|
|
$
|
0.100
|
|
November 1, 2008
|
|
$
|
16.69
|
|
|
$
|
9.40
|
|
|
$
|
0.100
|
|
August 2, 2008
|
|
$
|
19.05
|
|
|
$
|
12.13
|
|
|
$
|
0.100
|
|
May 3, 2008
|
|
$
|
23.45
|
|
|
$
|
15.79
|
|
|
$
|
0.100
|
|
February 2, 2008
|
|
$
|
23.94
|
|
|
$
|
16.86
|
|
|
$
|
0.100
|
|
November 3, 2007
|
|
$
|
27.29
|
|
|
$
|
21.46
|
|
|
$
|
0.100
|
|
August 4, 2007
|
|
$
|
30.19
|
|
|
$
|
23.50
|
|
|
$
|
0.100
|
|
May 5, 2007
|
|
$
|
33.14
|
|
|
$
|
28.18
|
|
|
$
|
0.075
|
|
During Fiscal 2008 and Fiscal 2007, we paid quarterly dividends
as shown in the table above. The payment of future dividends is
at the discretion of our Board of Directors (the
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 31, 2004 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 Dynamic Retail Intellidex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/04
|
|
|
1/29/05
|
|
|
1/28/06
|
|
|
2/3/07
|
|
|
2/2/08
|
|
|
1/31/09
|
American Eagle Outfitters, Inc.
|
|
|
|
100.00
|
|
|
|
|
266.63
|
|
|
|
|
283.74
|
|
|
|
|
533.41
|
|
|
|
|
394.51
|
|
|
|
|
155.72
|
|
S&P Midcap 400
|
|
|
|
100.00
|
|
|
|
|
111.10
|
|
|
|
|
135.89
|
|
|
|
|
146.71
|
|
|
|
|
143.45
|
|
|
|
|
90.41
|
|
Dynamic Retail Intellidex
|
|
|
|
100.00
|
|
|
|
|
104.96
|
|
|
|
|
99.90
|
|
|
|
|
103.95
|
|
|
|
|
100.19
|
|
|
|
|
83.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Issuer
Purchases of Equity Securities
The following table provides information regarding our
repurchases of our common stock during the three months ended
January 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2, 2008 through December 29, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,250,000
|
|
Month #2 (December 30, 2008 through January 3, 2009)
|
|
|
1,870
|
|
|
$
|
9.36
|
|
|
|
|
|
|
|
41,250,000
|
|
Month #3 (January 4, 2009 through January 31, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,870
|
|
|
$
|
9.36
|
|
|
|
|
|
|
|
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 expires 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 2008, 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)(2)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
14,496,734
|
|
|
$
|
15.25
|
|
|
|
9,610,963
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,496,734
|
|
|
$
|
15.25
|
|
|
|
9,610,963
|
|
|
|
|
(1) |
|
Of the 9.6 million securities remaining available for
issuance under equity compensation plans, 5.5 million are
available for stock options, stock appreciation rights, dividend
equivalents, performance awards or other non-full value stock
awards, and 4.1 million are available for restricted stock
awards, restricted stock units or other full value stock awards. |
|
(2) |
|
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 January 28, 2006 and
January 29, 2005 and the selected Consolidated Balance
Sheet data as of February 3, 2007, January 28, 2006
and January 29, 2005 are derived from audited Consolidated
Financial Statements not included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended(1)
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts, ratios and other
financial information)
|
|
|
Summary of Operations(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(3)
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
|
$
|
2,794,409
|
|
|
$
|
2,321,962
|
|
|
$
|
1,889,647
|
|
Comparable store sales (decrease) increase(4)
|
|
|
(10
|
)%
|
|
|
1
|
%
|
|
|
12
|
%
|
|
|
16
|
%
|
|
|
21
|
%
|
Gross profit
|
|
$
|
1,174,101
|
|
|
$
|
1,423,138
|
|
|
$
|
1,340,429
|
|
|
$
|
1,077,749
|
|
|
$
|
881,188
|
|
Gross profit as a percentage of net sales
|
|
|
39.3
|
%
|
|
|
46.6
|
%
|
|
|
48.0
|
%
|
|
|
46.4
|
%
|
|
|
46.6
|
%
|
Operating income(5)
|
|
$
|
302,140
|
|
|
$
|
598,755
|
|
|
$
|
586,790
|
|
|
$
|
458,689
|
|
|
$
|
360,968
|
|
Operating income as a percentage of net sales
|
|
|
10.1
|
%
|
|
|
19.6
|
%
|
|
|
21.0
|
%
|
|
|
19.8
|
%
|
|
|
19.1
|
%
|
Income from continuing operations(2)
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
|
$
|
293,711
|
|
|
$
|
224,232
|
|
Income from continuing operations as a percentage of net sales(2)
|
|
|
6.0
|
%
|
|
|
13.1
|
%
|
|
|
13.9
|
%
|
|
|
12.7
|
%
|
|
|
11.9
|
%
|
Per Share Results(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share-basic(2)
|
|
$
|
0.87
|
|
|
$
|
1.85
|
|
|
$
|
1.74
|
|
|
$
|
1.29
|
|
|
$
|
1.03
|
|
Income from continuing operations per common share-diluted(2)
|
|
$
|
0.86
|
|
|
$
|
1.82
|
|
|
$
|
1.70
|
|
|
$
|
1.26
|
|
|
$
|
1.00
|
|
Weighted average common shares outstanding basic
|
|
|
205,169
|
|
|
|
216,119
|
|
|
|
222,662
|
|
|
|
227,406
|
|
|
|
217,725
|
|
Weighted average common shares outstanding diluted
|
|
|
207,582
|
|
|
|
220,280
|
|
|
|
228,384
|
|
|
|
233,031
|
|
|
|
225,366
|
|
Cash dividends per common share(7)
|
|
$
|
0.40
|
|
|
$
|
0.38
|
|
|
$
|
0.28
|
|
|
$
|
0.18
|
|
|
$
|
0.04
|
|
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and short-term investments
|
|
$
|
483,853
|
|
|
$
|
619,939
|
|
|
$
|
813,813
|
|
|
$
|
751,518
|
|
|
$
|
589,607
|
|
Long-term investments
|
|
$
|
251,007
|
|
|
$
|
165,810
|
|
|
$
|
264,944
|
|
|
$
|
145,744
|
|
|
$
|
84,416
|
|
Total assets(8)
|
|
$
|
1,963,676
|
|
|
$
|
1,867,680
|
|
|
$
|
1,979,558
|
|
|
$
|
1,605,649
|
|
|
$
|
1,328,926
|
|
Short-term debt
|
|
$
|
75,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stockholders equity
|
|
$
|
1,409,031
|
|
|
$
|
1,340,464
|
|
|
$
|
1,417,312
|
|
|
$
|
1,155,552
|
|
|
$
|
963,486
|
|
Working capital(8)
|
|
$
|
523,596
|
|
|
$
|
644,656
|
|
|
$
|
724,490
|
|
|
$
|
725,294
|
|
|
$
|
582,739
|
|
Current ratio(8)
|
|
|
2.30
|
|
|
|
2.71
|
|
|
|
2.56
|
|
|
|
3.06
|
|
|
|
3.06
|
|
Average return on stockholders equity
|
|
|
13.0
|
%
|
|
|
29.0
|
%
|
|
|
30.1
|
%
|
|
|
27.8
|
%
|
|
|
26.7
|
%
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended(1)
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts, ratios and other
financial information)
|
|
|
Other Financial Information(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores at year-end
|
|
|
1,098
|
|
|
|
987
|
|
|
|
911
|
|
|
|
869
|
|
|
|
846
|
|
Capital expenditures
|
|
$
|
265,335
|
|
|
$
|
250,407
|
|
|
$
|
225,939
|
|
|
$
|
81,545
|
|
|
$
|
97,288
|
|
Net sales per average selling square foot(10)
|
|
$
|
521
|
|
|
$
|
638
|
|
|
$
|
642
|
|
|
$
|
577
|
|
|
$
|
504
|
|
Total selling square feet at end of period
|
|
|
5,072,612
|
|
|
|
4,595,649
|
|
|
|
4,220,929
|
|
|
|
3,896,441
|
|
|
|
3,709,012
|
|
Net sales per average gross square foot(10)
|
|
$
|
446
|
|
|
$
|
517
|
|
|
$
|
524
|
|
|
$
|
471
|
|
|
$
|
412
|
|
Total gross square feet at end of period
|
|
|
6,328,167
|
|
|
|
5,709,932
|
|
|
|
5,173,065
|
|
|
|
4,772,487
|
|
|
|
4,540,095
|
|
Number of employees at end of period
|
|
|
37,500
|
|
|
|
38,700
|
|
|
|
27,600
|
|
|
|
23,000
|
|
|
|
20,600
|
|
|
|
|
(1) |
|
Except for the fiscal year ended February 3, 2007, which
includes 53 weeks, all fiscal years presented include
52 weeks. |
|
(2) |
|
All amounts presented are from continuing operations and exclude
Bluenotes results of operations for all periods. |
|
(3) |
|
Amount for the fiscal years ended 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. |
|
(4) |
|
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. |
|
(5) |
|
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. |
|
(6) |
|
Per share results for all periods presented reflect the
three-for-two stock split distributed on December 18, 2006.
Refer to Note 2 to the accompanying Consolidated Financial
Statements for additional information regarding the stock split. |
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(7) |
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Amount for the fiscal year ended January 29, 2005
represents cash dividends paid for two quarters only. Note that
the Company initiated quarterly dividend payments during the
third quarter of Fiscal 2004. |
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(8) |
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Amounts for the years ended January 28, 2006 and
January 29, 2005 reflect certain assets of NLS as
held-for-sale. |
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(9) |
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All amounts exclude Bluenotes for all periods presented. |
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(10) |
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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
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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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:
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the planned opening of 11 new American Eagle stores and 17 new
aerie stores in the United States and Canada during Fiscal 2009;
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the selection of 25 to 35 American Eagle stores in the United
States and Canada for remodeling during Fiscal 2009;
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the future opening of 77kids by american eagle stores;
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the success of MARTIN + OSA and martinandosa.com;
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the success of aerie by american eagle and aerie.com;
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the expected payment of a dividend in future periods;
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the possibility of growth through acquisitions
and/or
internally developing additional new brands;
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the possibility that we may be required to take additional
temporary or other-than-temporary impairment (OTTI)
charges 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, 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.
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.
19
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.
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 Statement
of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), 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 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 in selling, general and administrative expenses.
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
SFAS No. 157 Fair Value Measurements
(SFAS No. 157), 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 model include
different recovery periods depending on the type of security and
varying discount factors for yield and illiquidity. 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. 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 impairment charge in the
future. Any OTTI charge could materially affect our results of
operations.
We evaluate our investments for impairment in accordance with
FSP
FAS 115-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments (FSP
FAS 115-1).
