American Eagle Outfitters 2002 Annual Report Download

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Table of contents

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    .... We are meeting the challenges that 2002 presented by making strategic changes- meaningful changes designed to return American Eagle Outfitters to continued increases in profitability and growth. As we work toward strengthening our vertically integrated process, we have a solid foundation on which...

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    ... customer, leading to higher profitability, setting the stage for continued expansion opportunities in Canada. In the U.S., AE is successfully establishing high-visibility, high-profile locations in key markets. Our first major urban store opened in New York City in November 2002. This 7,700-square...

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    ... go to school and play. Our television campaigns aired on networks like MTV, the WB and Comedy Central, while print ads appeared in magazines like Cosmo Girl, Maxim, InStyle, Teen People, ESPN Magazine, Jane and Vibe. And, unique marketing campaigns continue to bring new customers to AE. Last summer...

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    ... operations, beginning October 29, 2000, for the divisions of Dylex Limited purchased by the Company as discussed in Note 3 of the Consolidated Financial Statements. (3) The American Eagle comparable store sales increase for the period ended February 3, 2001 was compared to the corresponding 53-week...

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    $1,463.1 $1,371.9 $1,093.5 $832.1 $587.6 $234.5 $356.5 $547.4 $436.2 $542.5 98 99 00 01 02 98 99 00 01 02 in millions in millions $105.5 $90.7 $54.1 $93.8 $88.7 $1.43 $1.24 $1.30 $0.75 $1.22 98 99 00 01 02 98 99 00 01 02 in millions per diluted share

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    ... incorporation or organization) No. 13-2721761 (I.R.S. Employer Identification No.) 150 Thorn Hill Drive, Warrendale, PA (Address of principal executive offices) Registrant's telephone number, including area code: (724) 776-4857 15086-7528 (Zip Code) Securities registered pursuant to Section 12...

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    AMERICAN EAGLE OUTFITTERS, INC. TABLE OF CONTENTS Page Number PART I Item 1. Item 2. Item 3. Item 4. Business ...2 Properties ...6 Legal Proceedings ...6 Submission of Matters to a Vote of Security Holders ...6 PART II Item 5. Item 6. Item 7. Market for the Registrant's Common Equity and Related ...

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    ...with strong demographics for our target customer. We also opened our first major urban store, located in New York City. Our research has shown that there are still many attractive retail locations where we can open American Eagle stores in both enclosed regional malls and urban and lifestyle centers...

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    ... Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Canada Alberta British Columbia 7 8 Manitoba 2 New Brunswick 3 Newfoundland Nova Scotia 2 2 Ontario Saskatchewan 31 1 15 8 4 46 11 10 3 1 36 22 Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland...

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    ... Purchase orders, executed by our American Eagle buyers, are entered into the merchandise system at the time of order. Merchandise is normally shipped directly from vendors, split after clearing customs, and routed to our two distribution centers, one in Warrendale, PA and the other in Ottawa, KS...

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    ...a hassle-free return policy. The Company believes that certain of its competitors offer similar credit card and service policies. Competition The retail apparel industry is very competitive. We compete primarily on the basis of quality, fashion, service, selection and price. American Eagle stores in...

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    ... Pittsburgh, PA from Linmar Realty Company ("Linmar"), an affiliate of the Company and of Schottenstein Stores Corporation ("SSC"). Our headquarters and distribution center occupy approximately 490,000 square feet, 120,000 square feet of which is used for executive, administrative and buying offices...

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    ...including associates who own shares through the Company's 401(k) retirement plan and employee stock purchase plan, and others holding shares in broker accounts under street name, the Company estimates the shareholder base at approximately 25,000. For the Quarters Ended Market Price High Low $12.87...

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    ...short-term investments Working capital Stockholders' equity Long-term debt Current ratio Average return on stockholders' equity Other Financial Information Total stores at year-end - American Eagle Total stores at year-end - Bluenotes Capital expenditures (000's) Net sales per average selling square...

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    ... years presented include 52 weeks. (2) Includes the results of operations, beginning October 29, 2000, for the divisions of Dylex Limited purchased by the Company as discussed in Note 3 of the Consolidated Financial Statements. (3) The American Eagle comparable store sales increase for the period...

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    ... was assigned to American Eagle and Bluenotes, respectively. The fair value of the Company's reporting units is estimated using discounted cash flow methodologies and market comparable information. Based on the analysis, if the implied fair value of each reporting unit exceeds the book value of the...

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    ...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 reviews its inventory levels in order to identify slow-moving merchandise and generally uses markdowns to...

