American Eagle Outfitters 2003 Annual Report Download

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Table of contents

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    ... on our target customer. At critical times during the year, our product assortment was too sophisticated and not democratic enough for our broad base of 15 to 25 year-old customers. In 2004, our objective is clear: to return to the level of sales productivity and profitability that our Company and...

  • Page 6
    ...presence in the exciting California market, where the American Eagle brand is wholeheartedly embraced. We also entered several new markets, including Hawaii, where we opened 4 stores, and Puerto Rico, where our San Juan store reached $1 million of sales in seven weeks-a company record. AE Direct had...

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    ... store sales include American Eagle and Bluenotes stores. [5] For the fiscal year ended January 31, 2004, amounts include the non-cash goodwill impairment charges of $14.1 million attributed to Bluenotes goodwill. [6] Net sales per average gross square foot is calculated using retail sales...

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    ... of 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: 15086-7528 (Zip Code) (724) 776-4857 Securities registered pursuant to Section...

  • Page 12
    ... 11. Executive Compensation...47 Item 12. Security Ownership of Certain Beneficial Owners and Management...47 Item 13. Certain Relationships and Related Transactions ...47 Item 14. Principal Accounting Fees and Services ...47 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on...

  • Page 13
    ... 2003, we continued to grow rapidly in the western U.S. with 50% of our store openings in that region. We added nine new stores in California, a market with strong demographics for our target customer. We also entered two new markets, Hawaii, where we opened four stores, and San Juan, Puerto Rico...

  • Page 14
    ... square foot basis. At January 31, 2004, we operated 805 American Eagle stores in the United States and Canada as shown below: United States, including the Commonwealth of Puerto Rico Alabama Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho...

  • Page 15
    ... executed by our American Eagle buyers for the U.S. stores, 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...

  • Page 16
    ... the card. This service fee is recorded within selling, general and administrative expenses on the Company's Consolidated Statements of Operations. We offer our customers a hassle-free return policy. The Company believes that certain of its competitors offer similar credit card and service policies...

  • Page 17
    ... Ottawa, Kansas that opened in June 2001. This facility was expanded to approximately 400,000 square feet during Fiscal 2001. Through our Canadian acquisition, we purchased NLS, a 400,000 square foot distribution facility near Toronto, which is also used for the American Eagle Canada administrative...

  • Page 18
    ...and employee stock purchase plan, and others holding shares in broker accounts under street name, the Company estimates the shareholder base at approximately 20,000. For the Quarters Ended January 2004 October 2003 July 2003 April 2003 January 2003 October 2002 July 2002 April 2002 Market Price High...

  • Page 19
    ...-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 foot...

  • Page 20
    ... comparable stores sales include American Eagle and Bluenotes stores. (5) For the fiscal year ended January 31, 2004, amounts include non-cash goodwill impairment charges of $14.1 million attributed to Bluenotes goodwill. (6) Net sales per average square foot is calculated using retail sales for...

  • Page 21
    ...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 clear merchandise. If inventory exceeds customer demand...

  • Page 22
    ... fourth quarter of Fiscal 2003, the independent third party valuation of the Bluenotes reporting unit was completed. Based upon the step one analysis, it was concluded that the fair market value of the Bluenotes reporting unit was below the book value of the business. The Company completed the step...

  • Page 23
    ... a number of changes throughout the Company. We upgraded our merchandising and design process, and added new creative talent in key positions. Across operating functions, we focused on improving productivity and strengthened operating disciplines. And importantly, during Fiscal 2003, we interviewed...

  • Page 24
    ...in the American Eagle stores sales returns reserve contributed to the higher merchandise margins. The Company's 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...

  • Page 25
    ... was due to a 13.1% increase in gross square feet, consisting primarily of the addition of 74 net new stores offset by a consolidated comparable store sales decrease of 5.7%. American Eagle net sales increased 8.8% to $1.383 billion from $1.271 billion. The sales increase was due to a 14.5% increase...

  • Page 26
    ..., services purchased, leasing costs and travel expenses in Fiscal 2002 compared to Fiscal 2001. Depreciation and Amortization Expense Depreciation and amortization expense as a percent to sales increased to 3.5% from 3.1% due primarily to our American Eagle stores expansion, including new and...