FSP
FAS 115-1
provides guidance for determining when an investment is
considered impaired, whether impairment is other-than-temporary,
and measurement of an impairment loss. We record an
other-than-temporary investment impairment charge at the point
we believe an investment has experienced a decline in value that
is other-than-temporary. In determining whether an
other-than-temporary impairment has occurred, we review
information about the underlying investment that is publicly
available, analyst reports, applicable industry data and other
pertinent information, and assess our ability and intent to hold
the securities for the foreseeable future. The investment is
written down to its current fair
20
value at the time the impairment is deemed to have occurred.
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 impairment charge in the future. 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 carrying value and its
fair value.
Share-Based Payments. We account for
share-based payments in accordance with the provisions of
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123(R)). 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. Effective February 4, 2007,
we adopted Financial Accounting Standards Board (the
FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48).
FIN 48 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 FIN 48, 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. Refer to Note 12 to the Consolidated
Financial Statements for further discussion of the adoption of
FIN 48.
We calculate income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS No. 109), 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 FIN 48. 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 our
effective tax rate.
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. We believe
that our 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.
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 AEO Direct are not included in
comparable store sales.
21
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. 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; 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. Any inability to obtain acceptable levels of 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
In Fiscal 2008, the companys financial performance did not
meet managements expectations. We faced an increasingly
challenging consumer environment, which impacted store traffic
and transaction volume and had a particularly negative impact on
the fourth quarter results. The challenging fourth quarter led
to an overall decrease in Fiscal 2008 annual sales and net
earnings compared to Fiscal 2007. In addition to this, we
experienced slow demand in AE Brand womens merchandise,
which is our highest volume division. Net sales decreased 2% to
$2.989 billion from $3.055 billion in the prior year.
Annual comparable store sales declined 10%.
A slowdown in consumer demand resulted in significantly higher
promotional activity, leading to a 17% decline in gross profit.
Negative comparable stores sales also impacted fixed expenses.
Rent increased to 10.6% from 9.0% as a percent to net sales
while total selling, general, and administrative expenses
increased to 24.8% from 23.4% as a rate to net sales.
Operating income as a percent to net sales was 10.1% for Fiscal
2008 compared to 19.6% for Fiscal 2007.
For Fiscal 2008, net income decreased 55% to
$179.1 million. As a percent to net sales, net income
decreased to 6.0% during Fiscal 2008 from 13.1% during Fiscal
2007. Net income per diluted share decreased 53% to $0.86 from
$1.82 last year.
We ended Fiscal 2008 with $734.9 million in cash,
short-term and long-term investments, a decrease of
$50.9 million from last year. During the year, we continued
to make investments in our business, including
22
$265 million in capital expenditures. These expenditures
related primarily to our new and remodeled stores in the
U.S. and Canada, as well as headquarters, point-of-sale and
distribution center 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 31,
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February 2,
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February 3,
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2009
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2008
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2007
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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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60.7
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53.4
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52.0
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Gross profit
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39.3
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46.6
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48.0
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Selling, general and administrative expenses
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24.8
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23.4
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23.8
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Depreciation and amortization expense
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4.4
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3.6
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3.2
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Operating income
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10.1
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19.6
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21.0
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Other income, net
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0.6
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1.2
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1.5
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Other-than-temporary impairment charge
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0.8
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Income before income taxes
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9.9
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20.8
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22.5
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Provision for income taxes
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3.9
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7.7
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8.6
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Income from continuing operations
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6.0
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%
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13.1
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%
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13.9
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%
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Our operations are conducted in one reportable segment, which
includes our 954 U.S. and Canadian AE retail stores, 116
aerie by American Eagle retail stores, 28 MARTIN + OSA retail
stores and AEO Direct.
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 compared to $6.2 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
23
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 4% to
$740.7 million from $715.2 million. As a percent to
net sales, selling, general and administrative expenses
increased by 140 basis points to 24.8% from 23.4% last
year. These amounts include $6.7 million, or 20 basis
points, of asset impairment charges related primarily to the
impairment of five M+O stores this year.
The higher rate this year 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 compared
to $27.5 million last year.
Depreciation
and Amortization Expense
Depreciation and amortization expense increased 20% to
$131.2 million from $109.2 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
4.4% from 3.6% due to the increased expense as well as the
impact of the comparable store sales decline.
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 last year. 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 last year. This is the
result of a stronger U.S. dollar.
Other-than-Temporary
Impairment Charge
OTTI charges relating to our investment securities were
$22.9 million for Fiscal 2008. There was no OTTI recorded
during Fiscal 2007.
Refer to the Fair Value Measurements caption below for
additional information.
Provision
for Income Taxes
The effective tax rate increased to approximately 40% from 37%
last year. The increase in the effective tax rate is primarily
related to the OTTI charges recorded in connection with the
valuation of our investment securities in which no income tax
benefit was recognized.
Net
Income
Net income 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 last year. Net income per diluted share
decreased to $0.86 from $1.82 last year. 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 this year compared to last year as a result of share
repurchases during Fiscal 2007, as well as a lower average price
of our common stock during Fiscal 2008.
24
Comparison
of Fiscal 2007 to Fiscal 2006
Net
Sales
Net sales increased 9% to $3.055 billion from
$2.794 billion. The sales increase resulted primarily from
an increase in gross square feet due to new and remodeled
stores, an increase in sales from our
e-commerce
operation, as well as a 1% increase in comparable store sales.
During Fiscal 2007, our AE Brand experienced a low single-digit
increase in average transaction value, driven by a low
single-digit increase in units per transaction and a slight
increase in average unit retail price. Comparable store sales
increased in the high single-digits in the AE Brand mens
business and declined in the low single-digits in the AE Brand
womens business over last year.
Gross
Profit
Gross profit increased 6% to $1.423 billion from
$1.340 billion in Fiscal 2006. Gross margin as a percent to
net sales decreased by 140 basis points to 46.6% from 48.0%
last year. The percentage decrease was attributed to a
50 basis point decrease in the merchandise margin rate and
a 90 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
and merchandise sell-offs partially offset by lower product
costs. Refer to Note 2 to the Consolidated Financial
Statements for additional information regarding merchandise
sell-offs. Buying, occupancy and warehousing expenses increased
90 basis points as a percent to net sales primarily due to
higher rent, as well as delivery costs related to our AEO Direct
business. Share-based payment expense included in gross profit
increased to approximately $6.2 million compared to
$5.8 million in Fiscal 2006.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased 7% to
$715.2 million from $665.6 million. However, as a
percent to net sales, selling, general and administrative
expenses improved by 40 basis points to 23.4% from 23.8%
last year. For the period, incentive compensation and supplies
expense improved as a percent to net sales partially offset by
increases in professional fees and advertising. Share-based
payment expense included in selling, general and administrative
expenses decreased to approximately $27.5 million compared
to $30.8 million in Fiscal 2006.
Depreciation
and Amortization Expense
Depreciation and amortization expense increased 24% to
$109.2 million from $88.0 million. As a percent to net
sales, depreciation and amortization expense increased to 3.6%
from 3.2%. These increases are primarily due to a greater
property and equipment base driven by our level of capital
expenditures.
Other
Income, Net
Other income, net decreased to $37.6 million from
$42.3 million. The decrease was primarily due to a
$3.5 million realized capital gain in Fiscal 2006 and a
decrease in our gift card service fee revenue due to the gift
card program change that occurred in July 2007. These decreases
were partially offset by increased investment income resulting
from an overall increase in rates compared to Fiscal 2006.
Additionally, we recorded a $1.2 million foreign currency
transaction loss as a result of a stronger Canadian Dollar
versus the U.S. Dollar compared to a $0.7 million loss
in Fiscal 2006.
Prior to July 2007, we recorded gift card service fee income in
other income, net. As of July 8, 2007, we discontinued
assessing a service fee on inactive gift cards and now record
estimated gift card breakage revenue in net sales. In Fiscal
2007, we recorded gift card service fee income of
$0.8 million compared to $2.3 million for Fiscal 2006.
For Fiscal 2007, we recorded breakage revenue of
$13.1 million in net sales. This amount included cumulative
breakage revenue related to gift cards issued since we
introduced the gift card program.
25
Provision
for Income Taxes
The effective tax rate decreased to approximately 37% from 38%
in Fiscal 2006. The decrease in the effective tax rate is
primarily related to a reduction in state income taxes and audit
settlements.
Net
Income
Net income increased 3% to a record $400.0 million, or
13.1% as a percent to net sales, from $387.4 million, or
13.9% as a percent to net sales in Fiscal 2006. Net income per
diluted share increased to $1.82 from $1.70 in Fiscal 2006. The
increase in net income was attributable to the factors noted
above. The increase in net income per diluted share was
attributable to the factors noted above, as well as a lower
weighted average share count in Fiscal 2007 compared to Fiscal
2006.
Fiscal
2009 Outlook
Looking ahead, we expect consumer spending to remain under
pressure. In response, we have planned Fiscal 2009 with negative
comparable store sales and our inventory investment is planned
down compared to last year. Additionally, we have reduced
budgeted selling, general and administrative expense through
various expense reduction initiatives and we have lowered our
capital spending plans. We believe that our current cash
holdings and cash generated from operations in Fiscal 2009 will
be sufficient to fund anticipated capital expenditures and
working capital requirements.
Adoption
of New Accounting Standard
Effective February 4, 2007, we adopted FIN 48. As a
result of adopting FIN 48, we recorded a net liability of
approximately $13.3 million for unrecognized tax benefits,
which was accounted for as a reduction to the beginning balance
of retained earnings as of February 4, 2007. Refer to
Note 12 to the Consolidated Financial Statements for a
discussion of the FIN 48 adoption.
Income
Taxes
The effective tax rate used for the provision of income tax
approximated 40% and 37% in Fiscal 2008 and Fiscal 2007,
respectively. The increase in the effective tax rate is
primarily related to the OTTI charges recorded in connection
with the valuation of our investment securities in which no
income tax benefit was recognized.
Fair
Value Measurements
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands
disclosures about fair value measurements. Fair value is defined
under SFAS No. 157 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 SFAS No. 157 as of
February 3, 2008, for our financial instruments, including
its investment securities.
Valuation techniques used to measure fair value under
SFAS No. 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs. Prior to
Fiscal 2008, due to the auction process which took place every
30 to 35 days for most of our auction rate securities,
quoted market prices were readily available, thus qualifying as
Level 1 under SFAS No. 157. However, due to
events in credit markets beginning in the first quarter of
Fiscal 2008, the auction events for most of these instruments
failed and therefore we have determined the estimated fair
values of these securities using Level 2
and/or
Level 3 inputs.
