AMERICAN EAGLE OUTFITTERS INC, 10-Q filed on 11/30/2011
Quarterly Report
Document and Entity Information
9 Months Ended
Oct. 29, 2011
Nov. 28, 2011
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Oct. 29, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
AEO 
 
Entity Registrant Name
AMERICAN EAGLE OUTFITTERS INC 
 
Entity Central Index Key
0000919012 
 
Current Fiscal Year End Date
--01-28 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
193,746,676 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands
Oct. 29, 2011
Jan. 29, 2011
Oct. 30, 2010
Current assets:
 
 
 
Cash and cash equivalents
$ 380,284 
$ 667,593 
$ 630,775 
Short-term investments
101,036 
67,102 
3,700 
Merchandise inventory
571,751 
301,208 
409,509 
Accounts receivable
41,138 
36,721 
40,346 
Prepaid expenses and other
64,378 
53,727 
52,757 
Deferred income taxes
47,254 
48,059 
50,910 
Total current assets
1,205,841 
1,174,410 
1,187,997 
Property and equipment, at cost, net of accumulated depreciation
629,486 
643,120 
652,361 
Intangible assets, at cost, net of accumulated amortization
40,088 
7,485 
6,694 
Goodwill
11,511 
11,472 
11,395 
Long-term investments
648 
5,915 
5,915 
Non-current deferred income taxes
8,833 
19,616 
27,475 
Other assets
14,045 
17,980 
17,287 
Total assets
1,910,452 
1,879,998 
1,909,124 
Current liabilities:
 
 
 
Accounts payable
222,894 
167,723 
196,504 
Accrued compensation and payroll taxes
18,677 
34,954 
30,289 
Accrued rent
74,888 
70,390 
71,133 
Accrued income and other taxes
19,552 
32,468 
11,620 
Unredeemed gift cards and gift certificates
22,456 
41,001 
20,266 
Current portion of deferred lease credits
15,512 
16,203 
16,465 
Other liabilities and accrued expenses
22,570 
25,098 
21,285 
Total current liabilities
396,549 
387,837 
367,562 
Non-current liabilities:
 
 
 
Deferred lease credits
74,981 
78,606 
81,730 
Non-current accrued income taxes
38,527 
38,671 
36,302 
Other non-current liabilities
17,853 
23,813 
22,246 
Total non-current liabilities
131,361 
141,090 
140,278 
Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding
 
 
 
Common stock, $0.01 par value; 600,000 shares authorized; 249,566, 249,566 and 249,559 shares issued; 193,553, 194,366 and 195,683 shares outstanding, respectively
2,496 
2,496 
2,496 
Contributed capital
550,110 
546,597 
543,265 
Accumulated other comprehensive income
29,174 
28,072 
26,751 
Retained earnings
1,744,280 
1,711,929 
1,745,912 
Treasury stock, 56,013, 55,200 and 53,876 shares, respectively
(943,518)
(938,023)
(917,140)
Total stockholders' equity
1,382,542 
1,351,071 
1,401,284 
Total liabilities and stockholders' equity
$ 1,910,452 
$ 1,879,998 
$ 1,909,124 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data
Oct. 29, 2011
Jan. 29, 2011
Oct. 30, 2010
Preferred stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000 
5,000 
5,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Common stock, shares authorized
600,000 
600,000 
600,000 
Common stock, shares issued
249,566 
249,566 
249,559 
Common stock, shares outstanding
193,553 
194,366 
195,683 
Treasury stock, shares
56,013 
55,200 
53,876 
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (USD $)
In Thousands, except Per Share data
3 Months Ended
Oct. 29, 2011
3 Months Ended
Oct. 30, 2010
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
Net sales
$ 831,826 
$ 751,507 
$ 2,117,091 
$ 2,051,471 
Cost of sales, including certain buying, occupancy and warehousing expenses
522,859 
439,198 
1,344,302 
1,241,758 
Gross profit
308,967 
312,309 
772,789 
809,713 
Selling, general and administrative expenses
190,583 
185,050 
516,173 
519,188 
Depreciation and amortization expense
35,199 
35,804 
105,754 
107,378 
Operating income
83,185 
91,455 
150,862 
183,147 
Realized loss on sale of investments
 
