FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 2, 2009
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 |
Commission File Number: 1-33338
American Eagle Outfitters, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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No. 13-2721761 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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77 Hot Metal Street, Pittsburgh, PA
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15203-2329 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (412) 432-3300
Former name, former address and former fiscal year, if changed since last report:
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES o NO o
Indicate by check mark 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
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Accelerated filer
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Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 206,785,601 Common Shares were outstanding at May 29, 2009.
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
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Number |
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3 |
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3 |
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4 |
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5 |
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6 |
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20 |
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21 |
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29 |
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29 |
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Item 1. Legal Proceedings |
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N/A |
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30 |
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30 |
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Item 3. Defaults Upon Senior Securities |
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N/A |
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Item 4. Submission of Matters to a Vote of Security Holders |
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N/A |
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Item 5. Other Information |
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N/A |
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31 |
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EX-15 |
EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
2
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
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May 2, |
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January 31, |
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May 3, |
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2009 |
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2009 |
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2008 |
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(In thousands, except per share amounts) |
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(Unaudited) |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
418,807 |
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$ |
473,342 |
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$ |
338,238 |
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Short-term investments |
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30,525 |
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10,511 |
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31,195 |
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Merchandise inventory |
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279,233 |
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294,928 |
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262,201 |
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Accounts receivable |
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62,176 |
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41,471 |
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41,651 |
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Prepaid expenses and other |
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61,479 |
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59,660 |
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92,403 |
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Deferred income taxes |
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47,140 |
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45,447 |
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41,091 |
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Total current assets |
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899,360 |
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925,359 |
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806,779 |
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Property and equipment, at cost, net of accumulated depreciation
and amortization |
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739,702 |
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740,240 |
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667,691 |
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Goodwill |
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10,831 |
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10,706 |
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11,402 |
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Long-term investments |
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232,953 |
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251,007 |
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335,390 |
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Non-current deferred income taxes |
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9,434 |
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15,001 |
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27,038 |
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Other assets, net |
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21,017 |
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21,363 |
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20,195 |
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Total assets |
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$ |
1,913,297 |
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$ |
1,963,676 |
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$ |
1,868,495 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable |
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$ |
91,671 |
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$ |
152,068 |
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$ |
116,268 |
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Notes payable |
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75,000 |
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75,000 |
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75,000 |
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Accrued compensation and payroll taxes |
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17,520 |
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29,417 |
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19,461 |
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Accrued rent |
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65,065 |
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64,695 |
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59,467 |
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Accrued income and other taxes |
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12,567 |
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6,259 |
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13,297 |
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Unredeemed gift cards and gift certificates |
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27,284 |
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42,299 |
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36,512 |
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Current portion of deferred lease credits |
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16,056 |
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13,726 |
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13,995 |
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Other liabilities and accrued expenses |
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19,226 |
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18,299 |
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16,333 |
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Total current liabilities |
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324,389 |
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401,763 |
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350,333 |
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Non-current liabilities: |
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Deferred lease credits |
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101,806 |
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88,314 |
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74,632 |
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Non-current accrued income taxes |
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33,766 |
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39,898 |
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47,922 |
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Other non-current liabilities |
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19,866 |
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24,670 |
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31,138 |
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Total non-current liabilities |
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155,438 |
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152,882 |
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153,692 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, $0.01 par value; 5,000 shares authorized;
none issued and outstanding |
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Common stock, $0.01 par value; 600,000 shares authorized;
249,559, 249,328 and 249,462 shares issued; 205,635, 205,281
and 204,856 shares outstanding, respectively |
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2,486 |
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2,485 |
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2,485 |
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Contributed capital |
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519,675 |
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513,574 |
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502,243 |
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Accumulated other comprehensive income (loss) |
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448 |
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(14,389 |
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29,353 |
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Retained earnings |
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1,691,823 |
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1,694,161 |
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1,624,800 |
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Treasury stock, 42,931, 43,248 and 43,655 shares, respectively |
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(780,962 |
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(786,800 |
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(794,411 |
) |
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Total stockholders equity |
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1,433,470 |
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1,409,031 |
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1,364,470 |
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Total liabilities and stockholders equity |
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$ |
1,913,297 |
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$ |
1,963,676 |
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$ |
1,868,495 |
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Refer to Notes to Consolidated Financial Statements
3
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
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13 Weeks Ended |
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May 2, |
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May 3, |
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(In thousands, except per share amounts) |
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2009 |
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2008 |
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Net sales |
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$ |
611,986 |
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$ |
640,302 |
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Cost of sales, including certain buying,
occupancy and warehousing expenses |
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391,061 |
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376,635 |
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Gross profit |
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220,925 |
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263,667 |
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Selling, general and administrative expenses |
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158,692 |
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169,638 |
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Depreciation and amortization expense |
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34,894 |
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29,550 |
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Operating income |
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27,339 |
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64,479 |
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Other (expense) income, net |
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(2,308 |
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6,458 |
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Income before income taxes |
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25,031 |
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70,937 |
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Provision for income taxes |
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3,064 |
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27,042 |
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Net income |
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$ |
21,967 |
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$ |
43,895 |
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Basic income per common share |
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$ |
0.11 |
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$ |
0.21 |
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Diluted income per common share |
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$ |
0.11 |
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$ |
0.21 |
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Cash dividends per common share |
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$ |
0.10 |
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$ |
0.10 |
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Weighted
average common shares outstanding - basic |
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205,408 |
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204,841 |
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Weighted average common shares outstanding -
diluted |
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207,286 |
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208,104 |
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Retained earnings, beginning |
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$ |
1,694,161 |
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$ |
1,601,784 |
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Net income |
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21,967 |
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43,895 |
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Cash dividends and dividend equivalents |
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(20,828 |
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(20,425 |
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Reissuance of treasury stock |
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(3,477 |
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(454 |
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Retained earnings, ending |
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$ |
1,691,823 |
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$ |
1,624,800 |
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Refer to Notes to Consolidated Financial Statements
4
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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13 Weeks Ended |
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May 2, |
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May 3, |
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(In thousands) |
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2009 |
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2008 |
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Operating activities: |
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Net income |
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$ |
21,967 |
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$ |
43,895 |
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Adjustments to reconcile net income to net cash used for operating activities: |
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Depreciation and amortization |
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35,410 |
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29,961 |
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Share-based compensation |
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5,550 |
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8,882 |
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Deferred income taxes |
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(2,192 |
) |
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5,192 |
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Tax benefit from share-based payments |
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592 |
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154 |
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Excess tax benefit from share-based payments |
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(87 |
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(125 |
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Foreign currency transaction loss |
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869 |
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12 |
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Realized loss on sale of investment securities |
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2,749 |
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Changes in assets and liabilities: |
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Merchandise inventory |
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16,560 |
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23,836 |
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Accounts receivable |
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(20,604 |
) |
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(9,769 |
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Prepaid expenses and other |
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(1,635 |
) |
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(56,972 |
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Other assets, net |
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658 |
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(460 |
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Accounts payable |
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(58,683 |
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(41,456 |
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Unredeemed gift cards and gift certificates |
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(15,115 |
) |
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(17,970 |
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Deferred lease credits |
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15,508 |
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4,355 |
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Accrued compensation and payroll taxes |
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(11,929 |
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(30,006 |
) |
Accrued income and other taxes |
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110 |
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(6,480 |
) |
Accrued liabilities |
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(3,892 |
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(4,196 |
) |
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Total adjustments |
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(36,131 |
) |
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(95,042 |
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Net cash used for operating activities |
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(14,164 |
) |
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(51,147 |
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Investing activities: |
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Capital expenditures |
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(34,875 |
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(73,629 |
) |
Purchase of available-for-sale securities |
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(49,897 |
) |
Sale of available-for-sale securities |
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11,537 |
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347,133 |
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Other investing activities |
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(430 |
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(163 |
) |
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Net cash (used for) provided by investing activities |
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(23,768 |
) |
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223,444 |
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Financing activities: |
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Payments on capital leases |
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(466 |
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(589 |
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Proceeds from issuance of notes payable |
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75,000 |
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Repurchase of common stock from employees |
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(178 |
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(3,365 |
) |
Net proceeds from stock options exercised |
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2,308 |
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|
984 |
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Excess tax benefit from share-based payments |
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|
87 |
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|
125 |
|
Cash dividends paid |
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(20,639 |
) |
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(20,425 |
) |
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Net cash (used for) provided by financing activities |
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(18,888 |
) |
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51,730 |
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Effect of exchange rate changes on cash |
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2,285 |
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(1,850 |
) |
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Net (decrease) increase in cash and cash equivalents |
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(54,535 |
) |
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|
222,177 |
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Cash and
cash equivalents - beginning of period |
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473,342 |
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|
116,061 |
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Cash and
cash equivalents - end of period |
|
$ |
418,807 |
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$ |
338,238 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for income taxes |
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$ |
4,705 |
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$ |
84,461 |
|
Cash paid during the period for interest |
|
$ |
477 |
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$ |
341 |
|
Refer to Notes to Consolidated Financial Statements
5
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the
Company) at May 2, 2009 and May 3, 2008 and for the 13 week periods ended May 2, 2009 and May 3,
2008 have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements. Certain notes and other information have been condensed or omitted from the
interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q.