SFAS No. 157 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. Our short-term investments
with active markets, which represent our preferred stock
investments, as well as cash and cash equivalents are reported
at fair value utilizing Level 1 inputs. For these items,
quoted current market prices are readily available.
|
26
|
|
|
|
|
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. We
have concluded that the ARPS with underlyings of publicly traded
preferred stock that we have classified as short term represent
a Level 2 valuation and have been valued using the publicly
available trading prices of the underlying preferred shares as
the basis for valuation.
|
|
|
|
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. We
have concluded that the ARS that we have classified as long-term
due to failed auctions or that have long-term auction resets, as
well as ARPS with underlyings of non-publicly traded preferred
stock, represent a Level 3 valuation and should be valued
using a discounted cash flow analysis. The assumptions used in
preparing the discounted cash flow model include estimates for
interest rates, timing and amount of cash flows and expected
recovery periods of the ARS.
|
As of January 31, 2009, 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, consisting primarily of AAA and AA rated ARS and
ARPS.
In accordance with SFAS No. 157, 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 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 31, 2009
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
|
|
|
Significant
|
|
|
|
Carrying Amount
|
|
|
Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
as of January 31,
|
|
|
Identical Assets
|
|
|
Observable 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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used a discounted cash flow (DCF) model to value
our Level 3 investments. The assumptions in our model
included different recovery periods depending on the type of
security and varying discount factors for yield and illiquidity.
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
auction rate securities by approximately $6.1 million. An
increase to the yield and illiquidity premium of 100 basis
points would reduce the estimated fair value of our investment
in auction rate securities by approximately $11.7 million.
27
Factors that may impact our valuation include changes to credit
ratings of the securities as well as to the underlying assets
supporting those securities, underlying collateral value,
discount rates and ongoing strength and quality of market credit
and liquidity.
As a result of the fair value analysis for Fiscal 2008, we
recorded a net temporary impairment of $35.3 million
($21.8 million, net of tax). This amount was recorded in
other comprehensive income (OCI). For instruments
deemed to be temporarily impaired, we believe that these ARS
investments can be liquidated through successful auctions or
redemptions at par plus accrued interest. We maintain our
ability and intent to hold these investments until recovery of
market value and believe that the current illiquidity and
impairment of these investments is temporary.
We also recorded OTTI of $22.9 million during Fiscal 2008.
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 February 2, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additions to Level 3 upon adoption of
SFAS No. 157(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
|
|
|
|
|
|
|
|
|
|
Transfer out of Level 3(3)
|
|
|
(28,900
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,900
|
)
|
Gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in OCI
|
|
|
(35,293
|
)
|
|
|
(630
|
)
|
|
|
(31,446
|
)
|
|
|
(3,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
251,007
|
|
|
$
|
69,970
|
|
|
$
|
169,254
|
|
|
$
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts transferred upon the adoption of
SFAS No. 157 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. Refer to Note 3 to the Consolidated
Financial Statements. 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. |
Refer to Item 7A as well as 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.
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. Additionally, our uses of
cash include the completion of our new corporate headquarters,
the development of aerie by American Eagle and 77kids by
american eagle and the continued investment in the operations of
MARTIN + OSA. We expect to be able to fund our future cash
requirements
28
through current cash holdings as well as cash generated from
operations. In the future, we expect that our uses of cash will
also include new brand concept development, including
development of 77kids by american eagle.
Our growth strategy includes internally developing new brands
and the possibility of 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 31,
|
|
February 2,
|
|
|
2009
|
|
2008
|
|
Working Capital (in 000s)
|
|
$
|
523,596
|
|
|
$
|
644,656
|
|
Current Ratio
|
|
|
2.30
|
|
|
|
2.71
|
|
Our current ratio decreased to 2.30 as of January 31, 2009
from 2.71 last year due primarily to a decrease in total cash
and short-term investments as well as an increase in short-term
notes payable. Notes payable increased by $75.0 million as
a result of drawing on our credit facilities to increase our
cash position to add financial flexibility.
Cash
Flows from Operating Activities
Net cash provided by operating activities totaled
$302.2 million during Fiscal 2008 compared to
$464.3 million during Fiscal 2007 and $749.3 million during
Fiscal 2006. Our major source of cash from operations was
merchandise sales. Our primary outflows of cash for operations
were for the purchase of inventory and operational costs.
The decrease in net cash provided by operating activities of
$162.1 million from the prior year was due primarily to
lower net income driven by lower sales and gross margin.
Additionally, the decrease in net cash from operating activities
was driven by an increase in prepaid taxes due to the timing of
payments and a reduction in accrued compensation due to lower
incentive compensation accruals during Fiscal 2008.
Cash
Flows from Investing Activities
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
included $354.2 million from the net sale of investments
classified as available-for-sale, partially offset by
$250.4 million for capital expenditures. Investing
activities for Fiscal 2006 primarily included
$437.4 million for the net purchase of investments
classified as available-for-sale as well as $225.9 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 2.7% 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 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 programs and
$80.8 million used for the payment of dividends. During
Fiscal 2006, cash used for financing activities resulted
primarily from $146.5 million used for the repurchase of
our common stock and $61.5 million used for the payment of
dividends.
SFAS No. 123(R) requires that cash flows resulting
from the benefits of tax deductions in excess of recognized
compensation cost be classified as financing cash flows.
Accordingly, for Fiscal 2008, 2007 and 2006, the excess tax
benefit from share-based payments of $0.7 million,
$6.2 million and $19.5 million, respectively, are
classified as financing cash flows.
29
Credit
Facilities
We have borrowing agreements with two separate financial
institutions under which we may borrow an aggregate of
$350.0 million. Of this amount, $150.0 million can be
used for demand letter of credit facilities and
$100.0 million can be used for demand line borrowings. The
remaining $100.0 million can be used for either letters of
credit or demand line borrowings at our discretion. As of
January 31, 2009, we had outstanding demand letters of
credit of $57.3 million and demand line borrowings of
$75.0 million. The outstanding amounts on these facilities
can be demanded for repayment by the financial institutions at
any time. Additionally, the availability of any remaining
borrowings is subject to acceptance by the respective financial
institution. The average borrowing rate on the demand lines for
Fiscal 2008 was 2.9% and we have incorporated the demand line
proceeds into working capital. The demand line facilities
comprising the $100.0 million borrowing capacity expire on
April 22, 2009. We are currently working with our lenders
to renew these facilities or to obtain committed credit lines of
a comparable amount. If we are unable to renew both of our
demand line facilities, we would be required to repay
immediately the $75 million that we have drawn on those
facilities. We believe that this would have no material impact
on our ability to fund operations.
Capital
Expenditures
Fiscal 2008 expenditures included $135.2 million related to
investments in our AE stores, including 122 new AE, aerie, and
M+O stores in the United States and Canada, 30 remodeled stores
in the United States and fixtures and visual investments.
Additionally, we continued to support our infrastructure growth
by investing in information technology including the roll-out of
our new point-of-sale system ($43.6 million), the expansion
and improvement of our distribution centers
($52.8 million), construction of our corporate headquarters
in Pittsburgh, Pennsylvania ($16.1 million) and other home
office projects ($17.6 million).
For Fiscal 2009, we significantly lowered our capital spending
plans driven by our decision to open fewer new stores.
Therefore, we expect capital expenditures to be in the range of
$110 million to $135 million with approximately half
of the amount relating to store growth and renovation. This
includes approximately 11 new and 25 to 35 remodeled AE stores,
including our new flagship store in the Times Square area of New
York, New York, and 17 new aerie stores. The remaining half
relates to the completion of our headquarters, information
technology and distribution center projects. At this time, our
2009 capital expenditures projection does not include new M+O
stores.
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 programs 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. As of March 25,
2009, we had 41.3 million shares remaining authorized for
repurchase. These shares will be repurchased at our discretion.
Of the 41.3 million shares that may yet be purchased under
the program, the authorization relating to 11.3 million
shares expires at the end of Fiscal 2009 and the authorization
relating to 30.0 million shares expires at the end of
Fiscal 2010.
During Fiscal 2008 and Fiscal 2007, we repurchased
0.2 million and 0.4 million shares, respectively, from
certain employees at market prices totaling $3.4 million
and $12.3 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.
The aforementioned share repurchases have been recorded as
treasury stock.
30
Dividends
A $0.075 per share dividend was paid during the first quarter of
Fiscal 2007 and a $0.10 per share dividend was paid during each
of the second, third and fourth quarters of Fiscal 2007. A $0.10
per share dividend was paid during each quarter of Fiscal 2008.
Subsequent to the fourth quarter of Fiscal 2008, our Board
declared a quarterly cash dividend of $0.10 per share, payable
on April 10, 2009, to stockholders of record at the close
of business on March 30, 2009. 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 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Operating Leases(1)
|
|
$
|
1,770,367
|
|
|
$
|
234,095
|
|
|
$
|
442,603
|
|
|
$
|
373,416
|
|
|
$
|
720,253
|
|
Unrecognized tax benefits(2)
|
|
|
52,528
|
|
|
|
12,630
|
|
|
|
|
|
|
|
|
|
|
|
39,898
|
|
Purchase Obligations(3)
|
|
|
353,437
|
|
|
|
353,396
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
2,176,332
|
|
|
$
|
600,121
|
|
|
$
|
442,644
|
|
|
$
|
373,416
|
|
|
$
|
760,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating lease obligations consist primarily of future minimum
lease commitments related to store operating leases (Refer to
Note 8 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 31,
2009 is $52.5 million, including approximately
$11.4 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. We estimate that $12.6 million
of unrecognized tax benefits may be realized within one year.
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 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$
|
57,267
|
|
|
$
|
57,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
57,267
|
|
|
$
|
57,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
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.
31
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, foreign
currency exchange rates and investment security valuation.
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 2008 average yield rate decreases by
10% in Fiscal 2009, our income before taxes will decrease by
approximately $0.8 million. Comparatively, if our Fiscal
2007 portfolio average yield rate had decreased by 10% in Fiscal
2008, our income before taxes would have decreased by
approximately $2.9 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 22, 2009, bear interest at variable rates based on
the prime rate or LIBOR. At January 31, 2009, the weighted
average interest rate on our borrowings was 2.4%. Based upon a
sensitivity analysis as of January 31, 2009, assuming
average outstanding borrowing during Fiscal 2008 of
$75.0 million, a 50 basis point increase in interest
rates would have resulted in a potential increase in interest
expense of approximately $375,000.
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 hedge against 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.