(24,201)
 
(24,426)
Other (expense) income, net
(407)
1,986 
5,536 
1,222 
Income before income taxes
82,778 
69,240 
156,398 
159,943 
Provision for income taxes
30,351 
36,049 
55,977 
65,047 
Income from continuing operations
52,427 
33,191 
100,421 
94,896 
Loss from discontinued operations, net of tax
 
(167)
 
(41,287)
Net income
52,427 
33,024 
100,421 
53,609 
Basic income per common share:
 
 
 
 
Income from continuing operations
$ 0.27 
$ 0.17 
$ 0.52 
$ 0.47 
Loss from discontinued operations
$ 0 
$ 0 
$ 0 
$ (0.20)
Basic net income per common share
$ 0.27 
$ 0.17 
$ 0.52 
$ 0.27 
Diluted income per common share:
 
 
 
 
Income from continuing operations
$ 0.27 
$ 0.17 
$ 0.51 
$ 0.46 
Loss from discontinued operations
$ 0 
$ 0 
$ 0 
$ (0.20)
Diluted net income per common share
$ 0.27 
$ 0.17 
$ 0.51 
$ 0.26 
Cash dividends per common share
$ 0.11 
$ 0.11 
$ 0.33 
$ 0.32 
Weighted average common shares outstanding - basic
194,378 
195,590 
194,659 
201,678 
Weighted average common shares outstanding - diluted
195,985 
197,323 
196,430 
203,539 
Retained earnings, beginning
1,713,778 
1,735,503 
1,711,929 
1,764,049 
Net income
52,427 
33,024 
100,421 
53,609 
Cash dividends and dividend equivalents
(21,817)
(21,697)
(65,419)
(65,214)
Reissuance of treasury stock
(108)
(918)
(2,651)
(6,532)
Retained earnings, ending
$ 1,744,280 
$ 1,745,912 
$ 1,744,280 
$ 1,745,912 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
Operating activities:
 
 
Net income
$ 100,421 
$ 53,609 
Loss from discontinued operations
 
41,287 
Income from continuing operations
100,421 
94,896 
Adjustments to reconcile income from continuing operations to net cash from operating activities:
 
 
Depreciation and amortization
107,694 
110,247 
Share-based compensation
9,065 
21,929 
Provision for deferred income taxes
11,253 
5,222 
Tax benefit from share-based payments
293 
12,848 
Excess tax benefit from share-based payments
(152)
(4,265)
Foreign currency transaction (gain) loss
(277)
44 
Net impairment loss recognized in earnings
1,248 
Realized loss on sale of investment securities
 
24,426 
Changes in assets and liabilities:
 
 
Merchandise inventory
(270,538)
(89,988)
Accounts receivable
(4,426)
(7,454)
Prepaid expenses and other
(10,627)
(4,879)
Other assets
3,935 
(677)
Accounts payable
60,033 
40,326 
Unredeemed gift cards and gift certificates
(18,609)
(18,916)
Deferred lease credits
(4,354)
(2,868)
Accrued compensation and payroll taxes
(16,297)
(24,379)
Accrued income and other taxes
(13,036)
(13,647)
Accrued liabilities
(2,461)
2,336 
Total adjustments
(148,504)
51,553 
Net cash (used for) provided by operating activities from continuing operations
(48,083)
146,449 
Investing activities:
 
 
Capital expenditures for property and equipment
(96,745)
(65,363)
Acquisition of intangible assets
(33,886)
(1,849)
Purchase of available-for-sale securities
(186,328)
Sale of available-for-sale securities
157,994 
177,472 
Net cash (used for) provided by investing activities from continuing operations
(158,965)
110,260 
Financing activities:
 
 
Payments on capital leases
(2,343)
(1,774)
Repayment of note payable
 
(30,000)
Repurchase of common stock as part of publicly announced programs
(15,160)
(192,268)
Repurchase of common stock from employees
(2,189)
(18,024)
Net proceeds from stock options exercised
2,680 
5,762 
Excess tax benefit from share-based payments
152 
4,265 
Cash used to net settle equity awards
 