Therefore, these Consolidated Financial Statements should be read in conjunction with the Companys
Fiscal 2008 Annual Report. In the opinion of the Companys management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation have been included.
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.
The Companys business is affected by the pattern of seasonality common to most retail apparel
businesses. The results for the current and prior periods are not necessarily indicative of future
financial results.
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
May 2, 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.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of our 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 Financial Accounting Standards Board (FASB) issued Staff Position (FSP)
FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2), which delays the effective
date of Statement of Financial Accounting Standards (SFAS) 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 FAS 157-2 defers the effective
date to fiscal years beginning after November 15, 2008. The Company has adopted SFAS 157 for its
nonfinancial assets and liabilities during the 13 weeks ended May 2, 2009. Refer to Note 4 to the
Consolidated Financial Statements regarding the Companys adoption of FSP FAS 157-2.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP
EITF 03-6-1). FSP EITF 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 are included in computing earnings per share
under the two-class method, as described in SFAS 128, Earnings Per Share (SFAS 128). The
6
Company adopted FSP EITF 03-6-1 as of February 1, 2009. Refer to Note 5 to the Consolidated
Financial Statements regarding the Companys adoption of EITF 03-6-1.
In April 2009, the FASB issued three FSPs related to fair value measurements. These positions are
intended to provide additional guidance regarding fair value measurements and other-than-temporary
impairments of securities. Included in this new guidance are:
|
|
|
FSP FAS 107-1 and Accounting Principles Board 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP FAS 107-1), which requires disclosures regarding
fair value of financial instruments to be disclosed on an interim as well as on an annual
basis; |
|
|
|
|
FSP FAS 157-4, Determining Fair Values When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP FAS 157-4), which provides additional guidance regarding (1) estimating the
fair value of an asset or liability when the volume and level of activity for the asset or
liability have significantly declined and (2) identifying transactions that are not
orderly, as well as requiring disclosures in interim periods of the inputs and valuation
techniques used to measure fair value; and |
|
|
|
|
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary-Impairments (FSP FAS 115-2), which modifies the requirements for
recognizing other-than-temporary impairment (OTTI) and changes the impairment model for
debt securities. In addition, FSP FAS 115-2 requires additional disclosures relating to
debt and equity securities both in the interim and annual periods. |
FSP FAS 107-1, FSP FAS 157-4 and FSP FAS 115-2 are effective for interim and annual periods ending
after June 15, 2009, with early adoption permitted. The Company will adopt these pronouncements
beginning in the second quarter of Fiscal 2009. The Company does not expect the adoption of FSP
FAS 107-1, FSP FAS 157-4 and FSP FAS 115-2 to have a material impact on its Consolidated Financial
Statements.
Foreign Currency Translation
The Canadian dollar is the functional currency for the Canadian business. In accordance with
SFAS 52, Foreign Currency Translation (SFAS 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 in
accordance with SFAS 130, Reporting Comprehensive Income (refer to Note 8 to the Consolidated
Financial Statements).
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.
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 the Companys gift card program, refer to the Gift Cards
caption below.
The Company sells off end-of-season, overstock, and irregular merchandise to a third-party. The
proceeds from these sales are presented on a gross basis, with proceeds and cost of sell-offs
recorded in net sales and cost of sales, respectively.
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,
7
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
services purchased. Selling, general and administrative expenses do not include compensation,
employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and
our distribution centers as these amounts are recorded in cost of sales.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of a realized investment loss, interest (expense)
income, and foreign currency transaction gain/loss.
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 May 2, 2009, short-term investments included auction rate securities (ARS) classified as
available for sale that the Company expects to be called within 12 months based on notice from the
issuer.
As of May 2, 2009, long-term investments included investments with remaining maturities of greater
than 12 months and consisted of ARS and auction rate preferred securities (ARPS) classified as
available-for-sale that have experienced failed auctions or have long-term auction resets. The
remaining contractual maturities of our long-term investments is two to 39 years. The weighted
average contractual maturity for our long-term investments is approximately 26 years.
Unrealized gains and losses on the Companys available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders equity, within accumulated other
comprehensive income, until realized. 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. An investment is
considered impaired if the fair value of the investment is less than its cost. If, after
consideration of all available evidence to evaluate the realizable value of its investment,
impairment is determined to be other-than-temporary, then an impairment loss is recognized in the
Consolidated Statement of Operations equal to the difference between the investments cost and its
fair value.
Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash
equivalents, short-term investments and long-term investments.
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
8
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.
Income Taxes
The Company evaluates its income tax positions in accordance with FASB Interpretation No. 48 (FIN
48), which 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.
The Company calculates income taxes in accordance with SFAS 109, Accounting for Income Taxes (SFAS
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 its 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. The Company believes that its assumptions and estimates are
reasonable, although actual results may have a positive or negative material impact on the balances
of deferred tax assets and liabilities, valuation allowances, or net income.
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 144, Accounting for the Impairment or Disposal of Long Lived Assets
(SFAS 144), the Companys 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.
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.
The Company recorded $0.7 million and $1.0 million related to asset write-offs within depreciation
and amortization expense during the 13 weeks ended May 2, 2009 and May 3, 2008, respectively.
Goodwill
As of May 2, 2009, the Company had approximately $10.8 million of goodwill compared to $10.7
million as of January 31, 2009. The Companys goodwill is primarily related to the acquisition of
its importing operations on January 31, 2000, as well as the acquisition of its Canadian business
on November 29, 2000. The increase in goodwill is due to the fluctuation in the foreign exchange
spot rate at which the Canadian goodwill is translated. In accordance with SFAS 142, Goodwill and
Other Intangible Assets, management evaluates goodwill for possible impairment on at least an
annual basis.
9
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. 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. During the 13 weeks ended May 2, 2009 and May 3, 2008, the Company recorded $1.7 and $1.6
million, respectively, of revenue related to gift card breakage.
Deferred Lease Credits
Deferred lease credits represent the unamortized portion of construction allowances received from
landlords related to the Companys retail stores. Construction allowances are generally comprised
of cash amounts received by the Company from its landlords as part of the negotiated lease terms.
The Company records a receivable and a deferred lease credit liability at the lease commencement
date (date of initial possession of the store). The deferred lease credit is amortized on a
straight-line basis as a reduction of rent expense over the term of the original lease (including
the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as
amounts are received from the landlord.
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 by
analogy to Emerging Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21). The Company believes that points earned under its point and loyalty
programs represent deliverables in a multiple element arrangement rather than a rebate or refund of
cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and
recognized when the award gift card is redeemed or when the points expire. Additionally, credit
card reward points earned on non-AE or aerie purchases are accounted for in accordance with EITF
Issue 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 determined that
rewards earned using the credit card reward program should be accounted for in accordance with EITF
00-21. Accordingly, the portion of the sales revenue attributed to the award credits is deferred
and recognized when the awards are redeemed or expire.