Investment
Securities
As of January 31, 2009, we had a total of
$734.9 million in cash and cash equivalents, short-term and
long-term investments, which included $255.3 million of
investments in ARS and $6.2 million of preferred
securities, net of
32
$35.3 million of temporary impairment and
$22.9 million in OTTI. Our short-term and long-term
investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
|
|
|
Temporary
|
|
|
|
|
|
Carrying Value as of
|
|
|
|
Issues
|
|
|
Par Value
|
|
|
Impairment
|
|
|
OTTI
|
|
|
January 31, 2009
|
|
|
|
(In thousands, except no. of issues amount)
|
|
|
Auction-rate securities (ARS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end municipal fund ARS
|
|
|
5
|
|
|
$
|
41,750
|
|
|
$
|
(263
|
)
|
|
$
|
|
|
|
$
|
41,487
|
|
Municipal Bond ARS
|
|
|
5
|
|
|
|
28,850
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
28,483
|
|
Auction rate preferred securities
|
|
|
5
|
|
|
|
29,400
|
|
|
|
(3,217
|
)
|
|
|
(10,108
|
)
|
|
|
16,075
|
|
Federally-insured student loan ARS
|
|
|
17
|
|
|
|
166,700
|
|
|
|
(17,283
|
)
|
|
|
|
|
|
|
149,417
|
|
Private-insured student loan ARS
|
|
|
4
|
|
|
|
34,000
|
|
|
|
(14,163
|
)
|
|
|
|
|
|
|
19,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Auction-rate securities
|
|
|
36
|
|
|
|
300,700
|
|
|
|
(35,293
|
)
|
|
|
(10,108
|
)
|
|
|
255,299
|
|
Preferred Stock
|
|
|
4
|
|
|
|
19,000
|
|
|
|
|
|
|
|
(12,781
|
)
|
|
|
6,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40
|
|
|
$
|
319,700
|
|
|
$
|
(35,293
|
)
|
|
$
|
(22,889
|
)
|
|
$
|
261,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate preferred securities (ARPS) are a type
of ARS that have an underlying asset of perpetual preferred
stock. In the event of default or liquidation of the collateral
by the ARS issuer or trustee, we are entitled to receive
non-convertible preferred shares in the ARS issuer. Lehman
Brothers Holdings, Inc. (Lehman) (which filed for
Chapter 11 bankruptcy protection during September
2008) acted as the broker and auction agent for all of the
ARPS held by us. The Lehman bankruptcy resulted in the
dissolution of the investment trusts for most of our ARPS. As a
result, during Fiscal 2008, we received a total of 760,000
preferred shares of four companies. For Fiscal 2008, we recorded
an OTTI charge of $12.8 million based on the closing market
price of these preferred shares on January 30, 2009.
Furthermore, as a result of the Lehman bankruptcy, it is
probable that the trusts for three additional ARPS will dissolve
in the first quarter of 2009. Since it is unlikely that these
investments will recover in value in the near term, for Fiscal
2008 we recorded an OTTI charge of $10.1 million based on
the closing market price for the underlying preferred shares on
January 30, 2009.
In addition to the OTTI recorded, as a result of the current
market conditions, we recorded a net temporary impairment charge
of $35.3 million ($21.8 million, net of tax) in
connection with the valuation of the remainder of our ARS
portfolio at January 31, 2009.
For instruments deemed to be temporarily impaired, we believe
that these ARS investments can be liquidated through successful
auctions or redemptions at par plus accrued interest. We
maintain our ability and intent to hold these investments until
recovery of market value and believe that the current
illiquidity and impairment of these investments is temporary. In
addition, we believe that the current lack of liquidity relating
to ARS investments will have no impact on our ability to fund
our ongoing operations and growth initiatives.
We continue to monitor the market for ARS 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 OTTI
and/or
temporary impairment.
As a result of several states Attorney Generals
actions, during mid-August 2008, several large financial
institutions/broker dealers announced that they will purchase
auction rate securities from their clients, beginning in
September 2008 through June 2010 at par. Prior to this
announcement, these securities had experienced failed auctions
and were illiquid. While these purchases are intended to restore
liquidity to the ARS market, at this time we cannot determine if
any of our ARS investments will be included in the announced
purchases. As a result, we have not considered any of these
announcements in the valuation of our ARS at January 31,
2009.
Refer to Note 4 to the Consolidated Financial Statements
for additional information regarding the fair value measurement
of our ARS and Note 14 to the Consolidated Financial
Statements for additional information regarding a subsequent
event relating to our investment securities.
33
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
Index to
Consolidated Financial Statements
34
Report of
Independent Registered Public Accounting Firm
To 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 31, 2009 and February 2, 2008, 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 31, 2009. 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 31, 2009 and February 2, 2008, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended January 31,
2009, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 12 to the consolidated financial
statements, the Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, effective
February 4, 2007.
We have also 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 31, 2009, 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 25, 2009
expressed an unqualified opinion thereon.
Pittsburgh, Pennsylvania
March 25, 2009
35
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
473,342
|
|
|
$
|
116,061
|
|
Short-term investments
|
|
|
10,511
|
|
|
|
503,878
|
|
Merchandise inventory
|
|
|
294,928
|
|
|
|
286,485
|
|
Accounts and note receivable
|
|
|
41,471
|
|
|
|
31,920
|
|
Prepaid expenses and other
|
|
|
59,660
|
|
|
|
35,486
|
|
Deferred income taxes
|
|
|
45,447
|
|
|
|
47,004
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
925,359
|
|
|
|
1,020,834
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost, net of accumulated depreciation
and amortization
|
|
|
740,240
|
|
|
|
625,568
|
|
Goodwill
|
|
|
10,706
|
|
|
|
11,479
|
|
Long-term investments
|
|
|
251,007
|
|
|
|
165,810
|
|
Non-current deferred income taxes
|
|
|
15,001
|
|
|
|
24,238
|
|
Other assets, net
|
|
|
21,363
|
|
|
|
19,751
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,963,676
|
|
|
$
|
1,867,680
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
152,068
|
|
|
$
|
157,928
|
|
Notes Payable
|
|
|
75,000
|
|
|
|
|
|
Accrued compensation and payroll taxes
|
|
|
29,417
|
|
|
|
49,494
|
|
Accrued rent
|
|
|
64,695
|
|
|
|
62,161
|
|
Accrued income and other taxes
|
|
|
6,259
|
|
|
|
22,803
|
|
Unredeemed stored value cards and gift certificates
|
|
|
42,299
|
|
|
|
54,554
|
|
Current portion of deferred lease credits
|
|
|
13,726
|
|
|
|
12,953
|
|
Other liabilities and accrued expenses
|
|
|
18,299
|
|
|
|
16,285
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
401,763
|
|
|
|
376,178
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease credits
|
|
|
88,314
|
|
|
|
70,355
|
|
Non-current accrued income taxes
|
|
|
39,898
|
|
|
|
44,837
|
|
Other non-current liabilities
|
|
|
24,670
|
|
|
|
35,846
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
152,882
|
|
|
|
151,038
|
|
|
|
|
|
|
|
|
|
|
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; 249,328 and 248,763 shares issued; 205,281 and
204,480 shares outstanding, respectively
|
|
|
2,485
|
|
|
|
2,481
|
|
Contributed capital
|
|
|
513,574
|
|
|
|
493,395
|
|
Accumulated other comprehensive (loss) income
|
|
|
(14,389
|
)
|
|
|
35,485
|
|
Retained earnings
|
|
|
1,694,161
|
|
|
|
1,601,784
|
|
Treasury stock, 43,248 and 43,596 shares, respectively, at
cost
|
|
|
(786,800
|
)
|
|
|
(792,681
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,409,031
|
|
|
|
1,340,464
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,963,676
|
|
|
$
|
1,867,680
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
36
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
|
$
|
2,794,409
|
|
Cost of sales, including certain buying, occupancy and
warehousing expenses
|
|
|
1,814,765
|
|
|
|
1,632,281
|
|
|
|
1,453,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,174,101
|
|
|
|
1,423,138
|
|
|
|
1,340,429
|
|
Selling, general and administrative expenses
|
|
|
740,742
|
|
|
|
715,180
|
|
|
|
665,606
|
|
Depreciation and amortization expense
|
|
|
131,219
|
|
|
|
109,203
|
|
|
|
88,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
302,140
|
|
|
|
598,755
|
|
|
|
586,790
|
|
Other income, net
|
|
|
17,790
|
|
|
|
37,626
|
|
|
|
42,277
|
|
Other-than-temporary
impairment charge
|
|
|
22,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
297,041
|
|
|
|
636,381
|
|
|
|
629,067
|
|
Provision for income taxes
|
|
|
117,980
|
|
|
|
236,362
|
|
|
|
241,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.87
|
|
|
$
|
1.85
|
|
|
$
|
1.74
|
|
Diluted income per common share
|
|
$
|
0.86
|
|
|
$
|
1.82
|
|
|
$
|
1.70
|
|
Weighted average common shares outstanding basic
|
|
|
205,169
|
|
|
|
216,119
|
|
|
|
222,662
|
|
Weighted average common shares outstanding diluted
|
|
|
207,582
|
|
|
|
220,280
|
|
|
|
228,384
|
|
Refer to Notes to Consolidated Financial Statements
37
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary impairment related to investment securities, net of tax
|
|
|
(22,795
|
)
|
|
|
|
|
|
|
|
|
Reclassification adjustment for OTTI charges realized in net
income related to ARS
|
|
|
751
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for losses realized in net income
due to the sale of
available-for-sale
securities, net of tax
|
|
|
197
|
|
|
|
242
|
|
|
|
356
|
|
Unrealized (loss) gain on investments, net of tax
|
|
|
(378
|
)
|
|
|
947
|
|
|
|
(191
|
)
|
Reclassification adjustment for gain realized in net income
related to the transfer of investment securities from
available-for-sale
classification to trading classification, net of tax
|
|
|
|
|
|
|
|
|
|
|
(177
|
)
|
Foreign currency translation adjustment
|
|
|
(27,649
|
)
|
|
|
12,582
|
|
|
|
(1,180
|
)
|
Reclassification adjustment for foreign currency loss realized
in net income related to the disposition of National Logistics
Services
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(49,874
|
)
|
|
|
13,771
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
129,187
|
|
|
$
|
413,790
|
|
|
$
|
387,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
38
AMERICAN
EAGLE OUTFITTERS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Contributed
|
|
|
Retained
|
|
|
Treasury
|
|
|
Compensation
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
(1)
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock(2)
|
|
|
Expense
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Balance at January 28, 2006
|
|
|
221,897
|
|
|
|
2,416
|
|
|
|
369,807
|
|
|
|
978,855
|
|
|
|
(216,513
|
)
|
|
|
(1,041
|
)
|
|
|
22,028
|
|
|
|
1,155,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
4,556
|
|
|
|
45
|
|
|
|
83,615
|
|
|
|
|
|
|
|
|
|
|
|
1,041
|
|
|
|
|
|
|
|
84,701
|
|
Repurchase of common stock as part of publicly announced programs
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,485
|
)
|
|
|
|
|
|
|
|
|
|
|
(146,485
|
)
|
Repurchase of common stock from employees
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,635
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,635
|
)
|
Cash paid for fractional shares in
three-for-two
stock split
|
|
|
(4
|
)
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
Reissuance of treasury stock
|
|
|
528
|
|
|
|
|
|
|
|
109
|
|
|
|
(2,348
|
)
|
|
|
8,007
|
|
|
|
|
|
|
|
|
|
|
|
5,768
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387,359
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314
|
)
|
|
|
(314
|
)
|
Cash dividends ($0.28 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2007
|
|
|
221,284
|
|
|
|
2,461
|
|
|
|
453,418
|
|
|
|
1,302,345
|
|
|
|
(362,626
|
)
|
|
|
|
|
|
|
21,714
|
|
|
|
1,417,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All amounts presented reflect the December 18, 2006
three-for-two
stock split.