  • Page 27
    ... income per common share* Liquidity and Capital Resources The Company's uses of cash are primarily for working capital, the construction of new stores and the remodeling of existing stores, information technology upgrades, distribution center improvements and the purchase of both short and long-term...

  • Page 28
    ...and Canada, and the remodeling of approximately 50 American Eagle stores in the United States. Remaining capital expenditures will relate to new fixtures and enhancements to existing stores, an investment relating to our corporate headquarters, information technology upgrades and distribution center...

  • Page 29
    ... and/or internally developing new brands. 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...

  • Page 30
    ...RVI"), formerly Value City Department Stores, Inc. The Company had the following transactions with these related parties during Fiscal 2003, Fiscal 2002 and Fiscal 2001. The Company leases its distribution center and headquarters offices from Linmar Realty Company. The Company sells portions of its...

  • Page 31
    ... Company's continued growth and success will depend in part on its ability to open and operate new stores on a timely and profitable basis. During Fiscal 2004, the Company plans to open approximately 50 new American Eagle stores in the United States and Canada. Accomplishing the Company's new store...

  • Page 32
    ... (i) an abrupt change to the target customer and merchandising strategy, (ii) adjusting the merchandise fit to a smaller size, (iii) a merchandise product assortment that was skewed too high in price points and not consistent with the brand strategy, (iv) a marketing approach that was too narrow in...

  • Page 33
    ...fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the amount of net sales contributed by new and existing stores, the timing and level of markdowns, store closings, refurbishments and relocations, competitive factors, weather and...

  • Page 34
    ... FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Consolidated Financial Statements Consolidated Balance Sheets ...24 Consolidated Statements of Operations ...25 Consolidated Statements of Comprehensive Income ...25 Consolidated Statements of Stockholders' Equity...26 Consolidated Statements of...

  • Page 35
    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 ...

  • Page 36
    AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended January 31, February 1, 2004 2003 $1,519,968 $1,463,141 965,716 554,252 379,289 56,281 14,118 104,564 2,021 106,585 46,585 $60,000 $0.84 $0.83 ...

  • Page 37
    AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Common Stock $716 15 731 2 733 2 $735 Contributed Capital $118,697 32,530 151,227 3,613 154,840 1,934 $156,774 Retained Earnings $274,292 105,495 379,787 88,735 468,522 60,000 $528,522 Treasury Stock $(22,...

  • Page 38
    ... receivable, 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 investments Sale of investments...

  • Page 39
    ... accessories, outerwear and footwear. The Bluenotes brand targets a slightly younger demographic, offering a more urban/suburban, denim-driven collection for 12 to 22 year olds. The Company operates retail stores located primarily in regional enclosed shopping malls in the United States and Canada...

  • Page 40
    ... cost includes merchandise design and sourcing costs and related expenses. The Company recognizes its inventory at the point when it arrives at one of our deconsolidation centers. The Company reviews its inventory levels in order to identify slow-moving merchandise and generally uses markdowns to...

  • Page 41
    ... Fiscal 2002 related to the Canadian acquisition lease costs. 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...

  • Page 42
    .... Additionally, during Fiscal 2003, Fiscal 2002 and Fiscal 2001, the Company purchased 8,000 shares, 58,000 shares and 44,000 shares, respectively, from certain employees at market prices totaling $0.1 million, $1.6 million and $1.4 million, respectively, for the payment of taxes in connection...

  • Page 43
    ... our design, sourcing and importing teams, our buyers and our distribution centers. Such compensation and employee benefit expenses include salaries, incentives and related benefits associated with our stores and corporate headquarters, except as previously noted. Selling, general and administrative...

  • Page 44
    ... direct mail, in-store photographs and other promotional costs are expensed when the marketing campaign commences. Costs associated with the production of television advertising are expensed over the life of the campaign. All other advertising costs are expensed as incurred. The Company recognized...

  • Page 45
    ... with these related parties during Fiscal 2003, Fiscal 2002 and Fiscal 2001. The Company has an operating lease for its corporate headquarters and distribution center with Linmar Realty Company. The lease, which expires on December 31, 2020, provides for annual rental payments of approximately...

  • Page 46
    ... due from a third party vendor for fabric purchased by the Company and sold to the respective vendor. Upon receipt of the finished goods from the vendor, the Company records the full cost of the merchandise in inventory, and reduces the amount of payment due to the third party by the respective...