(6,434)
Cash dividends paid
(64,273)
(64,659)
Net cash used for financing activities from continuing operations
(81,133)
(303,132)
Effect of exchange rates changes on cash
872 
1,553 
Cash flows of discontinued operations
 
 
Net cash used for operating activities
 
(18,309)
Net cash used for investing activities
 
(6)
Net cash used for financing activities
 
 
Effect of exchange rates changes on cash
 
 
Net cash used for discontinued operations
 
(18,315)
Net decrease in cash and cash equivalents
(287,309)
(63,185)
Cash and cash equivalents - beginning of period
667,593 
693,960 
Cash and cash equivalents - end of period
380,284 
630,775 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for income taxes
61,625 
36,262 
Cash paid during the period for interest
$ 0 
$ 191 
Interim Financial Statements
Interim Financial Statements

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at October 29, 2011 and October 30, 2010 and for the 13 and 39 week periods ended October 29, 2011 and October 30, 2010 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP 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 Company’s Fiscal 2010 Annual Report. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.

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. “aerie” refers to our U.S. and Canadian aerie® by American Eagle® stores. “77kids” refers to our 77kids by american eagle® stores. “AEO Direct” refers to our e-commerce operations, ae.com, aerie.com and 77kids.com. “MARTIN+OSA” or “M+O” refers to the MARTIN+OSA stores and e-commerce operation which we operated until its closure during the second quarter of Fiscal 2010.

The Company’s 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.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

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 October 29, 2011, the Company operated in one reportable segment.

On March 5, 2010, the Company’s Board of Directors (the “Board”) approved management’s recommendation to proceed with the closure of the M+O brand. The Company completed the closure of the M+O stores and e-commerce operation during the second quarter of Fiscal 2010. These Consolidated Financial Statements reflect the results of M+O as a discontinued operation for all periods presented.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2012” and “Fiscal 2011” refer to the 53 and 52 week periods ending February 2, 2013 and January 28, 2012, respectively. “Fiscal 2010” and “Fiscal 2009” refer to the 52 week periods ended January 29, 2011 and January 30, 2010, respectively.

Estimates

The preparation of financial statements in conformity with GAAP 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 June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. The Company is currently evaluating the impact of ASU 2011-05 on its financial statement presentation of comprehensive income.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 applies to all companies that have goodwill reported in their financial statements. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company will adopt ASU 2011-08 in Fiscal 2012. As a result of the adoption, the Company does not expect an impact to its Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income (refer to Note 9 to the Consolidated Financial Statements).

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s 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 Company’s 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 Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes revenue generated from its franchise agreements based upon a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of net sales when earned.

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 (collectively “merchandise costs”) and buying, occupancy, and warehousing costs. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Merchandise profit is the difference between net sales and merchandise costs. Gross profit is the difference between net sales and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses other than those realized upon the sale of investment securities, which are recorded separately on the Consolidated Statements of Operations.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, InvestmentsDebt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”).

There was no net impairment loss recognized in earnings during the 39 weeks ended October 29, 2011. During the 39 weeks ended October 30, 2010, there was $1.2 million of net impairment loss recognized in earnings which consisted of gross other-than-temporary losses of $5.1 million, partially offset by $3.9 million of OTTI losses recognized in other comprehensive income.

Refer to Note 4 to the Consolidated Financial Statements for additional information regarding net impairment losses.

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 October 29, 2011, short-term investments included treasury bills, term deposits and corporate bonds purchased with a maturity of greater than three months, but less than one year. It also includes auction rate securities (“ARS”) classified as available for sale that the Company expects to be redeemed at par within 12 months.

As of October 29, 2011, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. The ARS Call Option expires on October 29, 2013.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. The components of OTTI losses related to credit losses, as defined by ASC 320, are considered by the Company to be realized and are recorded in earnings. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s 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 income tax rate.

The Company evaluates its income tax positions in accordance with ASC 740, 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 ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

Buildings

     25 years

Leasehold improvements

     Lesser of 10 years or the term of the lease

Fixtures and equipment

     5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), 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, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired as the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recognized within selling, general and administrative expenses on the Consolidated Statements of Operations.