|
|
|
(1) |
|
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; and
250,000 authorized, 248,155 issued and 221,284 outstanding
(excluding 1,172 shares of non-vested restricted stock), at
February 3, 2007; The Company has 5,000 authorized, with
none issued or outstanding, $0.01 par value preferred stock
at January 31, 2009, February 2, 2008 and
February 3, 2007. |
|
(2) |
|
43,248 shares 43,596 shares, and 25,699 shares at
January 31, 2009, February 2, 2008, and
February 3, 2007, respectively. During Fiscal 2008 and
Fiscal 2007, 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 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
133,141
|
|
|
|
110,753
|
|
|
|
89,698
|
|
Stock-based compensation
|
|
|
20,296
|
|
|
|
33,670
|
|
|
|
36,556
|
|
Provision for deferred income taxes
|
|
|
24,469
|
|
|
|
(8,147
|
)
|
|
|
(27,572
|
)
|
Tax benefit from share-based payments
|
|
|
1,121
|
|
|
|
7,260
|
|
|
|
25,465
|
|
Excess tax benefit from share-based payments
|
|
|
(693
|
)
|
|
|
(6,156
|
)
|
|
|
(19,541
|
)
|
Foreign currency transaction (gain) loss
|
|
|
(1,141
|
)
|
|
|
1,221
|
|
|
|
687
|
|
Loss on impairment of assets
|
|
|
6,713
|
|
|
|
592
|
|
|
|
|
|
Other-than-temporary
impairment charge
|
|
|
22,889
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of trading securities
|
|
|
|
|
|
|
|
|
|
|
183,968
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventory
|
|
|
(13,735
|
)
|
|
|
(19,074
|
)
|
|
|
(53,527
|
)
|
Accounts receivable
|
|
|
(10,094
|
)
|
|
|
(5,660
|
)
|
|
|
7,448
|
|
Prepaid expenses and other
|
|
|
(24,781
|
)
|
|
|
(1,334
|
)
|
|
|
(4,204
|
)
|
Other assets, net
|
|
|
390
|
|
|
|
(3,242
|
)
|
|
|
(5,357
|
)
|
Accounts payable
|
|
|
(3,053
|
)
|
|
|
(15,559
|
)
|
|
|
32,345
|
|
Unredeemed gift cards and gift certificates
|
|
|
(11,392
|
)
|
|
|
(699
|
)
|
|
|
11,623
|
|
Deferred lease credits
|
|
|
18,887
|
|
|
|
4,640
|
|
|
|
7,791
|
|
Accrued income and other taxes
|
|
|
(20,697
|
)
|
|
|
(31,416
|
)
|
|
|
43,482
|
|
Accrued liabilities
|
|
|
(19,188
|
)
|
|
|
(2,598
|
)
|
|
|
33,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
123,132
|
|
|
|
64,251
|
|
|
|
361,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
302,193
|
|
|
|
464,270
|
|
|
|
749,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(265,335
|
)
|
|
|
(250,407
|
)
|
|
|
(225,939
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
12,345
|
|
Purchase of
available-for-sale
securities
|
|
|
(48,655
|
)
|
|
|
(1,772,653
|
)
|
|
|
(1,353,339
|
)
|
Sale of
available-for-sale
securities
|
|
|
393,559
|
|
|
|
2,126,891
|
|
|
|
915,952
|
|
Other investing activities
|
|
|
(1,180
|
)
|
|
|
(1,170
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
78,389
|
|
|
|
102,661
|
|
|
|
(651,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on note payable and capital leases
|
|
|
(2,177
|
)
|
|
|
(1,912
|
)
|
|
|
(3,020
|
)
|
Proceeds from issuance of note payable
|
|
|
75,000
|
|
|
|
|
|
|
|
2,025
|
|
Repurchase of common stock as part of publicly announced programs
|
|
|
|
|
|
|
(438,291
|
)
|
|
|
(146,485
|
)
|
Repurchase of common stock from employees
|
|
|
(3,432
|
)
|
|
|
(12,310
|
)
|
|
|
(7,635
|
)
|
Cash paid for fractional shares in connection with
three-for-two
stock split
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
Net proceeds from stock options exercised
|
|
|
3,799
|
|
|
|
13,183
|
|
|
|
28,447
|
|
Excess tax benefit from share-based payments
|
|
|
693
|
|
|
|
6,156
|
|
|
|
19,541
|
|
Cash dividends paid
|
|
|
(82,394
|
)
|
|
|
(80,796
|
)
|
|
|
(61,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(8,511
|
)
|
|
|
(513,970
|
)
|
|
|
(168,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(14,790
|
)
|
|
|
3,363
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
357,281
|
|
|
|
56,324
|
|
|
|
(70,792
|
)
|
Cash and cash equivalents beginning of period
|
|
|
116,061
|
|
|
|
59,737
|
|
|
|
130,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
473,342
|
|
|
$
|
116,061
|
|
|
$
|
59,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Notes to Consolidated Financial Statements
40
AMERICAN
EAGLE OUTFITTERS, INC.
FOR THE
YEAR ENDED JANUARY 31, 2009
American Eagle Outfitters, Inc., a Delaware corporation, is a
leading retailer that operates under the American Eagle
Outfitters®,
aerie®
by American Eagle,
77kidstm
by american eagle and MARTIN +
OSA®
brands.
American Eagle Outfitters designs, markets and sells its own
brand of high quality, on-trend clothing, accessories and
personal care products at affordable prices while targeting 15
to 25 year-old customers. The Company opened its first
American Eagle Outfitters store in the United States in 1977 and
expanded the brand into Canada in 2001. American Eagle
Outfitters also operates
ae.com®,
which offers additional sizes, colors and styles of favorite
AE®
merchandise and ships to 62 countries around the world.
AEs original collection includes standards like jeans and
graphic Ts, as well as essentials like accessories, outerwear,
footwear, basics and swimwear under our American Eagle
Outfitters, American
Eagle®
and AE brand names.
During Fiscal 2006, American Eagle Outfitters launched its new
intimates brand, aerie by American Eagle (aerie).
The aerie collection is available in aerie stores, predominantly
all American Eagle stores and at aerie.com. The collection
offers
Dormwear®
and intimates collections for the
AE®
girl. Designed to be subtly sexy, comfortable and cozy, the
aerie brand offers AE customers a new way to express their
personal style everyday, from the dormroom to the coffee shop to
the classroom.
The Company also introduced MARTIN +
OSA®
(M+O) during Fiscal 2006, a concept targeting 28 to
40 year-old women and men, which offers Refined
Casualtm
clothing and accessories, designed to be valuable, irresistible,
inspiring, authentic and adventurous. In Fiscal 2008, MARTIN +
OSA began offering merchandise online at martinandosa.com.
In October 2008, the Company launched a new childrens
apparel brand, 77kids by american
eagletm
(77kids). The 77kids brand offers kid
cool, durable clothing and accessories for kids ages two
to 10. The brand debuted worldwide online at 77kids.com during
Fiscal 2008, with future plans for stores in the U.S.
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 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Mens apparel and accessories
|
|
|
42
|
%
|
|
|
38
|
%
|
|
|
37
|
%
|
Womens apparel, accessories and intimates
|
|
|
58
|
%
|
|
|
62
|
%
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 31, 2009, 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 and Fiscal 2009 refer to the
52 week periods ending January 29, 2011 and
January 30, 2010, respectively. Fiscal 2008 and
Fiscal 2007 refer to the 52 week periods ended
January 31, 2009 and February 2, 2008, respectively.
Fiscal 2006 refers to the 53 week period ended
February 3, 2007. Fiscal 2005 and Fiscal
2004 refer to the 52 week periods ended
January 28, 2006 and January 29, 2005, respectively.
41
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires our 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 February 2008, the FASB issued Staff Position
(FSP)
No. FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP
No. FAS 157-2)
which delays the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value on a
recurring basis (at least annually). For items within its scope,
FSP
No. FAS 157-2
defers the effective date to fiscal years beginning after
November 15, 2008. The Company will adopt
SFAS No. 157-2
for its financial assets and financial liabilities beginning in
the first quarter of Fiscal 2009. The adoption of
SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities will not have a material impact on the
Companys Consolidated Financial Statements.
In June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF)
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
EITF
No. 03-6-1).
FSP EITF
No. 03-6-1
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 need to be included in computing
earnings per share under the two-class method, as described in
SFAS No. 128, Earnings Per Share
(SFAS No. 128). This FSP will be
effective for the Company beginning in the first quarter of
Fiscal 2009 and will be applied retrospectively in accordance
with the FSP. The adoption of FSP EITF
No. 03-6-1
will not have a material impact on the Companys
Consolidated Financial Statements.
In October 2008, the FASB issued FSP
FAS 157-3,
Determining the Fair Value of a Financial Asset in a Market
That is Not Active (FSP
FAS 157-3).
FSP
FAS 157-3
clarifies the application of SFAS No. 157, when the
market for a financial asset is not active, specifically
regarding consideration of managements internal
assumptions in measuring fair value when observable data are not
present, how observable market information from an inactive
market should be taken into account, and the use of broker
quotes or pricing services in assessing the relevance of
observable and unobservable data. This FSP was effective
immediately. The Company initially considered the guidance
provided by FSP
FAS 157-3
in its determination of estimated fair values of its investment
portfolio as of November 1, 2008. Refer to Note 4 to
the Consolidated Financial Statements for additional information
regarding the fair value measurement of our investment portfolio.
Foreign
Currency Translation
The Canadian dollar is the functional currency for the Canadian
business. In accordance with SFAS No. 52, Foreign
Currency Translation (SFAS No. 52),
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 (loss) in accordance with
SFAS No. 130, Reporting Comprehensive Income
(Refer to Note 9 to the Consolidated Financial
Statements).
42
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of
Financial Instruments (SFAS No. 107),
requires management to disclose the estimated fair value of
certain assets and liabilities defined by SFAS No. 107
as financial instruments. At January 31, 2009, management
believes that the carrying amounts of cash and cash equivalents,
receivables and payables approximate fair value because of the
short maturity of these financial instruments.
SFAS No. 157, Fair Value Measurements
(SFAS No. 157), defines fair value,
establishes a framework for measuring fair value in accordance
with accounting principles generally accepted in the United
States, and expands disclosures about fair value measurements.
Fair value is defined under SFAS No. 157 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 has adopted the provisions
of SFAS No. 157 as of February 3, 2008, for its
financial instruments, including its investment securities.