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    ... price due to increased promotional activity. The units sold per average store and units sold per transaction increased, while the number of transactions per average store declined slightly. Comparable store sales in the men's business declined in Fiscal 2002 while the women's comparable store sales...

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    ... Expense Depreciation and amortization expense as a percent to sales increased to 3.1% from 2.1%. The percentage increase was due primarily to our U.S. expansion, including new stores, remodeled stores and our new distribution center in Kansas, as well as our Canadian acquisition and expansion...

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    ... 60 to 70 American Eagle stores in the United States. Remaining capital expenditures will relate to new fixtures and enhancements to existing stores, improvements to our corporate headquarters, information technology upgrades and investments in our Canadian distribution facility. Additionally, in...

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    ...'s related party transactions are as follows The Company leases its distribution center and headquarters offices from Linmar Realty Company, an affiliate of the Company and of SSC. The Company sells portions of its end-of-season, overstock and irregular merchandise to Value City Department Stores...

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    ... 60 American Eagle stores in the United States and Canada in Fiscal 2003, the selection of approximately 60 to 70 stores in the United States for remodeling, the sufficiency of existing cash and investment balances, cash flows and line of credit facilities to meet Fiscal 2003 cash requirements, and...

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    ... new stores on a timely and profitable basis. During Fiscal 2003, the Company plans to open roughly 60 new American Eagle stores in the United States and Canada. Accomplishing the Company's new store expansion goals will depend upon a number of factors, including the ability to obtain suitable sites...

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    ... of the flow of merchandise from key vendors The Company purchases merchandise from domestic and foreign suppliers. During Fiscal 2002, the majority of the Company's merchandise was purchased from foreign suppliers. Since we rely on a small number of overseas sources for a significant portion of our...

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    ... of Operations ...21 Consolidated Statements of Comprehensive Income ...21 Consolidated Statements of Stockholders' Equity ...22 Consolidated Statements of Cash Flows ...23 Notes to Consolidated Financial Statements ...24 Report of Management Responsibility ...40 Report of Independent Auditors ...40...

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    AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED BALANCE SHEETS (In thousands) Assets Current assets: Cash and cash equivalents Short-term investments Merchandise inventory Accounts and note receivable, including related party Prepaid expenses and other Deferred income taxes Total current assets ...

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    AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended (In thousands, except per share amounts) Net sales Cost of sales, including certain buying, occupancy and warehousing expenses Gross profit Selling, general and administrative expenses Depreciation and ...

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    AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Common Stock $ 467 14 235 716 15 731 2 $ 733 Contributed Capital $ 89,190 29,742 (235) 118,697 32,530 151,227 3,613 $ 154,840 Retained Earnings $ 180,534 $ 93,758 274,292 105,495 379,787 88,735 Treasury ...

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    ...including related party Prepaid expenses and other Accounts payable Unredeemed stored value cards and gift certificates Accrued liabilities Total adjustments Net cash provided by operating activities Investing activities: Capital expenditures Purchase of an import services company, Blue Star Imports...

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    ... Company designs, markets, and sells its American Eagle brand of relaxed, clean, and versatile clothing for 16 to 34 year olds in its United States and Canadian retail stores. We also operate via the Internet at ae.com. The American Eagle brand provides high quality merchandise at affordable prices...

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    ... entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. The Company has adopted the statement's annual disclosure...

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    ...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 reviews its inventory levels in order to identify slow-moving merchandise and generally uses markdowns to...

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    ... of accounting for stockbased employee compensation. The Company continues to account for its stock-based employee compensation plan using the intrinsic value method under Accounting Principles Board Opinion No. 25. Pro forma information regarding net income and earnings per share is required by...

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    ... Revenue is not recorded on the purchase of stored value cards and gift certificates by customers. A current liability is recorded upon purchase and revenue is recognized when the card is redeemed for merchandise. Revenue is recorded net of sales returns. A sales returns reserve is provided on gross...

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    ... convert certain retail locations to American Eagle retail stores. Management finalized and approved a plan related to this conversion during Fiscal 2000. The Company accrued approximately $7.3 million in exit costs consisting primarily of operating losses of the discontinued businesses, lease costs...

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    ... 2000, respectively, to cover its share of operating costs based on usage of the corporate aircraft. In connection with the liquidation of certain inventory from the Canadian acquisition, the Company contracted the services of a related party consultant, an affiliate of SSC. The contract was in...

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    ... the Years Ended (In thousands) Depreciation expense 7. Note Payable and Other Credit Arrangements Unsecured Demand Lending Arrangement The Company has an unsecured demand lending arrangement (the "facility") with a bank to provide a $118.6 million line of credit at either the lender's prime lending...