Stock Repurchases
During Fiscal 2007, the Companys Board of Directors (the Board) authorized a total of
60.0 million shares of its common stock for repurchase under its share repurchase program with
expiration dates extending into Fiscal 2010. The Company did not repurchase any shares as part
of its publicly announced programs during Fiscal 2008 or during the 13 weeks ended May 2,
2009. As of May 2, 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.
10
During the 13 week periods ended May 2, 2009 and May 3, 2008, the Company repurchased approximately
12,800 shares and 0.2 million shares, respectively, from certain employees at market prices
totaling approximately $0.2 million and $3.4 million, respectively. These shares were repurchased
for the payment of taxes in connection with the vesting of share-based payments, as permitted under
the 2005 Stock Award and Incentive Plan (the 2005 Plan).
Segment Information
In accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131), the Company has identified four operating segments (American Eagle Brand US and
Canadian stores, aerie by American Eagle retail stores, MARTIN + OSA retail stores and AEO Direct)
that reflect the basis used internally to review performance and allocate resources. All of the
operating segments have been aggregated and are presented as one reportable segment, as permitted
by SFAS 131.
Reclassification
Certain reclassifications have been made to the Consolidated Financial Statements for prior periods
in order to conform to the current period presentation.
3. Cash and Cash Equivalents, Short-term Investments and Long-term Investments
The following table summarizes the fair market values for the Companys cash and marketable
securities, which are recorded as cash and cash equivalents, short-term investments and long-term
investments on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, |
|
|
January 31, |
|
|
May 3, |
|
(In thousands) |
|
2009 |
|
|
2009 |
|
|
2008 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
49,462 |
|
|
$ |
61,355 |
|
|
$ |
48,702 |
|
Treasury bills |
|
|
70,000 |
|
|
|
|
|
|
|
|
|
Money-market |
|
|
299,345 |
|
|
|
411,987 |
|
|
|
289,536 |
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
418,807 |
|
|
|
473,342 |
|
|
|
338,238 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
30,525 |
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
6,219 |
|
|
|
|
|
State and local government ARS |
|
|
|
|
|
|
|
|
|
|
16,695 |
|
Auction-rate preferred
securities (ARPS) |
|
|
|
|
|
|
4,292 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
|
30,525 |
|
|
|
10,511 |
|
|
|
31,195 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
150,807 |
|
|
|
169,254 |
|
|
|
209,070 |
|
State and local government ARS |
|
|
70,278 |
|
|
|
69,970 |
|
|
|
83,271 |
|
Auction-rate preferred
securities |
|
|
11,868 |
|
|
|
11,783 |
|
|
|
43,049 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments |
|
|
232,953 |
|
|
|
251,007 |
|
|
|
335,390 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
682,285 |
|
|
$ |
734,860 |
|
|
$ |
704,823 |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of available-for-sale securities were $11.5 million and $347.1 million for
the 13 weeks ended May 2, 2009 and May 3, 2008, respectively. There were no purchases of
available-for-sale securities for the 13 weeks ended May 2, 2009. There were purchases of $49.9
million of available-for-sale securities for the 13 weeks ended May 3, 2008.
As of May 2, 2009, the Company had a total of $682.3 million in cash and cash equivalents,
short-term and long-term investments, which included $263.5 million of investments in ARS and ARPS,
net of $19.1 million ($11.8 million, net of tax) of temporary impairment. Our investment portfolio
consisted of the following:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Temporary |
|
Carrying Value as of |
(in thousands, except no. of issues amount) |
|
No. of issues |
|
Par Value |
|
Impairment |
|
May 2, 2009 |
|
|
|
Auction rate securities (ARS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end municipal fund ARS |
|
|
5 |
|
|
$ |
41,750 |
|
|
$ |
(55 |
) |
|
$ |
41,695 |
|
Municipal Bond ARS |
|
|
5 |
|
|
$ |
28,850 |
|
|
$ |
(267 |
) |
|
$ |
28,583 |
|
Auction rate preferred securities (ARPS) |
|
|
2 |
|
|
$ |
15,000 |
|
|
$ |
(3,132 |
) |
|
$ |
11,868 |
|
Federally-insured student loan ARS |
|
|
17 |
|
|
$ |
166,400 |
|
|
$ |
(15,593 |
) |
|
$ |
150,807 |
|
Private-insured student loan ARS |
|
|
4 |
|
|
$ |
30,525 |
|
|
$ |
|
|
|
$ |
30,525 |
|
|
|
|
Total Auction rate securities |
|
|
33 |
|
|
$ |
282,525 |
|
|
$ |
(19,047 |
) |
|
$ |
263,478 |
|
For instruments deemed to be temporarily impaired, the Company believes that these investments can
be liquidated through successful auctions or redemptions at par plus accrued interest. The Company
maintains its ability and intent to hold these investments until recovery of market value occurs
and believes that the current illiquidity and impairment of these investments is temporary. In
addition, the Company believes that the current lack of liquidity relating to ARS and ARPS
investments will have no impact on its ability to fund its ongoing operations and growth
initiatives.
The Company continues to monitor the market for ARS and ARPS and consider the impact, if any, on
the fair value of its investments. If current market conditions deteriorate further, or the
anticipated recovery in market values does not occur, the Company may be required to record
additional OTTI and/or temporary impairment.
Lehman Brothers Holding, Inc. (Lehman) acted as the broker and auction agent for all of the
Companys ARPS. Lehman filed for Chapter 11 bankruptcy protection during September 2008, resulting
in the dissolution of the investment trusts for most of the Companys ARPS. As a result, the
Company received 760,000 preferred shares in Fiscal 2008 and an additional 576,000 preferred shares
during the 13 weeks ended May 2, 2009. During the 13 weeks ended May 2, 2009, the Company
liquidated all 1.3 million shares for $7.8 million and recorded an incremental loss of $2.7
million. The total realized loss on the sale of these securities was $25.6 million, of which $22.9
million was recorded as OTTI in Fiscal 2008.
Refer to Note 4 to the Consolidated Financial Statements for additional information regarding the
fair value measurement of our investment securities.
4. Fair Value Measurements
SFAS 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 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 157 as of February 3,
2008, for its items measured at fair value on a recurring basis, which consist of financial
instruments including ARS and ARPS. Additionally, the Company adopted the provisions of FSP FAS
157-2 as of February 1, 2009 for its items measured at fair value on a nonrecurring basis,
including goodwill, property and equipment and inventory.
Financial Instruments
Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs. In addition, SFAS 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. The
Companys 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. As of May 2, 2009, the
Companys Level 2 inputs included student-loan backed ARS expected to be called at par based
on notice from the issuer. |
|
|
|
|
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 and ARPS that it has
classified as long-term due to failed auctions or that have long-term auction resets
represent a Level 3 valuation and should be valued using a discounted cash flow analysis.
The assumptions used in preparing the discounted |
12
|
|
|
cash flow model include estimates for
interest rates, timing and amount of cash flows and expected recovery periods of the
securities. |
As of May 2, 2009, the Company held certain assets that are required to be measured at fair value
on a recurring basis. These include cash equivalents and short and long-term investments,
including ARS and ARPS.
In accordance with SFAS 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 May 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at May 2, 2009 |
|
|
|
|
|
|
Quoted Market |
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active |
|
|
|
|
|
Significant |
|
|
Carrying Amount |
|
Markets for |
|
Significant Other |
|
Unobservable |
|
|
as of May 2, |
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
(In thousands) |
|
2009 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
49,462 |
|
|
$ |
49,462 |
|
|
$ |
|
|
|
$ |
|
|
Treasury bills |
|
|
70,000 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
Money-market |
|
|
299,345 |
|
|
|
299,345 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
418,807 |
|
|
|
418,807 |
|
|
|
|
|
|
|
|
|
Short-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
30,525 |
|
|
|
|
|
|
|
30,525 |
|
|
|
|
|
|
|
|
Total Short-term Investments |
|
|
30,525 |
|
|
|
|
|
|
|
30,525 |
|
|
|
|
|
Long-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
150,807 |
|
|
|
|
|
|
|
|
|
|
|
150,807 |
|
State and local government ARS |
|
|
70,278 |
|
|
|
|
|
|
|
|
|
|
|
70,278 |
|
Auction rate preferred
securities (ARPS) |
|
|
11,868 |
|
|
|
|
|
|
|
|
|
|
|
11,868 |
|
|
|
|
Total Long-term Investments |
|
|
232,953 |
|
|
|
|
|
|
|
|
|
|
|
232,953 |
|
|
|
|
Total |
|
$ |
682,285 |
|
|
$ |
418,807 |
|
|
$ |
30,525 |
|
|
$ |
232,953 |
|
|
|
|
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.