No asset impairment charges were recorded during the 39 weeks ended October 29, 2011. Based on the Company’s decision to close all M+O stores in Fiscal 2010, the Company determined that the stores not previously impaired would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them and an impairment charge of $18.0 million was recorded during the 39 weeks ended October 30, 2010. The asset impairment charges during Fiscal 2010 are recorded within Loss from Discontinued Operations on the Consolidated Statements of Operations.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.

Goodwill

The Company had approximately $11.5 million of goodwill as of October 29, 2011 and as of January 29, 2011. The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. The change in recorded goodwill is due to fluctuations in the foreign exchange spot rate at which the Canadian goodwill is translated. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 29, 2011. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in either the 13 or 39 weeks ended October 29, 2011 and October 30, 2010.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

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 October 29, 2011 and October 30, 2010, the Company recorded $0.9 million and $0.7 million, respectively, of revenue related to gift card breakage. During the 39 weeks ended October 29, 2011 and October 30, 2010, the Company recorded $2.9 million and $2.5 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 Company’s 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

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the American Eagle, aerie and 77kids brands. 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 Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases at AE, aerie and 77kids are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE, aerie or 77kids purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. 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 Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified four operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores, 77kids retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments
Cash and Cash Equivalents, Short-term Investments and Long-term Investments

3. Cash and Cash Equivalents, Short-term Investments and Long-term Investments

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded as cash and cash equivalents, short-term investments and long-term investments on the Consolidated Balance Sheets:

 

(In thousands)    October 29,
2011
     January 29,
2011
     October 30,
2010
 

Cash and cash equivalents:

        

Cash

   $ 325,152       $ 122,578       $ 157,921   

Money-market

     32,214         397,440         310,764   

Treasury bills

     22,918         102,996         100,393   

Corporate bonds

     —           3,695         —     

Commercial paper

     —           40,884         61,697   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 380,284       $ 667,593       $ 630,775   

Short-term investments:

        

Treasury bills

   $ 76,078       $ —         $ —     

Term-deposits

     10,082         63,402         —     

Corporate bonds

     9,376         —           —     

State and local government ARS

     5,500         3,700         3,700   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 101,036       $ 67,102       $ 3,700   

Long-term investments:

        

ARS Call Option

   $ 648       $ 415       $ 415   

State and local government ARS

     —           5,500         5,500   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ 5,915       $ 5,915   
  

 

 

    

 

 

    

 

 

 

Total

   $ 481,968       $ 740,610       $ 640,390   
  

 

 

    

 

 

    

 

 

 

Proceeds from the sale of investments were $158.0 million and $177.5 million for the 39 weeks ended October 29, 2011 and October 30, 2010, respectively. The purchase of investments for the 39 weeks ended October 29, 2011 was $186.3 million. There were no purchases of investments during the 39 weeks ended October 30, 2010. As of October 29, 2011 and October 30, 2010, the fair value of all ARS investments approximated par, with no gross unrealized holding losses.

During Fiscal 2010, the Company liquidated ARS investments with $191.4 million of carrying value for proceeds of $177.5 million and a realized loss of $24.4 million (of which $10.9 million had previously been included in OCI on the Company’s Consolidated Balance Sheets). The ARS securities sold during Fiscal 2010 included $119.7 million of par value ARS securities whereby the Company entered into a settlement agreement under which a financial institution (the “purchaser”) purchased the ARS at a discount to par, plus accrued interest. Additionally, under this agreement, the Company retained a right (the “ARS Call Option”), for a period ending October 29, 2013 to: (a) repurchase any or all of the ARS securities sold at the agreed upon purchase prices received from the purchaser plus accrued interest; and/or (b) receive additional proceeds from the purchaser upon certain redemptions of the ARS securities sold. The ARS Call Option is cancelable by the purchaser for additional cash consideration.

The Company is required to assess the value of the ARS Call Option at the end of each reporting period, with any changes in fair value recorded within the Consolidated Statement of Operations. Upon origination, the Company determined that the fair value was $0.4 million. The fair value of the ARS Call Option was included as an offsetting amount within the net loss on liquidation of $24.4 million referenced above. As of October 29, 2011, the Company determined that the remaining value of the ARS Call Option, which is classified as a long-term investment on the Consolidated Balance Sheets, was $0.6 million.