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    ...Canadian acquisition and the operating facility is used to support the working capital and capital expenditures of the acquired businesses. The term facility has an outstanding balance, including foreign currency translation adjustments, of $20.6 million as of February 1, 2003. The facility requires...

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    ... of accumulated amortization, as of February 3, 2002, which related to the American Eagle and Bluenotes segments. The fair value of the Company's goodwill was estimated using discounted cash flow methodologies and market comparable information. As a result of the impairment test at February 3, 2002...

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    ... rentals relating to these leases are recorded on a straight-line basis. In addition, the Company is typically responsible under its leases for common area maintenance charges, real estate taxes and certain other expenses. These leases are classified as operating leases. Store rent expense charged...

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    ... segment. The American Eagle segment includes the Company's 753 U.S. and Canadian retail stores and the Company's e-commerce business, ae.com. The Bluenotes segment includes the Company's 111 retail stores in Canada. Both segments derive their revenues from the sale of women's and men's apparel...

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    ... years. In addition, the Company recorded a deferred tax asset of $1.5 million related to capital loss carryforwards. The use of the capital loss carryforward is dependent on the Company's ability to generate capital gains. Management believes that the Company will generate sufficient capital gains...

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    ... old, have completed sixty days of service, and work at least twenty hours a week. Contributions are determined by the employee, with a maximum of $60 per pay period, with the Company matching 15% of the investment. These contributions are used to purchase shares of Company stock in the open market...

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    ...10, 1994, the Company's Board of Directors adopted the American Eagle Outfitters, Inc. 1994 Stock Option Plan (the "Plan"). The Plan provided for the grant of 4,050,000 incentive or non-qualified options to purchase common stock. The Plan was subsequently amended to increase the shares available for...

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    ... 2001 and Fiscal 2000, the Company recorded $0.5 million, $2.5 million and $5.9 million, in compensation expense, respectively, on restricted stock. 16. Quarterly Financial Information - Unaudited (In thousands, except per share amounts) May 4, 2002 Net sales Gross profit Net income Basic income per...

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    ... of the Company's independent auditors. The Audit Committee of the Board of Directors, consisting of independent directors, meets periodically with management and independent auditors to review matters relating to our financial reporting, the adequacy of internal accounting controls and...

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    ... controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding...

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    ...REPORTS ON FORM 8-K. (a)(1) The following consolidated financial statements are included in Item 8: Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002 Consolidated Statements of Operations... schedules have been omitted because they are not required or are not applicable. 42

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    ... (6) Employee Stock Purchase Plan (7) Form of the Registrant's 1999 Stock Incentive Plan, as amended (8) Employment Agreement between the Registrant and Roger S. Markfield dated September 9, 1999 (9) Purchase and Sale Agreement between Blue Star Imports, L.P. and Schottenstein Stores Corporation (10...

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    ... of Roger S. Markfield and James V. O'Donnell to the positions of Co-Chief Executive Officers. The press release was filed on Form 8-K with the SEC on December 11, 2002. 5. On January 8, 2003, we issued a press release announcing our December 2002 sales. The press release was filed on Form...

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    ...authorized. AMERICAN EAGLE OUTFITTERS, INC. By: /s/ Roger S. Markfield Roger S. Markfield President and Co-Chief Executive Officer /s/ James V. O'Donnell James V. O'Donnell Co-Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by...

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    CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER I, Roger S. Markfield, Co-Chief Executive Officer of American Eagle Outfitters, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of American Eagle Outfitters, Inc.; 2. Based on my knowledge, this annual report does not contain any ...

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    CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER I, James V. O'Donnell, Co-Chief Executive Officer of American Eagle Outfitters, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of American Eagle Outfitters, Inc.; 2. Based on my knowledge, this annual report does not contain any ...

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    CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Laura A. Weil, Chief Financial Officer of American Eagle Outfitters, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of American Eagle Outfitters, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue ...

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    ..., Managing Director of American Eagle Outfitters Canada, Inc. TREVOR VIGFUSSON Vice President, Finance KEN WATTS Vice President, Information Services Stockholder Information Headquarters of the Company 150 Thorn Hill Drive Warrendale, PA 15086-7528 (724) 776-4857 Form 10K A copy of our report on...

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    ... ALONG DOTTED LINE Please provide us with your e-mail address so we can let you know about cool happenings at AE! NAME CITY EMAIL This coupon is valid for one-time use from April 13, 2003, through April 22, 2004. You must present this coupon to receive your discount. Only one coupon or discount of...

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