As a result of the discounted cash flow analysis, for the 13 weeks ended May 2, 2009, the Company
recognized a recovery of $16.2 million ($10.1 million, net of tax), which reduced the total
cumulative temporary impairment as of May 2, 2009 to $19.1 million ($11.8 million, net of tax) from
$35.3 million ($21.8 million, net of tax) at the end of Fiscal 2008. These amounts were recorded
in other comprehensive income (OCI) and resulted in an increase in the investments fair values.
The reversal of temporary impairment was primarily driven by notification received by the Company
that $30.5 million of the Companys private-insured student-loan backed ARS would be called at par
subsequent to the 13 weeks ended May 2, 2009. As a result of the call, the securities which were
previously impaired were revalued at par and classified as short-term investments on the Companys
Consolidated Balance Sheet.
Refer to Note 12 to the Consolidated Financial Statements for additional information regarding a
subsequent event related to the Companys private-insured student-loan ARS.
The reconciliation of our assets measured at fair value on a recurring basis using unobservable
inputs (Level 3) is as follows:
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 (Unobservable inputs) |
|
|
|
|
|
|
|
|
|
|
Student |
|
|
|
|
|
|
|
|
|
|
|
|
Loan- |
|
|
|
|
|
|
|
|
Auction- |
|
Backed |
|
Auction- |
|
|
|
|
|
|
Rate |
|
Auction- |
|
Rate |
|
|
|
|
|
|
Municipal |
|
Rate |
|
Preferred |
(In thousands) |
|
Total |
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
Carrying Value at January 31, 2009 |
|
$ |
251,007 |
|
|
$ |
69,970 |
|
|
$ |
169,254 |
|
|
$ |
11,783 |
|
Settlements |
|
|
(3,775 |
) |
|
|
|
|
|
|
(3,775 |
) |
|
|
|
|
Transfer out of Level 3 (1) |
|
|
(30,525 |
) |
|
|
|
|
|
|
(30,525 |
) |
|
|
|
|
Gains and (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in OCI |
|
|
16,246 |
|
|
|
308 |
|
|
|
15,853 |
|
|
|
85 |
|
|
|
|
Balance at May 2, 2009 |
|
$ |
232,953 |
|
|
$ |
70,278 |
|
|
$ |
150,807 |
|
|
$ |
11,868 |
|
|
|
|
|
|
|
(1) |
|
Transfers out of Level 3 represent securities called at par subsequent to the 13 weeks ended
May 2, 2009 (into Level 2). |
Non-Financial Assets
The Companys non-financial assets, which include goodwill, property and equipment and inventory,
are not required to be measured at fair value on a recurring basis. However, if certain triggering
events occur, or if an annual impairment test is required (i.e. goodwill) and the Company is
required to evaluate the non-financial instrument for impairment, a resulting asset impairment
would require that the non-financial asset be recorded at the lower of cost or fair value. During
the 13 weeks ended May 2, 2009, there were no triggering events that prompted an asset impairment
test of the Companys non-financial assets. Accordingly, the Company did not measure any
non-recurring, non-financial assets or recognize any amounts in earnings related to changes in fair
value for the 13 weeks ended May 2, 2009.
14
5. Earnings per Share
FSP EITF 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 are included in computing earnings per share under the
two-class method, as described in SFAS 128. Participating securities are securities that may
participate in dividends with common stock and the two-class method is an earnings allocation
formula that treats a participating security as having rights to earnings that would otherwise have
been available to common shareholders. Under the two-class method, earnings for the period are
allocated between common shareholders and other shareholders, based on their respective rights to
receive dividends. Restricted stock awards granted to certain employees under the Companys 2005
Plan are considered participating securities as these employees receive non-forfeitable dividends
at the same rate as common stock. FSP EITF 03-6-1 was adopted and retrospectively applied at the
beginning of Fiscal 2009. For the 13 weeks ended May 2, 2009 and May 3, 2008, the application of
FSP EITF 03-6-1 resulted in no change to basic EPS or diluted EPS.
The following is a reconciliation between basic and diluted weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
May 2, |
|
|
May 3, |
|
(In
thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
|
205,408 |
|
|
|
204,841 |
|
Dilutive effect of stock options and non-vested
restricted stock |
|
|
1,878 |
|
|
|
3,263 |
|
|
|
|
|
|
|
|
Dilutive number of common shares outstanding |
|
|
207,286 |
|
|
|
208,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,967 |
|
|
$ |
43,895 |
|
Less: Income allocated to participating securities |
|
|
9 |
|
|
|
78 |
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
21,958 |
|
|
$ |
43,817 |
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
0.11 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive net income per common share |
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,967 |
|
|
$ |
43,895 |
|
Less: Income allocated to participating securities |
|
|
9 |
|
|
|
77 |
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
21,958 |
|
|
$ |
43,818 |
|
|
|
|
|
|
|
|
Dilutive net income per common share |
|
$ |
0.11 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
Equity awards to purchase approximately 8.4 million and 5.8 million shares of common stock during
the 13 weeks ended May 2, 2009 and May 3, 2008, 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.
For the 13 weeks ended May 2, 2009 and May 3, 2008, respectively, approximately 1.1 million and 0.6
million shares of performance-based restricted stock were not included in the computation of
weighted average diluted common share amounts because the number of shares ultimately issued is
contingent on the Companys performance compared to pre-established annual performance goals.
Additionally, for the 13 weeks ended May 2, 2009, there were 1.2 million shares of time-based
restricted stock units that were outstanding, but not included in the computation of weighted
average diluted common share amounts as the effect of doing so would have been anti-dilutive.
15
6. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, |
|
|
January 31, |
|
|
May 3, |
|
(In thousands) |
|
2009 |
|
|
2009 |
|
|
2008 |
|
Property and equipment, at cost |
|
$ |
1,327,334 |
|
|
$ |
1,298,629 |
|
|
$ |
1,154,610 |
|
Less: Accumulated
depreciation and amortization |
|
|
(587,632 |
) |
|
|
(558,389 |
) |
|
|
(486,919 |
) |
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
$ |
739,702 |
|
|
$ |
740,240 |
|
|
$ |
667,691 |
|
|
|
|
|
|
|
|
|
|
|
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 May 2, 2009, the Company had outstanding demand letters of credit of
$50.0 million and demand line borrowings of $75.0 million. The Company has renewed the demand line
credit facilities comprising the $100.0 million borrowing capacity. Each of the two demand line
facilities provides $50.0 million of borrowing capacity. The expiration dates of the two demand
line facilities are April 21, 2010 and May 22, 2009. The outstanding amounts on the demand line
borrowings can be called for repayment by the financial institutions at any time. Additionally,
the availability of any remaining borrowings is subject to acceptance by the respective financial
institution. The average borrowing rate on the demand lines was 3.0% and the Company has
incorporated the outstanding demand line borrowings into working capital.
Refer to Note 12 to the Consolidated Financial Statements for additional information regarding a
subsequent event related to the Companys borrowing agreements.
8. Comprehensive Income
Comprehensive income is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
May 2, |
|
|
May 3, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
21,967 |
|
|
$ |
43,895 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Temporary impairment reversal (loss) related to
auction-rate securities, net of tax (1) |
|
|
10,056 |
|
|
|
(3,140 |
) |
Unrealized loss on investments, net of tax |
|
|
|
|
|
|
(314 |
) |
Reclassification adjustment for gain realized in
net income related to the sale of
available-for-sale securities, net of tax |
|
|
|
|
|
|
(52 |
) |
Foreign currency translation adjustment |
|
|
4,781 |
|
|
|
(2,626 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
14,837 |
|
|
|
(6,132 |
) |
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
36,804 |
|
|
$ |
37,763 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are shown net of tax of $(6.2) million and $1.9 million for the 13 weeks ended May 2,
2009 and May 3, 2008, respectively. |
9. Share-Based Compensation
The Company accounts for share-based compensation under the provisions of SFAS 123 (revised 2004),
Share-Based Payment (SFAS 123(R)), which requires companies to measure and recognize compensation
expense for all share-based payments at fair value.