  • Page 47
    ... contains restrictive covenants related to financial ratios. As of January 31, 2004, the Company was in compliance with these covenants. The Company also had an $11.2 million revolving operating facility (the "operating facility") that was used to support the working capital and capital expenditures...

  • Page 48
    ... amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their estimated useful lives. In accordance with SFAS No. 142, the Company did not restate the fiscal year ended February 2, 2002 to add back the amortization expense of goodwill. If the...

  • Page 49
    ... reporting units, American Eagle and Bluenotes, as operating segments in accordance with SFAS No. 142. The Company considers each American Eagle and Bluenotes retail store location a separate component of the respective brand or operating segment. The Company determined that each store had similar...

  • Page 50
    ... office equipment. The store leases generally have initial terms of ten years. Most of these store leases provide for base rentals and the payment of a percentage of sales as additional rent when sales exceed specified levels. Minimum rentals relating to these leases are recorded on a straight-line...

  • Page 51
    ...14,118 104,564 865,071 64,173 American Eagle Bluenotes Total The following is geographical information as of and for the years ended January 31, 2004, February 1, 2003 and February 2, 2002: (In thousands) Net sales: United States Canada Consolidated net sales Long-lived assets, net: United States...

  • Page 52
    ... of income from continuing operations before taxes on income were: (In thousands) U.S. Foreign Total January 31, 2004 $121,703 (15,118) $106,585 February 1, 2003 $161,722 (18,109) $143,613 February 2, 2002 $171,787 (2,542) $169,245 The significant components of the Company's deferred tax assets and...

  • Page 53
    ...Plan The Company maintains a 401(k) retirement plan and profit sharing plan. Full-time employees and part-time employees are automatically enrolled to contribute 3% of their salary if they have attained twenty one years of age, have completed sixty days of service, and work at least twenty hours per...

  • Page 54
    ..., $1.4 million and $3.1 million, respectively, in compensation expense related to stock options and restricted stock in connection with the Plan. Stock Option Plan On February 10, 1994, the Company's Board of Directors adopted the American Eagle Outfitters, Inc. 1994 Stock Option Plan (the "Plan...

  • Page 55
    ... 2002 and Fiscal 2001, the Company recorded $0.1 million, $0.5 million and $2.5 million, in compensation expense, respectively, on restricted stock. 15. Quarterly Financial Information - Unaudited (In thousands, except per share amounts) May 3, 2003 Net sales Gross profit Net income Basic income per...

  • Page 56
    ... 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 the scope and results of audit work...

  • Page 57
    ... the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of January 31, 2004. There were no material changes in the Company's internal control over financial reporting during the fourth quarter of Fiscal 2003...

  • Page 58
    ... appearing under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement relating to our 2004 Annual Meeting of Stockholders, is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information appearing under the caption...

  • Page 59
    ... fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 Notes to Consolidated Financial Statements (a)(2) Financial statement schedules have been omitted because either they are not required or are not applicable or because the information required to be set forth therein is not...

  • Page 60
    ... between the Registrant and Michael Leedy dated July 30, 2003 (11) Employment Agreement between the Registrant and James O'Donnell dated December 30, 2003 Corporate Services Agreement between the Registrant and Schottenstein Stores Corporation dated March 10, 2004 Subsidiaries Consent of Ernst...

  • Page 61
    ... reports on Form 8-K during the quarter ended January 31, 2004: 1. On November 4, 2003, we issued a press release announcing our October 2003 sales and the appointments of Jim O'Donnell as Chief Executive Officer, Roger Markfield as Vice-Chairman/President of the American Eagle Division and Susan...

  • Page 62
    ... behalf by the undersigned, thereunto duly authorized. AMERICAN EAGLE OUTFITTERS, INC. By: /s/ James V. O'Donnell James V. O'Donnell Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and...

  • Page 63
    CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, James V. O'Donnell, Chief Executive Officer of American Eagle Outfitters, Inc., certify that: 1. 2. I have reviewed this annual report on Form 10-K of American Eagle Outfitters, Inc.; Based on my knowledge, this annual report does not contain any untrue ...

  • Page 64
    ...; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 3. 4. March 31, 2004 /s/ Laura A. Weil Laura A. Weil Executive Vice President and Chief Financial Officer 53

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    ... VANTOSKY Vice President, Managing Director of American Eagle Outfitters Canada 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...

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