SFAS No. 107, which requires disclosures about the
fair values of financial instruments for which it is practicable
to estimate fair value, was amended to incorporate the
SFAS No. 157 definition of fair value.
SFAS No. 107 disclosure requirements apply to
financial instruments that are measured at fair value on a
recurring or non-recurring basis and, therefore, are subject to
the disclosure requirements of SFAS No. 157, and other
financial instruments that are not subject to those disclosure
requirements.
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 31, 2009, short-term investments included the
preferred stock equity investments that the Company received as
a result of the Lehman bankruptcy, which triggered the
dissolution of the ARPS from their trusts. Additionally,
short-term investments included ARPS which will be liquidated
during the first quarter of 2009 as a result of the Lehman
bankruptcy.
As of January 31, 2009, long-term investments included
investments with remaining maturities of greater than
12 months and consisted of auction rate securities
classified as
available-for-sale
that have experienced failed auctions or have long-term auction
resets. In addition, long-term investments included ARS and ARPS
that the Company currently intends to hold for greater than one
year. The remaining contractual maturities of our ARS classified
as long-term investments is two to 39 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 (loss), until realized.
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.
The Company evaluates its investments for impairment in
accordance with FSP
FAS 115-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments
(FSP
FAS 115-1).
FSP
FAS 115-1
provides guidance for determining when an investment is
considered impaired, whether impairment is
other-than-temporary,
and measurement of an impairment loss. 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 value and its fair value.
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)
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 can be affected by changes in merchandise mix
and changes in actual shrinkage trends.
The Company sells
end-of-season,
overstock and irregular merchandise to a third party vendor.
Below is a summary of merchandise sell-offs presented on a gross
basis for Fiscal 2008, Fiscal 2007 and Fiscal 2006. Refer to the
Revenue Recognition disclosure below for additional information
regarding merchandise sell-offs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Proceeds from sell-offs
|
|
$
|
38,240
|
|
|
$
|
23,775
|
|
|
$
|
16,061
|
|
Marked-down cost of merchandise disposed of via sell-offs
|
|
$
|
38,012
|
|
|
$
|
25,805
|
|
|
$
|
22,656
|
|
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 5 to 10 years or the term of the lease
|
Fixtures and equipment
|
|
3 to 5 years
|
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets
(SFAS No. 144), our management
evaluates the ongoing value of leasehold improvements and store
fixtures associated with retail stores, which have been open
longer than one year. 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. When events such as these occur,
the impaired assets are adjusted to their estimated fair value
and an impairment loss is recorded in selling, general and
administrative expenses.
During Fiscal 2008, the Company recorded an asset impairment
charge 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. The Company did not recognize any
impairment losses during Fiscal 2006.
44
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 2008, Fiscal 2007 and Fiscal 2006, the
Company recorded $4.9 million, $6.7 million and
$6.1 million related to asset write-offs within
depreciation and amortization expense.
Goodwill
As of January 31, 2009, the Company had approximately
$10.7 million of goodwill compared to $11.5 million as
of February 2, 2008. The Companys goodwill is
primarily related to the acquisition of our importing operations
on January 31, 2000, as well as the acquisition of its
Canadian business on November 29, 2000. The reduction in
goodwill is due to the fluctuation in the foreign exchange spot
rate at which the Canadian goodwill is translated. In accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets, management evaluates goodwill for possible
impairment on at least an annual basis.
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 lease (including the pre-opening build-out period) and
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.
Co-branded
Credit Card and Customer Loyalty Program
In April 2008, the Company introduced a new co-branded credit
card (the AE Visa Card) and re-launched its private
label credit card (the AE Credit Card). 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. The Bank pays fees
to the Company, which are recorded as revenue, based on the
number of credit card accounts activated and on card usage
volume. 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, 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 result in the issuance of an AE gift card when a
certain point threshold is 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.
Points earned under the credit card rewards program on purchases
at AE and aerie are accounted for in accordance with EITF Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
Accordingly, the portion of the sales revenue attributed to the
award points is deferred and recognized when the award gift card
is redeemed or
45
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
when the points expire. Additionally, credit card reward points
earned on non-AE or aerie purchases are accounted for in
accordance with EITF Issue
No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products)
(EITF 01-09).
As the points are earned, a current liability is recorded for
the estimated cost of the award gift card, and the impact of
adjustments is recorded in cost of sales.
The Company also offers its customers the AE All-Access
Pass®
(the Pass), a customer loyalty program. Using the
Pass, 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 has historically accounted for the
credits earned using the Pass in accordance with
EITF 01-09.
However, in connection with the launch of the credit card
rewards program, the Company determined that these credits
should be accounted for consistently in accordance with
EITF 00-21.
The effect of applying
EITF 00-21
did not have a material impact on the Companys
Consolidated Financial Statements. Accordingly, beginning in
Fiscal 2008, the portion of the sales revenue attributed to the
award credits is deferred and recognized when the award credits
are redeemed or expire.
Stock
Repurchases
During Fiscal 2007, the Companys 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 2008.
As of March 25, 2009, the Company had 41.3 million
shares remaining authorized for repurchase. These shares will be
repurchased at the Companys discretion. Of the
41.3 million shares that may yet be purchased under the
program, the authorization relating to 11.3 million shares
expires at the end of Fiscal 2009 and the authorization relating
to 30.0 million shares expires at the end of Fiscal 2010.
During Fiscal 2008 and Fiscal 2007, the Company repurchased
0.2 million and 0.4 million shares, respectively from
certain employees at market prices totaling $3.4 million
and $12.3 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
Plan.
The aforementioned share repurchases have been recorded as
treasury stock.
Stock
Split
On November 13, 2006, the Companys Board approved a
three-for-two
stock split. This stock split was distributed on
December 18, 2006, to stockholders of record on
November 24, 2006. All share amounts and per share
data presented herein reflect this stock split.
Income
Taxes
Effective February 4, 2007, the Company adopted
FIN 48. FIN 48 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 FIN 48, 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. Refer to Note 12
to the Consolidated Financial Statements for further discussion
of the adoption of FIN 48.
The Company calculates income taxes in accordance with
SFAS No. 109, 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 FIN 48. Deferred tax assets and
liabilities are measured using the
46
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 our
effective tax rate.
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. We believe
that our 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. A summary of activity in
the sales return reserve account follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
4,683
|
|
|
$
|
5,998
|
|
Returns
|
|
|
(81,704
|
)
|
|
|
(83,082
|
)
|
Provisions
|
|
|
81,113
|
|
|
|
81,767
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,092
|
|
|
$
|
4,683
|
|
|
|
|
|
|
|
|
|
|
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 proportion
to actual gift card redemptions as a component of net sales. For
further information on a change in the Companys gift card
program, refer to the Gift Cards caption below.
The Company sells
end-of-season,
overstock and irregular merchandise to a third party vendor. For
Fiscal 2008, the Company recorded $38.2 million of proceeds
and $38.0 million of cost of sell-offs within net sales and
cost of sales, respectively. For Fiscal 2007, the Company
recorded $23.8 million of proceeds and $25.8 million
of cost of sell-offs within net sales and cost of sales,
respectively. For Fiscal 2006, the Company recorded
$5.3 million of proceeds and $6.5 million of cost of
sell-offs within net sales and cost of sales, respectively.
During the three months ended October 28, 2006, the Company
began classifying sell-offs on a gross basis, with proceeds and
cost of sell-offs recorded in net sales and cost of sales,
respectively. Prior to this time, the Company had presented the
proceeds and cost of sell-offs on a net basis within cost of
sales. Amounts for the six months ended July 29, 2006 were
not adjusted to reflect this change as the amounts were
determined to be immaterial.
Shipping and handling amounts billed to customers are recorded
as revenue. During Fiscal 2008, Fiscal 2007 and Fiscal 2006, the
Company recorded shipping and handling revenue of
$16.9 million, $16.1 million and $17.7 million,
respectively, in net sales.
47
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 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.
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 professional services. 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 31, 2009 and
February 2, 2008, the Company had prepaid advertising
expense of $2.9 million and $4.5 million,
respectively. All other advertising costs are expensed as
incurred. The Company recognized $79.7 million,
$74.9 million and $64.3 million in advertising expense
during Fiscal 2008, Fiscal 2007 and Fiscal 2006, 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.
Other
Income, Net
Other income, net consists primarily of interest income as well
as foreign currency transaction gain/loss and interest expense.
Other-than-Temporary
Impairment
The Company evaluates its investments for impairment in
accordance with FSP
FAS 115-1.
FSP
FAS 115-1
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 carrying value. 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 carrying value and its fair value.
For Fiscal 2008, the Company recorded OTTI charges related to
its investment securities of $22.9 million. Refer to
Notes 3 and 4 to the Consolidated Financial Statements for
additional information regarding our OTTI charges.
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
48
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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. The Company recorded $12.2 million of revenue
related to gift card breakage during Fiscal 2008. The Company
recorded $13.1 million of revenue related to gift card
breakage during Fiscal 2007, which included cumulative breakage
revenue related to gift cards issued since the Company
introduced its gift card program. Prior to July 8, 2007,
the Company recorded gift card service fee income in other
income, net. The Company recorded gift card service fee income
of $0.8 million and $2.3 million in Fiscal 2007 and
Fiscal 2006, respectively.
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
SFAS No. 5, Accounting for Contingencies,
management 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 FASB Interpretation No. 14, Reasonable
Estimation of the Amount of a Loss an interpretation
of FASB Statement No. 5. 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 financial position or
results of operations 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 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
132,234
|
|
|
$
|
260,615
|
|
|
$
|
204,179
|
|
Interest
|
|
$
|
1,947
|
|
|
$
|
|
|
|
$
|
19
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of investment securities from
available-for-sale
to trading classification
|
|
$
|
|
|
|
$
|
|
|
|
$
|
180,787
|
|
49
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings
Per Share
The following table shows the amounts used in computing earnings
per share and the effect on net income and the weighted average
number of shares of potential dilutive common stock (stock
options and restricted stock).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
179,061
|
|
|
$
|
400,019
|
|
|
$
|
387,359
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
205,169
|
|
|
|
216,119
|
|
|
|
222,662
|
|
Dilutive effect of stock options and non-vested restricted stock
|
|
|
2,413
|
|
|
|
4,161
|
|
|
|
5,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
207,582
|
|
|
|
220,280
|
|
|
|
228,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards to purchase 7.6 million, 2.5 million and
1.1 million shares of common stock during Fiscal 2008,
Fiscal 2007 and Fiscal 2006, 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 2008, approximately
0.8 million shares of performance-based restricted stock
were not included in the computation of weighted average diluted
common share amounts. This was due to the Company not attaining
the operating performance required for the shares to vest as
compared to the pre-established annual performance goals.
Segment
Information
In accordance with SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information
(SFAS No. 131), the Company has
identified four operating segments (American Eagle Brand
U.S. and Canadian retail 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 SFAS No. 131.