Total share-based compensation expense included in the Consolidated Statements of Operations for
the 13 weeks ended May 2, 2009 and May 3, 2008 was $5.6 million ($3.4 million, net of tax) and $8.9
million ($5.5 million, net of tax), respectively.
16
Stock Option Grants
The Company grants both time-based and performance-based stock options under its 2005 Plan.
Time-based stock option awards vest over the requisite service period of the award or to an
employees eligible retirement date, if earlier. Performance-based stock option awards vest over
three years and are earned if the Company meets pre-established performance goals during each year.
A summary of the Companys stock option activity for the 13 weeks ended May 2, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
May 2, 2009 (1) |
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Options |
|
|
Exercise Price |
|
|
Term (in years) |
|
|
(in thousands) |
|
Outstanding - January 31, 2009 |
|
|
14,496,734 |
|
|
$ |
15.25 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,370,222 |
|
|
$ |
9.15 |
|
|
|
|
|
|
|
|
|
Exercised (2) |
|
|
312,474 |
|
|
$ |
7.39 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
565,562 |
|
|
$ |
19.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - May 2, 2009 |
|
|
15,988,920 |
|
|
$ |
14.31 |
|
|
|
4.3 |
|
|
$ |
61,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest -
May 2, 2009 |
|
|
15,631,123 |
|
|
$ |
14.29 |
|
|
|
4.2 |
|
|
$ |
60,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - May 2, 2009 |
|
|
6,524,443 |
|
|
$ |
7.07 |
|
|
|
2.5 |
|
|
$ |
48,259 |
|
|
|
|
(1) |
|
As of May 2, 2009, the Company had approximately 3.7 million shares available for stock
option grants. |
|
(2) |
|
Options exercised during the 13 weeks ended May 2, 2009 had exercise prices ranging from
$4.68 to $12.03. |
The weighted-average grant date fair value of stock options granted during the 13 weeks ended May
2, 2009 and May 3, 2008 was $3.58 and $7.20, respectively. The aggregate intrinsic value of options
exercised during the 13 weeks ended May 2, 2009 and May 3, 2008 was $1.7 million and $0.7 million,
respectively.
Cash received from the exercise of stock options was $2.3 million for the 13 weeks ended May 2,
2009 and $1.0 million for the 13 weeks ended May 3, 2008. The actual tax benefit realized from
stock option exercises totaled $0.6 million for the 13 weeks ended May 2, 2009 and $0.2 million for
the 13 weeks ended May 3, 2008.
The fair value of stock options was estimated based on the closing market price of the Companys
common stock on the date of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
May 2, |
|
May 3, |
Black-Scholes Option Valuation Assumptions |
|
2009 |
|
2008 |
Risk-free interest rate (1) |
|
|
1.7 |
% |
|
|
2.5 |
% |
Dividend yield |
|
|
3.9 |
% |
|
|
1.7 |
% |
Volatility factor (2) |
|
|
62.1 |
% |
|
|
44.4 |
% |
Weighted-average expected term (3) |
|
4.5 years |
|
4.3 years |
Expected forfeiture rate (4) |
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
|
(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 both the 13 weeks ended May 2, 2009 and May 3, 2008 was determined
based on historical experience. |
|
(4) |
|
Based upon historical experience. |
As of May 2, 2009, there was $17.3 million of unrecognized compensation expense related to
non-vested stock option awards that is expected to be recognized over a weighted average period of
1.9 years.
17
Restricted Stock Grants
Time-based restricted stock awards include two types of awards; time-based restricted stock and
time-based restricted stock units. Time-based restricted stock awards vest over three years and
participate in nonforfeitable dividends. Time-based restricted stock units vest over three years,
however they may be accelerated to vest over one year if the Company meets pre-established
performance goals in the year of grant. Time-based restricted stock units receive dividend
equivalents in the form
of additional time-based restricted stock units, which are subject to the same restrictions and
forfeiture provisions as the original award.
Performance-based restricted stock awards include two types of awards; performance-based restricted
stock and performance-based restricted stock units. Performance-based restricted stock awards vest
over one year and participate in nonforfeitable dividends. Performance-based restricted stock
units cliff vest at the end of a three year period based upon the Companys achievement of
pre-established goals. Performance-based restricted stock units receive dividend equivalents in
the form of additional performance-based restricted stock units, which are subject to the same
restrictions as the original award.
The grant date fair value of restricted stock awards is based on the closing market price of the
Companys common stock on the date of grant. Historically, the Company has granted only restricted
stock awards that entitled the holders to receive nonforfeitable dividends prior to vesting.
Beginning with the 2009 restricted stock awards, the Company began to also grant restricted stock
unit awards to its employees. The restricted stock unit awards differ from the restricted stock
awards in that they do not contain nonforfeitable rights to dividends and are therefore not
considered participating securities in accordance with FSP EITF 03-6-1.
A summary of the Companys restricted stock activity is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Restricted Stock |
|
Performance-Based Restricted Stock |
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
May 2, 2009 |
|
May 2, 2009 |
|
|
|
|
|
|
Weighted-Average Grant |
|
|
|
|
|
Weighted-Average Grant |
|
|
Shares |
|
Date Fair Value |
|
Shares |
|
Date Fair Value |
Nonvested - January
31, 2009 |
|
|
41,000 |
|
|
$ |
19.97 |
|
|
|
757,812 |
|
|
$ |
21.26 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
989,664 |
|
|
$ |
9.66 |
|
Vested |
|
|
(37,500 |
) |
|
$ |
19.69 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
|
|
|
|
|
|
|
|
(757,812 |
) |
|
$ |
21.26 |
|
|
|
|
|
|
Nonvested - May 2, 2009 |
|
|
3,500 |
|
|
$ |
23.01 |
|
|
|
989,664 |
|
|
$ |
9.66 |
|
|
|
|
Time-Based Restricted Stock Units |
|
Performance-Based Restricted Stock Units |
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
May 2, 2009 |
|
May 2, 2009 |
|
|
|
|
|
|
Weighted-Average Grant |
|
|
|
|
|
Weighted-Average Grant |
|
|
Shares |
|
Date Fair Value |
|
Shares |
|
Date Fair Value |
Nonvested - January
31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
1,847,133 |
|
|
|
9.78 |
|
|
|
403,108 |
|
|
|
9.66 |
|
Cancelled |
|
|
(25,362 |
) |
|
|
9.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested - May 2, 2009 |
|
|
1,821,771 |
|
|
$ |
9.78 |
|
|
|
403,108 |
|
|
$ |
9.66 |
|
As of May 2, 2009, there was $17.0 million of unrecognized compensation expense related to
non-vested restricted stock awards that is expected to be recognized over a weighted average period
of 2.9 years.
10. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate
and is adjusted as necessary for quarter events. The effective income tax rate based on actual
operating results for the 13 weeks ended May 2, 2009 (the first quarter) was 12.2% compared to
38.1% for the 13 weeks ended May 3, 2008. The lower effective income tax rate during the first
quarter was primarily the result of the lower level of income before income taxes in conjunction
with federal and state income tax settlements and other changes in income tax reserves.
The Company records accrued interest and penalties related to unrecognized tax benefits in income
tax expense.
18
The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance
with FIN 48 and adjusts these liabilities when its judgment changes as the result of the evaluation
of new information not previously available. Unrecognized tax benefits decreased by $9 million
during the 13 weeks ended May 2, 2009 primarily due to the result of federal and state income tax
settlements and other changes in income tax reserves. Over the next twelve months, the Company
believes that it is reasonably possible that the liability for unrecognized tax benefits may
decrease by approximately $13 million due to settlements, expiration of the statute of limitations
or other changes in unrecognized tax benefits.
11. Legal Proceedings
The Company is subject to certain legal proceedings and claims arising out of the conduct of its
business. In accordance with SFAS 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 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 consolidated financial position or results of operations of the Company.