Fair Value Measurements
Fair Value Measurements

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

 

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes 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.

 

   

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

   

Level 3 — Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of October 29, 2011 and October 30, 2010, 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.

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of October 29, 2011 and October 30, 2010:

 

$000,000,000 $000,000,000 $000,000,000 $000,000,000
     Fair Value Measurements at October 29, 2011  
(In thousands)    Carrying Amount      Quoted Market
Prices in  Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable  Inputs

(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 325,152       $ 325,152       $ —         $ —     

Money-market

     32,214         32,214         —           —     

Treasury bills

     22,918         22,918         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 380,284       $ 380,284       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 76,078       $ 76,078       $ —         $ —     

Term-deposits

     10,082         10,082         —           —     

Corporate bonds

     9,376         9,376         —           —     

State and local government ARS

     5,500         —           —           5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 101,036       $ 95,536       $ —         $ 5,500   

Long-term investments:

           

ARS Call Option

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 481,968       $ 475,820       $ —         $ 6,148   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at October 30, 2010  
(In thousands)    Carrying Amount      Quoted Market
Prices in  Active
Markets for
Identical Assets
(Level  1)
     Significant Other
Observable  Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 157,921       $ 157,921       $ —         $ —     

Money-market

     310,764         310,764         —           —     

Treasury bills

     100,393         100,393         —           —     

Commercial paper

     61,697         61,697         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 630,775       $ 630,775       $ —         $ —     

Short-term investments:

           

State and local government ARS

   $ 3,700       $ —         $ —         $ 3,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 3,700       $ —         $ —         $ 3,700   

Long-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $ 5,500   

ARS Call Option

     415         —           —           415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 5,915       $ —         $ —         $ 5,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 640,390       $ 630,775       $ —         $ 9,615   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company uses a discounted cash flow model to value its Level 3 investments. At October 29, 2011, the assumptions in the Company’s model for Level 3 investments, excluding the ARS Call Option, included a recovery period of eight months, a discount factor for yield of 0.1% and illiquidity of 0.5%. At October 30, 2010, the assumptions in the Company’s model included different recovery periods, ranging from eight months to 20 months depending on the type of security, varying discount factors for yield, ranging from 0.3% to 0.4%, and illiquidity of 0.5%. These assumptions are subjective. They are based on the Company’s 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, no impairment loss was recorded for the 13 or 39 weeks ended October 29, 2011. For the 39 weeks ended October 30, 2010, the Company recognized a net impairment loss of $0.6 million ($0.4 million, net of tax), which increased the total cumulative impairment recognized in OCI from $10.3 million ($6.4 million, net of tax) at the end of Fiscal 2009 to $10.9 million ($6.8 million, net of tax) prior to the Company’s liquidation of auction rate securities during the 13 weeks ended October 30, 2010. Additionally, during the 39 weeks ended October 30, 2010, as a result of the credit downgrade on a student-loan backed ARS, the Company recorded an impairment loss in earnings of $1.2 million, which is recorded within other expense on the Consolidated Statements of Operations.

As of October 29, 2011, the Company’s Level 3 investments (unobservable inputs) included $5.5 million of state and local government ARS and $0.6 million for the ARS Call Option. The $5.5 million of state and local government ARS are presented net of $3.7 million of settlements that occurred during the 39 weeks ended October 29, 2011. Additionally, there was a $0.2 million increase in the carrying value of the ARS Call Option reported in earnings during the 39 weeks ended October 29, 2011.

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) as of October 30, 2010 is as follows:

 

     Level 3 (Unobservable inputs)  
(In thousands)    Total     Auction-Rate
Municipal
Securities
    Student Loan-
Backed
Auction-Rate
Securities
    Auction-Rate
Preferred
Securities
    ARS Call
Option
 

Carrying value at January 30, 2010

   $ 202,448      $ 40,244      $ 149,431      $ 12,773      $ —     

Settlements

     (177,472     (29,101     (141,246     (7,125     —     

Gains and (losses):

          

Reported in earnings

     (25,674     (2,399     (16,755     (6,935     415   

Reported in OCI

     10,313        456        8,570        1,287        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 30, 2010

   $ 9,615      $ 9,200      $ —        $ —        $ 415   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-Financial Assets

The Company’s non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. As a result of the Company’s annual goodwill impairment test performed as of January 29, 2011, the Company concluded that its goodwill was not impaired. During the 13 and 39 weeks ended October 29, 2011, there were no triggering events that prompted an asset impairment test of the Company’s goodwill.