The following tables present summarized geographical information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,707,261
|
|
|
$
|
2,770,119
|
|
|
$
|
2,562,831
|
|
Foreign(1)
|
|
|
281,605
|
|
|
|
285,300
|
|
|
|
231,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,988,866
|
|
|
$
|
3,055,419
|
|
|
$
|
2,794,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Long-lived assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
708,180
|
|
|
$
|
596,715
|
|
Foreign
|
|
|
42,766
|
|
|
|
40,332
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets, net
|
|
$
|
750,946
|
|
|
$
|
637,047
|
|
|
|
|
|
|
|
|
|
|
50
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassification
Certain reclassifications have been made to the Consolidated
Financial Statements for prior periods in order to conform to
the Fiscal 2007 presentation, including unaudited quarterly
financial information. Refer to Note 13 to the Consolidated
Financial Statements.
|
|
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 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Balance
|
|
|
Holding Gains
|
|
|
Holding Losses
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
45,422
|
|
|
$
|
|
|
|
$
|
|
|
Money-market
|
|
|
70,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
116,061
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
248,800
|
|
|
$
|
|
|
|
$
|
|
|
Treasury and agency ARS
|
|
|
20,172
|
|
|
|
107
|
|
|
|
|
|
State and local government ARS
|
|
|
136,161
|
|
|
|
52
|
|
|
|
|
|
Auction rate preferred securities
|
|
|
98,745
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
503,878
|
|
|
$
|
159
|
|
|
$
|
(27
|
)
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury and agency ARS
|
|
$
|
122,811
|
|
|
$
|
526
|
|
|
$
|
(61
|
)
|
State and local government ARS
|
|
|
6,419
|
|
|
|
|
|
|
|
|
|
Auction rate preferred securities
|
|
|
36,580
|
|
|
|
65
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
165,810
|
|
|
$
|
591
|
|
|
$
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
785,749
|
|
|
$
|
750
|
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Proceeds from the sale of
available-for-sale
securities were $393.6 million, $2.127 billion and
$916.0 million for Fiscal 2008, Fiscal 2007 and Fiscal
2006, respectively. These proceeds are offset against purchases
of $48.7 million, $1.773 billion and
$1.353 billion for Fiscal 2008, Fiscal 2007 and Fiscal
2006, respectively. In addition to the OTTI charge discussed
below for Fiscal 2008, the Company recorded net realized losses
related to the sale of
available-for-sale
securities of $1.1 million, $0.4 million and
$0.6 million for Fiscal 2008, Fiscal 2007 and Fiscal 2006,
respectively, in other income, net.
During Fiscal 2006, the Company transferred certain investment
securities from
available-for-sale
classification to trading classification (the trading
securities). As a result of this transfer, during Fiscal
2006 a reclassification adjustment of $(0.3) million was
recorded in other comprehensive income related to the gain
realized in net income at the time of transfer. As a result of
trading classification, the Company realized $3.5 million
of capital gains, which were recorded in other income, net
during Fiscal 2006. The trading securities were sold during
Fiscal 2006, at which time the Company received proceeds of
$184.0 million. As of January 31, 2009, the Company
had no investments classified as trading securities.
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 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS
|
|
$
|
(31,446
|
)
|
|
$
|
169,254
|
|
|
$
|
|
|
|
$
|
|
|
State and local government ARS
|
|
|
(630
|
)
|
|
|
69,970
|
|
|
|
|
|
|
|
|
|
Auction rate preferred securities
|
|
|
(3,217
|
)
|
|
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(35,293
|
)
|
|
$
|
251,007
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate preferred securities (ARPS)
|
|
$
|
(75
|
)
|
|
$
|
19,136
|
|
|
$
|
|
|
|
$
|
|
|
Treasury and agency securities
|
|
|
(61
|
)
|
|
|
18,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(136
|
)
|
|
$
|
37,513
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009, we had a total of
$734.9 million in cash and cash equivalents, short-term and
long-term investments, which included $255.3 million of
investments in ARS and $6.2 million of preferred
securities, net of $35.3 million ($21.8 million net of
tax) of temporary impairment and $22.9 million in OTTI. Our
short-term and long-term investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
|
|
|
Temporary
|
|
|
|
|
|
Carrying Value as
|
|
|
|
Issues
|
|
|
Par Value
|
|
|
Impairment
|
|
|
OTTI
|
|
|
of January 31, 2009
|
|
|
|
(In thousands, except no. of issues amount)
|
|
|
Auction-rate securities (ARS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end municipal fund ARS
|
|
|
5
|
|
|
$
|
41,750
|
|
|
$
|
(263
|
)
|
|
$
|
|
|
|
$
|
41,487
|
|
Municipal Bond ARS
|
|
|
5
|
|
|
|
28,850
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
28,483
|
|
Auction rate preferred securities
|
|
|
5
|
|
|
|
29,400
|
|
|
|
(3,217
|
)
|
|
|
(10,108
|
)
|
|
|
16,075
|
|
Federally-insured student loan ARS
|
|
|
17
|
|
|
|
166,700
|
|
|
|
(17,283
|
)
|
|
|
|
|
|
|
149,417
|
|
Private-insured student loan ARS
|
|
|
4
|
|
|
|
34,000
|
|
|
|
(14,163
|
)
|
|
|
|
|
|
|
19,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Auction-rate securities
|
|
|
36
|
|
|
|
300,700
|
|
|
|
(35,293
|
)
|
|
|
(10,108
|
)
|
|
|
255,299
|
|
Preferred Stock
|
|
|
4
|
|
|
|
19,000
|
|
|
|
|
|
|
|
(12,781
|
)
|
|
|
6,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40
|
|
|
$
|
319,700
|
|
|
$
|
(35,293
|
)
|
|
$
|
(22,889
|
)
|
|
$
|
261,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Auction rate preferred securities (ARPS) are a type
of ARS that have an underlying asset of perpetual preferred
stock. In the event of default or liquidation of the collateral
by the ARS issuer or trustee, the Company is entitled to receive
non-convertible preferred shares in the ARS issuer. Lehman
Brothers Holdings, Inc. (Lehman) (which filed for
Chapter 11 bankruptcy protection during September
2008) acted as the broker and auction agent for all of the
ARPS held by the Company. The Lehman bankruptcy resulted in the
dissolution of the investment trusts for most of the
Companys ARPS. As a result, during Fiscal 2008, the
Company received a total of 760,000 preferred shares of four
companies. For Fiscal 2008, the Company recorded an OTTI charge
of $12.8 million based on the closing market price of the
preferred shares on January 30, 2009.
Furthermore, as a result of the Lehman bankruptcy, it is
probable that the trusts for three additional ARPS will dissolve
in the first quarter of 2009. Since it is unlikely that these
investments will recover in value in the near term, for Fiscal
2008 the Company recorded an OTTI charge related to these ARPS
of $10.1 million based on the closing market price for the
underlying preferred shares on January 30, 2009.
In addition to the OTTI recorded, as a result of the current
market conditions, the Company recorded a net temporary
impairment charge of $35.3 million in connection with the
valuation of the remainder of its ARS portfolio at
January 31, 2009.
For instruments deemed to be temporarily impaired, we believe
that these ARS investments can be liquidated through successful
auctions or redemptions at par or par plus accrued interest. We
maintain our ability and intent to hold these investments until
recovery of market value and believe that the current
illiquidity and impairment of these investments is temporary. In
addition, we believe that the current lack of liquidity relating
to ARS investments will have no impact on our ability to fund
our ongoing operations and growth initiatives.
We continue to monitor the market for ARS 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 OTTI
and/or
temporary impairment.
Refer to Note 14 to the Consolidated Financial Statements
for additional information regarding a subsequent event relating
to our investment securities.
|
|
4.
|
Fair
Value Measurements
|
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands
disclosures about fair value measurements. Fair value is defined
under SFAS No. 157 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 has adopted the provisions of SFAS No. 157
as of February 3, 2008, for its financial instruments,
including its investment securities.
Valuation techniques used to measure fair value under
SFAS No. 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs. In addition,
SFAS No. 157 establishes a 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. Our short-term investments
with active markets, which represent our preferred stock
investments, as well as cash and cash equivalents are reported
at fair value utilizing Level 1 inputs. For these items,
quoted current market prices are readily available.
|
|
|
|
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. The
Company has concluded that the ARPS with underlyings of publicly
traded preferred stock that it has
|
53
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
classified as short term represent a Level 2 valuation and
have been valued using the publicly available trading prices of
the underlying preferred shares as the basis for its valuation.
|
|
|
|
|
|
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. The
Company has concluded that the ARS that it has classified as
long-term due to failed auctions or that have long-term auction
resets, as well as ARPS with underlyings of non-publicly traded
preferred stock, represent a Level 3 valuation and should
be valued using a discounted cash flow analysis. The assumptions
used in preparing the discounted cash flow model include
estimates for interest rates, timing and amount of cash flows
and expected recovery periods of the ARS.
|
As of 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.
In accordance with SFAS No. 157, the following table
represents the Companys fair value hierarchy for its
financial assets (cash equivalents and investments) measured at
fair value on a recurring basis as of January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 31, 2009
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Prices in Active
|
|
|
|
|
|
Significant
|
|
|
|
Amount as
|
|
|
Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
of January 31,
|
|
|
Identical Assets
|
|
|
Observable 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 its Level 3 investments. The assumptions in the
Companys model included different recovery periods
depending on the type of security and varying discount factors
for yield and illiquidity. These assumptions are subjective.
They are based on the Companys current judgment and its
view of current market conditions. The use of different
assumptions would result in a different valuation and related
charge.
54
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the fair value analysis for Fiscal 2008, the
Company recorded a net temporary impairment of
$35.3 million ($21.8 million, net of tax). This amount
was recorded in other comprehensive income (OCI).