12. Subsequent Event
Subsequent to the 13 weeks ended May 2, 2009, the Company received notice of a call at par relating
to all of its private-insured student-loan ARS. On May 27, 2009, the Company received $30.5
million plus accrued interest. As a result of the subsequent calls, these securities have been
classified as short-term investments and are carried at par value in the Consolidated Balance Sheet
as of May 2, 2009.
Additionally, subsequent to the 13 weeks ended May 2, 2009, the Company renewed one of its two
demand line facilities comprising $50.0 million of borrowing capacity. This renewed demand line
facility expires on May 22, 2010, compared to the previous expiration date of May 22, 2009. No
other terms of the agreement changed as a result of this renewal.
19
Review by Independent Registered Public Accounting Firm
Ernst & Young LLP, our independent registered public accounting firm, has performed a limited
review of the unaudited Consolidated Financial Statements as of and for the 13 week periods ended
May 2, 2009 and May 3, 2008, as indicated in their report on the limited review included below.
Since they did not perform an audit, they express no opinion on the Consolidated Financial
Statements referred to above.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
American Eagle Outfitters, Inc.
We have reviewed the consolidated balance sheets of American Eagle Outfitters, Inc. (the Company)
as of May 2, 2009 and May 3, 2008, and the related consolidated statements of operations and
retained earnings and the consolidated statements of cash flows for the three month periods ended
May 2, 2009 and May 3, 2008. These financials statements are the responsibility of the Companys
management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the
consolidated financial statements referred to above for them to be in conformity with U.S.
generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of American Eagle Outfitters, Inc.
as of January 31, 2009, and the related consolidated statements of operations, comprehensive
income, stockholders equity, and cash flows for the year then ended not presented herein, and in
our report dated March 25, 2009, we expressed an unqualified opinion on those consolidated
financials statements. In our opinion, the information set forth in the accompanying consolidated
balance sheet as of January 31, 2009, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
June 2, 2009
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations should be
read in conjunction with our Fiscal 2008 Managements Discussion and Analysis of Financial
Condition and Results of Operations which can be found in our Fiscal 2008 Annual Report on Form
10-K.
In addition, 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 these
statements and notes thereto.
This report contains various forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent our expectations or beliefs concerning future events, including the
following:
|
|
|
the planned opening of approximately nine new American Eagle stores and 21 new aerie
stores in the United States and Canada during Fiscal 2009; |
|
|
|
|
the selection of approximately 25 to 30 American Eagle stores in the United States
and Canada for remodeling during Fiscal 2009; |
|
|
|
|
the future opening of 77kids by american eagle stores; |
|
|
|
|
the completion of improvements and expansion at our distribution centers; |
|
|
|
|
the success of MARTIN + OSA and martinandosa.com; |
|
|
|
|
the success of aerie by american eagle and aerie.com; |
|
|
|
|
the expected payment of a dividend in future periods; |
|
|
|
|
the possibility of growth through acquisitions and/or internally developing
additional new brands; |
|
|
|
|
the possibility that we may be required to take additional temporary or
other-than-temporary impairment charges relating to our investment securities; and |
|
|
|
|
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. |
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 Item 1A of this Quarterly Report on Form 10-Q and Item 1A of our Fiscal
2008 Annual Report on Form 10-K. Accordingly, our future performance and financial results may
differ materially from those expressed or implied in any such forward-looking statements.
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, 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.
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.
21
Gross profit - Gross profit measures whether we are optimizing the price and inventory levels of
our merchandise and achieving an optimal level of sales. Gross profit is the difference between net
sales and cost of sales. Cost of sales consists of: merchandise costs, including design, sourcing,
importing and inbound freight costs, as well as markdowns, shrinkage, certain promotional costs and
buying, occupancy and warehousing costs. Buying, occupancy and warehousing costs consist of:
compensation, employee benefit expenses and travel for our buyers; rent and utilities related to
our stores, corporate headquarters, distribution centers and other office space; freight from our
distribution centers to the stores; compensation and supplies for our distribution centers,
including purchasing, receiving and inspection costs; and shipping and handling costs related to
our e-commerce operation. The inability to obtain acceptable levels of sales, initial markups or
any significant increase in our use of markdowns could have an adverse effect on our gross profit
and results of operations.
Operating income - Our management views operating income as a key indicator of our success. The key
drivers of operating income are comparable store sales, gross profit, our ability to control
selling, general and administrative expenses, and our level of capital expenditures.
Store productivity - Store productivity, including net sales per average square foot, sales
per productive hour, average unit retail price, conversion rate, the number of transactions per
store, the number of units sold per store and the number of units per transaction, is evaluated by
our management in assessing our operational performance.
Inventory turnover - Our management evaluates inventory turnover as a measure of how productively
inventory is bought and sold. Inventory turnover is important as it can signal slow moving
inventory. This can be critical in determining the need to take markdowns on merchandise.
Cash flow and liquidity - Our management evaluates cash flow from operations, investing and
financing in determining the sufficiency of our cash position. Cash flow from operations has
historically been sufficient to cover our uses of cash. Our management believes that cash flow from
operations will be sufficient to fund anticipated capital expenditures and working capital
requirements.
Results of Operations
Overview
The first quarter financial results declined over last year due to the current consumer environment
and challenges within the AE business. Total sales declined 4% and comparable store sales
declined 10%, reflecting lower traffic and transactions within the AE Brand. The merchandise
margin was lower and rent increased as a percent to sales. Selling, general and administrative
expenses declined over the prior year, and improved 60 basis points
as a percent of net sales, due to expense savings and
the timing of initiatives.
Operating
income declined 58% to 4.5% as a percent of net sales for the 13 weeks ended May 2, 2009 compared to
10.1% as a percent of net sales for the 13 weeks ended May 3, 2008. Net income for the 13 weeks ended May 3, 2009 decreased
50% to $22.0 million, or 3.6% as a percent of net sales. Net income per diluted common share also
decreased 48% to $0.11 versus $0.21 last year.
We had $682.3 million in cash and cash equivalents, short-term and long-term investments as of May
2, 2009. This included $263.5 of investments in ARS, net of impairment.
Our business is affected by the pattern of seasonality common to most retail apparel
businesses. The results for the current and prior periods are not necessarily indicative of future
financial results.
22
The following table shows the percentage relationship to net sales of the listed line items
included in our Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
May 2, |
|
May 3, |
|
|
2009 |
|
2008 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales, including certain buying,
occupancy and
warehousing expenses |
|
|
63.9 |
|
|
|
58.8 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
36.1 |
|
|
|
41.2 |
|
Selling, general and administrative expenses |
|
|
25.9 |
|
|
|
26.5 |
|
Depreciation and amortization expense |
|
|
5.7 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4.5 |
|
|
|
10.1 |
|
Other (expense) income, net |
|
|
(0.4 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
4.1 |
|
|
|
11.1 |
|
Provision for income taxes |
|
|
0.5 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
3.6 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
The following table shows our consolidated store data for the 13 weeks ended May 2, 2009 and May 3,
2008.
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
May 2, |
|
May 3, |
|
|
2009 |
|
2008 |
Number of stores: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
1,098 |
|
|
|
987 |
|
Opened |
|
|
18 |
|
|
|
34 |
|
Closed |
|
|
(6 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
End of Period |
|
|
1,110 |
|
|
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
Total gross square feet at end of period |
|
|
6,406,703 |
|
|
|
5,888,629 |
|
|
|
|
|
|
|
|
|
|
Our operations are conducted in one reportable segment which includes 953 U.S. and Canadian AE
retail stores, 129 aerie stand-alone retail stores, 28 MARTIN + OSA retail stores and AEO Direct.
Comparison of the 13 weeks ended May 2, 2009 to the 13 weeks ended May 3, 2008
Net Sales
Net sales for the 13 weeks ended May 2, 2009 decreased 4% to $612.0 million compared to $640.3
million for the 13 weeks ended May 3, 2008. 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.
Within the AE Brand, negative comparable store sales were due to a mid single-digit decline in
transactions. This was driven by a slight decrease in our
conversion as well as a mid single-digit decrease in traffic.
Comparable store sales declined in the high single-digits in the AE Brand mens business and
declined in the low teens in the AE Brand womens business.
Gross Profit
Gross profit for the 13 weeks ended May 2, 2009 was $220.9 million, or 36.1% as a rate to net
sales, compared to $263.7 million, or 41.2% as a rate to net sales last year. Merchandise margin
declined by 260 basis points, primarily due to lower initial markup and increased markdowns related
to the AE Brand. Buying, occupancy and warehousing costs increased by
250 basis points, due to an increase in rent as a percent net sales related to new store openings
and the first quarter comparable store sales decline. There was $2.3 million of share-based
payment expense included in gross profit for the period compared to $1.5 million last year.
23
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 and others may
exclude a portion of these costs from cost of sales, including them in a line item such as selling,
general and administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for
a description of our accounting policy regarding cost of sales, including certain buying, occupancy
and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately 6% to $158.7 million from
$169.6 million, and decreased by 60 basis points, as a percent to net sales, to 25.9% from 26.5%
last year. The lower rate is primarily due to a reduction in advertising, services purchased,
travel and supplies expenses, as a percent to net sales, as a result of our expense reduction
program. There was $3.3 million of share-based payment expense included in selling, general and
administrative expenses compared to $7.4 million last year.
Depreciation and Amortization Expense
Depreciation and amortization expense as a percent to net sales increased to 5.7% for 13 weeks
ended May 2, 2009 compared to 4.6% for the corresponding period last year. Depreciation and
amortization expense increased to $34.9 million compared to $29.6 million last year. These
increases are primarily due to a greater property and equipment base driven by our level of capital
expenditures related to new stores, information technology, distribution centers, and our corporate
headquarters. As a percent to net sales, the increase can be attributed to the factors noted above
as well as the impact of the negative comparable store sales.
Other (Expense) Income, Net
Other (expense) income, net decreased to ($2.3) million from $6.5 million compared to last year
primarily due to lower income as a result of lower investment balances, lower interest rates and a
$2.7 million realized loss on the sale of preferred securities.
Provision for Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate
and is adjusted as necessary for quarter events. The effective income tax rate for the 13 weeks
ended May 2, 2009 was 12.2% compared to 38.1% for the 13 weeks ended May 3,
2008. The lower effective income tax rate during the 13 weeks ended May 2, 2009 was primarily the result of
the lower level of income before income taxes in conjunction with federal and state income tax
settlements and other changes in income tax reserves.
Net Income
Net income decreased approximately 50% to $22.0 million, or 3.6% as a percent to net sales, from
$43.9 million, or 6.9% as a percent to net sales last year. Net income per diluted common share
decreased to $0.11 from $0.21 in the prior year. The decrease in net income was attributable to the
factors noted above.
Impact of Current Market Conditions
Our sales performance for the 13 weeks ended May 2, 2009 reflected, in part, the current consumer
climate and promotional sales environment across the retail sector. We believe that the economy
and credit market uncertainty have negatively impacted consumer confidence and spending.
International Expansion
In May 2009, we entered into an international development agreement with Alshaya Trading Co., to
open a series of American Eagle stores throughout the Middle East over the next several years. We
anticipate that the first franchised store will open during 2010.
This franchise arrangement does not involve a capital investment from
AE and requires minimal operational involvement.
24
Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate
and is adjusted as necessary for quarter events. The effective income tax rate based on actual
operating results for the 13 weeks ended May 2, 2009 was 12.2% compared to 38.1% for the 13 weeks
ended May 3, 2008. The lower effective income tax rate during the first quarter was primarily the
result of the lower level of income before income taxes in conjunction with federal and state
income tax settlements and other changes in income tax reserves.
Fair Value Measurements
SFAS 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 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 157 as of February 3, 2008, for
our items measured at fair value on a recurring basis, which consist of financial instruments
including ARS and ARPS. Additionally, we have adopted the provisions of FSP FAS 157-2 as of
February 1, 2009 for our items measured at fair value on a nonrecurring basis, including goodwill,
property and equipment and inventory.
Financial Instruments
Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs. In addition, SFAS 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 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. As of May 2, 2009, our
Level 2 inputs included student-loan backed ARS expected to be called at par based on notice
from the issuer. |
|
|
|
|
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 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 May 2, 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, including ARS
and ARPS.
In accordance with SFAS 157, the following table represents our fair value hierarchy for our
financial assets (cash equivalents and investments) measured at fair value on a recurring basis as
of May 2, 2009:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at May 2, 2009 |
|
|
|
|
|
|
Quoted Market |
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active |
|
|
|
|
|
Significant |
|
|
Carrying Amount |
|
Markets for |
|
Significant Other |
|
Unobservable |
|
|
as of May 2, |
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
(In thousands) |
|
2009 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
49,462 |
|
|
$ |
49,462 |
|
|
$ |
|
|
|
$ |
|
|
Treasury bills |
|
|
70,000 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
Money-market |
|
|
299,345 |
|
|
|
299,345 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
418,807 |
|
|
|
418,807 |
|
|
|
|
|
|
|
|
|
Short-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
30,525 |
|
|
|
|
|
|
|
30,525 |
|
|
|
|
|
|
|
|
Total Short-term Investments |
|
|
30,525 |
|
|
|
|
|
|
|
30,525 |
|
|
|
|
|
Long-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student-loan backed ARS |
|
|
150,807 |
|
|
|
|
|
|
|
|
|
|
|
150,807 |
|
State and local government ARS |
|
|
70,278 |
|
|
|
|
|
|
|
|
|
|
|
70,278 |
|
Auction rate preferred securities (ARPS) |
|
|
11,868 |
|
|
|
|
|
|
|
|
|
|
|
11,868 |
|
|
|
|
Total Long-term Investments |
|
|
232,953 |
|
|
|
|
|
|
|
|
|
|
|
232,953 |
|
|
|
|
Total |
|
$ |
682,285 |
|
|
$ |
418,807 |
|
|
$ |
30,525 |
|
|
$ |
232,953 |
|
|
|
|
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 ARS by approximately $5.2 million. An
increase to the discount rate and illiquidity premium of 100 basis points would reduce the
estimated fair value of our investment in ARS by approximately $13.2 million.
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 discounted cash flow analysis, for the 13 weeks ended May 2, 2009, we recognized
a recovery of $16.2 million ($10.1 million, net of tax), which reduced the total cumulative
temporary impairment as of May 2, 2009 to $19.1 million ($11.8 million, net of tax) from $35.3
million ($21.8 million, net of tax) at the end of Fiscal 2008. These amounts were recorded in
other comprehensive income (OCI) and resulted in an increase in the investments fair values.
The reversal of temporary impairment was primarily driven by notification received by us that $30.5
million of our private-insured student-loan backed ARS would be called at par subsequent to the 13
weeks ended May 2, 2009. As a result of the call, the securities which were previously impaired
were revalued at par and classified as short-term investments on our Consolidated Balance Sheet.
The reconciliation of our assets measured at fair value on a recurring basis using unobservable
inputs (Level 3) is as follows:
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 (Unobservable inputs) |
|
|
|
|
|
|
|
|
|
|
Student |
|
|
|
|
|
|
|
|
|
|
|
|
Loan- |
|
|
|
|
|
|
|
|
Auction- |
|
Backed |
|
Auction- |
|
|
|
|
|
|
Rate |
|
Auction- |
|
Rate |
|
|
|
|
|
|
Municipal |
|
Rate |
|
Preferred |
(In thousands) |
|
Total |
|
Securities |
|
Securities |
|
Securities |
Carrying Value at January 31, 2009 |
|
$ |
251,007 |
|
|
$ |
69,970 |
|
|
$ |
169,254 |
|
|
$ |
11,783 |
|
Settlements |
|
|
(3,775 |
) |
|
|
|
|
|
|
(3,775 |
) |
|
|
|
|
Transfer out of Level 3 (1) |
|
|
(30,525 |
) |
|
|
|
|
|
|
(30,525 |
) |
|
|
|
|
Gains and (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in OCI |
|
|
16,246 |
|
|
|
308 |
|
|
|
15,853 |
|
|
|
85 |
|
|
|
|
Balance at May 2, 2009 |
|
$ |
232,953 |
|
|
$ |
70,278 |
|
|
$ |
150,807 |
|
|
$ |
11,868 |
|
|
|
|
|
|
|
(1) |
|
Transfers out of Level 3 represent securities called at par subsequent to the 13 weeks ended
May 2, 2009 (into Level 2). |
Refer to Notes 3 and 4 to the Consolidated Financial Statements for additional information on our
investment securities, including a description of the securities and a discussion of the
uncertainties relating to their liquidity.