The Company also recorded OTTI of $22.9 million during
Fiscal 2008. 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 February 2, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Additions to Level 3 upon adoption of
SFAS No. 157(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
|
|
|
|
|
|
|
|
|
|
Transfer out of Level 3(3)
|
|
|
(28,900
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,900
|
)
|
Gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in OCI
|
|
|
(35,293
|
)
|
|
|
(630
|
)
|
|
|
(31,446
|
)
|
|
|
(3,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
251,007
|
|
|
$
|
69,970
|
|
|
$
|
169,254
|
|
|
$
|
11,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts transferred upon the adoption of
SFAS No. 157 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. Refer to Note 3 to the Consolidated
Financial Statements. 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. |
|
|
5.
|
Accounts
and Note Receivable
|
Accounts and note receivable are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Construction allowances
|
|
$
|
11,139
|
|
|
$
|
12,284
|
|
Merchandise sell-offs
|
|
|
17,057
|
|
|
|
11,101
|
|
Interest income
|
|
|
1,355
|
|
|
|
4,803
|
|
Marketing cost reimbursements
|
|
|
2,363
|
|
|
|
917
|
|
Credit card receivable
|
|
|
5,175
|
|
|
|
|
|
Merchandise vendor receivables
|
|
|
2,899
|
|
|
|
626
|
|
Other
|
|
|
1,483
|
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,471
|
|
|
$
|
31,920
|
|
|
|
|
|
|
|
|
|
|
55
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property
and Equipment
|
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
6,364
|
|
|
$
|
6,869
|
|
Buildings
|
|
|
122,414
|
|
|
|
106,632
|
|
Leasehold improvements
|
|
|
605,299
|
|
|
|
528,188
|
|
Fixtures and equipment
|
|
|
536,009
|
|
|
|
427,827
|
|
Construction in progress
|
|
|
28,543
|
|
|
|
21,794
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,298,629
|
|
|
$
|
1,091,310
|
|
Less: Accumulated depreciation and amortization
|
|
|
(558,389
|
)
|
|
|
(465,742
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
740,240
|
|
|
$
|
625,568
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Depreciation expense
|
|
$
|
130,802
|
|
|
$
|
108,919
|
|
|
$
|
87,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Note
Payable and Other Credit Arrangements
|
The Company has borrowing agreements with two separate financial
institutions under which it may borrow an aggregate of
$350.0 million. Of this amount, $150.0 million can be
used for demand letter of credit facilities and
$100.0 million can be used for demand line borrowings. The
remaining $100.0 million can be used for either letters of
credit or demand line borrowings at the Companys
discretion. As of January 31, 2009, the Company had
outstanding demand letters of credit of $57.3 million and
demand line borrowings of $75.0 million. The outstanding
amounts on these facilities can be demanded for repayment by the
financial institutions at any time. Additionally, the
availability of any remaining borrowings is subject to
acceptance by the respective financial institution. The average
borrowing rate on the demand lines for Fiscal 2008 was 2.9% and
the Company has incorporated the demand line proceeds into
working capital. The demand line facilities comprising the
$100.0 million borrowing capacity expire on April 22,
2009. The Company is currently working with its lenders to renew
these facilities or to obtain committed credit lines of a
comparable amount. If unable to renew both of its demand line
facilities, the Company would be required to repay immediately
the $75 million that it has drawn on those facilities. The
Company believes that this would have no material impact on its
ability to fund operations.
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 ten 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.
56
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of fixed minimum and contingent rent expense for all
operating leases follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Store rent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed minimum
|
|
$
|
197,820
|
|
|
$
|
167,051
|
|
|
$
|
145,519
|
|
Contingent
|
|
|
11,767
|
|
|
|
17,626
|
|
|
|
19,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total store rent, excluding common area maintenance charges,
real estate taxes and certain other expenses
|
|
|
209,587
|
|
|
|
184,677
|
|
|
|
164,657
|
|
Offices, distribution facilities, equipment and other
|
|
|
18,260
|
|
|
|
17,250
|
|
|
|
12,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense
|
|
$
|
227,847
|
|
|
$
|
201,927
|
|
|
$
|
177,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The table below summarizes future minimum lease obligations,
consisting of fixed minimum rent, under operating leases in
effect at January 31, 2009:
|
|
|
|
|
|
|
Future Minimum
|
|
Fiscal years:
|
|
Lease Obligations
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
234,095
|
|
2010
|
|
|
229,702
|
|
2011
|
|
|
212,901
|
|
2012
|
|
|
195,283
|
|
2013
|
|
|
178,133
|
|
Thereafter
|
|
|
720,253
|
|
|
|
|
|
|
Total
|
|
$
|
1,770,367
|
|
|
|
|
|
|
57
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Other
Comprehensive Income
|
The accumulated balances of other comprehensive income 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 January 28, 2006
|
|
$
|
21,488
|
|
|
$
|
540
|
|
|
$
|
22,028
|
|
Unrealized loss on investments
|
|
|
(276
|
)
|
|
|
85
|
|
|
|
(191
|
)
|
Reclassification adjustment for net losses realized in net
income related to sale of
available-for-sale
securities
|
|
|
578
|
|
|
|
(222
|
)
|
|
|
356
|
|
Reclassification adjustment for gain realized in net income
related to the transfer of investment securities from
available-for-sale
classification to trading classification
|
|
|
(287
|
)
|
|
|
110
|
|
|
|
(177
|
)
|
Foreign currency translation adjustment
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
(1,180
|
)
|
Reclassification adjustment for loss realized in net income
related to the disposition of National Logistics Services
|
|
|
878
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net unrealized (loss) gain on
available-for-sale
securities, net of tax(1)
|
|
$
|
(21,847
|
)
|
|
$
|
378
|
|
Foreign currency translation adjustment
|
|
|
7,458
|
|
|
|
35,107
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income
|
|
$
|
(14,389
|
)
|
|
$
|
35,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are shown net of tax of $13.4 million and
$(0.2) million for Fiscal 2008 and Fiscal 2007,
respectively. |
58
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At January 31, 2009, the Company had awards outstanding
under three share-based compensation plans, which are described
below.
At the beginning of Fiscal 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R), using
the modified prospective transition method. Under this
transition method, share-based compensation cost recognized
includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of
January 29, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123 and (b) compensation cost for all
share-based payments granted subsequent to January 29,
2006, based on the grant date fair value estimated using the
Black-Scholes option pricing model. The Company recognizes
compensation expense for stock option awards and time-based
restricted stock awards on a straight-line basis over the
requisite service period of the award (or to an employees
eligible retirement date, if earlier). Performance-based
restricted stock awards are recognized as compensation expense
based on the fair value of the Companys common stock on
the date of grant, the number of shares ultimately expected to
vest and the vesting period. Total share-based compensation
expense included in the Consolidated Statements of Operations
for Fiscal 2008, Fiscal 2007 and Fiscal 2006 was
$20.3 million ($12.5 million, net of tax),
$33.7 million ($20.7 million, net of tax) and
$36.6 million ($22.6 million, net of tax),
respectively.
SFAS No. 123(R) 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 ten 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, 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-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
59
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 ten 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 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, stock
appreciation rights, dividend equivalents, performance awards or
other non-full value stock awards. The 2005 Plan provides that
the maximum number of shares awarded to any individual may not
exceed 6.0 million shares per year plus the amount of the
unused annual limit of the previous year. The 2005 Plan allows
the Compensation Committee to determine which employees receive
awards and the terms and conditions of these awards. 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 31, 2009, 9.1 million
non-qualified stock options, 2.9 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
2.9 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
A summary of the Companys stock option activity under all
plans for Fiscal 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended January 31, 2009(1)
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding February 2, 2008
|
|
|
12,915,576
|
|
|
$
|
14.41
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,514,653
|
|
|
$
|
20.95
|
|
|
|
|
|
|
|
|
|
Exercised(2)
|
|
|
451,644
|
|
|
$
|
8.44
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
1,481,851
|
|
|
$
|
23.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 31, 2009
|
|
|
14,496,734
|
|
|
$
|
15.25
|
|
|
|
4.1
|
|
|
$
|
14,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest January 31, 2009
|
|
|
14,160,412
|
|
|
$
|
15.10
|
|
|
|
4.1
|
|
|
$
|
14,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable January 31, 2009
|
|
|
6,261,165
|
|
|
$
|
6.74
|
|
|
|
2.6
|
|
|
$
|
14,208
|
|
|
|
|
(1) |
|
As of January 31, 2009, the Company had 5.5 million
shares available for stock option grants. |
|
(2) |
|
Options exercised during Fiscal 2008 ranged in price from $1.98
to $19.74. |
The weighted-average grant date fair value of stock options
granted during Fiscal 2008, Fiscal 2007 and Fiscal 2006 was
$7.16, $10.64, and $7.59, respectively. The aggregate intrinsic
value of options exercised during Fiscal 2008, Fiscal 2007 and
Fiscal 2006 was $3.9 million, $22.5 million, and
$73.4 million, respectively. Cash received from the
exercise of stock options and the actual tax benefit realized
from stock option exercises were $3.8 million
60
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and $1.1 million, respectively, for Fiscal 2008. Cash
received from the exercise of stock options and the actual tax
benefit realized from stock option exercises were
$13.2 million and $7.3 million, respectively, for
Fiscal 2007. For Fiscal 2006, cash received from the exercise of
stock options and the actual tax benefit realized from stock
option exercises were $28.4 million and $25.5 million,
respectively.
The fair value of stock options was estimated at the date of
grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
Black-Scholes Option Valuation Assumptions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rates(1)
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
Dividend yield
|
|
|
1.7
|
%
|
|
|
0.9
|
%
|
|
|
1.0
|
%
|
Volatility factors of the expected market price of the
Companys common stock(2)
|
|
|
44.4
|
%
|
|
|
39.2
|
%
|
|
|
41.3
|
%
|
Weighted-average expected term(3)
|
|
|
4.3
|
years
|
|
|
4.4
|
years
|
|
|
4.4
|
years
|
|
|
|
(1) |
|
Based on the U.S. Treasury yield curve in effect at the time of
grant with a term consistent with the expected life of our stock
options. |
|
(2) |
|
Based on a combination of historical volatility of the
Companys common stock and implied volatility. |
|
(3) |
|
Represents the period of time options are expected to be
outstanding. The weighted average expected option term for the
year ended January 31, 2009 was determined based on
historical experience. The weighted average expected option
terms for the years ended February 2, 2008 and
February 3, 2007 were determined using a combination of the
simplified method for plain vanilla options as
allowed by Staff Accounting Bulletin No. 107,
Share-Based Payments (SAB No. 107), and
past behavior. The simplified method calculates the
expected term as the average of the vesting term and original
contractual term of the options. |
As of January 31, 2009, there was $20.6 million of
unrecognized compensation expense related to nonvested stock
option awards that is expected to be recognized over a weighted
average period of 1.8 years.
Restricted
Stock Grants
Under the 2005 Plan, the fair value of restricted stock awards
is based on the closing market price of the Companys
common stock on the date of grant. A summary of the activity of
the Companys restricted stock is presented in the
following tables.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended January 31, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
Time-Based Restricted Stock
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Nonvested February 2, 2008
|
|
|
74,500
|
|
|
$
|
19.97
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(18,500
|
)
|
|
|
20.25
|
|
Cancelled
|
|
|
(15,000
|
)
|
|
|
19.60
|
|
|
|
|
|
|
|
|
|
|
Nonvested January 31, 2009
|
|
|
41,000
|
|
|
$
|
19.97
|
|
61
AMERICAN
EAGLE OUTFITTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 31, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
Performance-Based Restricted Stock
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Nonvested February 2, 2008
|
|
|
612,575
|
|
|
$
|
29.73
|
|
Granted
|
|
|
878,415
|
|
|
|
21.24
|
|
Vested
|
|
|
(433,983
|
)
|
|
|
29.72
|
|
Cancelled
|
|
|
(299,195
|
)
|
|
|
|