Non-Financial Assets
Our non-financial assets, which include goodwill, property and equipment and inventory, are not
required to be measured at fair value on a recurring basis. However, if certain triggering events
occur, or if an annual impairment test is required (i.e. goodwill) and we are required to evaluate
the non-financial instrument for impairment, a resulting asset impairment would require that the
non-financial asset be recorded at the lower of cost or fair value. During the 13 weeks ended May
2, 2009, there were no triggering events that prompted an asset impairment test of our
non-financial assets. Accordingly, we did not did not measure any non-recurring, non-financial assets
or recognize any unrealized amounts in earnings related to changes in fair value for the 13 weeks
ended May 2, 2009.
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 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 further
franchising arrangements or acquisitions. We periodically consider and evaluate these options to
support future growth. In the event we do pursue such options, we could require additional equity
or debt financing. There can be no assurance that we would be successful in closing any potential
transaction, or that any endeavor we undertake would increase our profitability.
27
The following sets forth certain measures of our liquidity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, |
|
January 31, |
|
May 3, |
|
|
2009 |
|
2009 |
|
2008 |
Working Capital (in 000s) |
|
$ |
574,971 |
|
|
$ |
523,596 |
|
|
$ |
456,446 |
|
Current Ratio |
|
|
2.77 |
|
|
|
2.30 |
|
|
|
2.30 |
|
The increase in working capital as of May 2, 2009, compared to January 31, 2009, resulted from a
decrease in accounts payable due primarily to the seasonality of inventory purchases. The increase
in working capital as of May 2, 2009, compared to May 3, 2008, is primarily related to an increase
in cash and cash equivalents as a result of the liquidation of long-term investments.
Cash Flows from Operating Activities
Net cash used for operating activities totaled $14.2 million for the 13 weeks ended May 2, 2009.
Our major source of cash from operations was merchandise sales. Our primary outflows of cash for
operations were for the payment of operational costs and the purchase of inventory.
Cash Flows from Investing Activities
Investing activities for the 13 weeks ended May 2, 2009 included $34.9 million used for capital
expenditures, partially offset by $11.5 million from the sale of investments classified as
available-for-sale.
Cash Flows from Financing Activities
Cash provided by financing activities primarily included $20.6 million used for the payment of
dividends.
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 May 2, 2009, we had outstanding demand letters of credit of $50.0 million and demand line
borrowings of $75.0 million. We have renewed the demand line credit facilities comprising the
$100.0 million borrowing capacity. Each of the two demand line facilities provides $50.0 million
of borrowing capacity. The expiration dates of the two demand line facilities are April 21, 2010
and May 22, 2009. The outstanding amounts on the demand line borrowings can be called for
repayment by the financial institutions at any time. Additionally, the availability of any
remaining borrowings is subject to acceptance by the respective financial institution. The average
borrowing rate on the demand lines was 3.0% and we have incorporated the outstanding demand line
borrowings into working capital.
Refer to Note 12 to the Consolidated Financial Statements for additional information regarding a
subsequent event related to our private-insured student-loan ARS.
Capital Expenditures
Capital expenditures for the 13 weeks ended May 2, 2009 included $25.3 million related to
investments in our AE stores, including 18 new AE and aerie stores in the United States and Canada
and nine remodeled stores in the United States. Additionally, we continued to support our
infrastructure growth by investing in home office projects including the construction of our
corporate headquarters in Pittsburgh, Pennsylvania ($4.5 million), information technology
($2.8 million) and the expansion and improvement of our distribution centers ($2.3 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 nine new and 25 to 30 remodeled AE stores, including our new flagship store
in the Times Square area of New York, New York, and 21 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 of Directors (the 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. We did not repurchase any
28
shares as part of our publicly announced
programs during Fiscal 2008 or during the 13 weeks ended May 2, 2009. As of May 2, 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 the 13 week periods ended May 2, 2009 and May 3, 2008, we repurchased approximately 12,800
shares and 0.2 million shares, respectively, from certain employees at market prices totaling
approximately $0.2 million and $3.4 million, respectively. These shares were repurchased for the
payment of taxes in connection with the vesting of share-based payments, as permitted under the
2005 Plan.
All of the aforementioned share repurchases have been recorded as treasury stock.
Dividends
During the 13 weeks ended May 2, 2009, our Board declared a quarterly cash dividend of $0.10 per
share, which was paid on April 10, 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
will be declared and paid on a quarterly basis.
Critical Accounting Policies
Our critical accounting policies are described in Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and in the notes to our Consolidated Financial
Statements for the year ended January 31, 2009 contained in our Fiscal 2008 Annual Report on Form
10-K. Any new accounting policies or updates to existing accounting policies as a result of new
accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements
in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may
require management to make judgments and estimates about the amounts reflected in the Consolidated
Financial Statements. Management uses historical experience and all available information to make
these estimates and judgments, and different amounts could be reported using different assumptions
and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There were no material changes in our exposure to market risk from January 31, 2009. Our market
risk profile as of January 31, 2009 is disclosed in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, of our Fiscal 2008 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance
that information required to be disclosed in our reports under the Securities Exchange Act of 1934,
as amended (the Exchange Act), is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management including our Principal Executive
Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Quarterly Report on Form 10-Q, as of May 2, 2009, an
evaluation was performed under the supervision and with the participation of our management,
including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act). Based upon that evaluation, our Principal Executive Officer and
our Principal Financial Officer have concluded that our disclosure controls and procedures were
effective at the reasonable assurance level as of the end of the period covered by this Quarterly
Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the 13
weeks ended May 2, 2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
29
PART II OTHER INFORMATION
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed within Item 1A of our
Fiscal 2008 Annual Report on Form 10-K. There have been no material changes to the disclosures
relating to this item from those set forth in our Fiscal 2008 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
The following table provides information regarding our repurchases of our common stock during the
13 weeks ended May 2, 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 |
|
Period |
|
Shares Purchased |
|
|
Per Share |
|
|
Announced Programs |
|
|
Under the Program |
|
|
|
(1) |
|
|
(2) |
|
|
(1) |
|
|
(1) (3) |
|
Month #1 (February 1, 2009 through February
28, 2009) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
41,250,000 |
|
Month #2 (March 1, 2009 through April 4, 2009) |
|
|
1,368 |
|
|
$ |
12.61 |
|
|
|
|
|
|
|
41,250,000 |
|
Month #3 (April 5, 2009 through May 2, 2009) |
|
|
11,468 |
|
|
$ |
13.98 |
|
|
|
|
|
|
|
41,250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,836 |
|
|
$ |
13.83 |
|
|
|
|
|
|
|
41,250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares purchased during Month #2 and #3 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. |
30
ITEM 6. EXHIBITS.
|
|
|
* Exhibit 15
|
|
Acknowledgement of Independent Registered Public Accounting Firm |
|
|
|
* Exhibit 31.1
|
|
Certification by James V. ODonnell pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
|
|
|
* Exhibit 31.2
|
|
Certification by Joan Holstein Hilson pursuant to Rule 13a-14(a) or Rule 15d-14(a) |
|
|
|
**Exhibit 32.1
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
**Exhibit 32.2
|
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Filed with this report. |
|
** |
|
Furnished with this report. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 4, 2009
|
|
|
|
|
American Eagle Outfitters, Inc. |
|
|
(Registrant) |
|
|
|
|
|
|
|
By:
|
|
/s/ James V. ODonnell |
|
|
|
|
James V. ODonnell
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
By:
|
|
/s/ Joan Holstein Hilson |
|
|
|
|
Joan Holstein Hilson
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(Principal Financial Officer and Principal Accounting
Officer) |
|
|
32