Certain long-lived assets were measured at fair value on a non-recurring basis using Level 3 inputs as defined in ASC 820. Based on the decision to close all M+O stores in Fiscal 2010, the Company determined that the M+O stores not previously impaired would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them. Therefore, during Fiscal 2010, the M+O stores not previously impaired were written down to their fair value, resulting in a loss on impairment of assets of $18.0 million. The fair value of those stores were determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.

Earnings per Share
Earnings per Share

5. Earnings per Share

ASC 260-10-45, Participating Securities and the Two-Class Method (“ASC 260-10-45”), addresses whether awards granted in unvested share-based payment transactions that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and therefore are included in computing earnings per share under the two-class method, as described in ASC 260, Earnings Per Share (“ASC 260”). 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 Company’s 2005 Stock Award and Incentive Plan (“2005 Plan”) are considered participating securities as these employees receive non-forfeitable dividends at the same rate as common stock. There were no participating securities outstanding during the 13 and 39 weeks ending October 29, 2011. During the 13 and 39 weeks ended October 30, 2010, the allocation of earnings to participating securities was not significant. The application of ASC 260-10-45 resulted in no change to basic or diluted income from continuing operations per common share for either the 13 or 39 weeks ended October 29, 2011 and October 30, 2010.

 

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended      39 Weeks Ended  
(In thousands)    October 29,
2011
     October 30,
2010
     October 29,
2011
     October 30,
2010
 

Weighted average common shares outstanding:

           

Basic number of common shares outstanding

     194,378         195,590         194,659         201,678   

Dilutive effect of stock options and non-vested restricted stock

     1,607         1,733         1,771         1,861   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted number of common shares outstanding

     195,985         197,323         196,430         203,539   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity awards to purchase approximately 7.6 million and 7.5 million shares of common stock during the 13 and 39 weeks ended October 29, 2011, respectively, and approximately 6.9 million and 7.9 million shares of common stock during the 13 and 39 weeks ended October 30, 2010, respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would be anti-dilutive.

Approximately 1.9 million shares of restricted stock units for both the 13 and 39 weeks ended October 29, 2011 and approximately 0.8 million shares of restricted stock units for both the 13 and 39 weeks ended October 30, 2010 were not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on the Company’s performance compared to pre-established annual performance goals. Additionally, there were approximately 24,000 shares for the 13 weeks ended October 29, 2011 and 27,000 shares for the 39 weeks ended October 30, 2010 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.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding share-based compensation.

Property and Equipment
Property and Equipment

6. Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    October 29,
2011
    January 29,
2011
    October 30,
2010
 

Property and equipment, at cost

   $ 1,503,858      $ 1,432,802      $ 1,414,453   

Less: Accumulated depreciation

     (874,372     (789,682     (762,092
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 629,486      $ 643,120      $ 652,361   
  

 

 

   

 

 

   

 

 

 
Intangible Assets
Intangible Assets

7. Intangible Assets

Intangible assets include costs to acquire and register the Company’s trademark assets. During the 39 weeks ended October 29, 2011, the Company purchased $33.9 million of trademark assets primarily to support its international expansion strategy. The following table represents intangible assets as of October 29, 2011, January 29, 2011 and October 30, 2010.

 

(In thousands)    October 29,
2011
    January 29,
2011
    October 30,
2010
 

Trademarks, at cost

   $ 43,847      $ 9,967      $ 9,009   

Less: Accumulated amortization

     (3,759     (2,482     (2,315
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 40,088      $ 7,485      $ 6,694   
  

 

 

   

 

 

   

 

 

 

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets estimated useful life of 15 to 25 years. Amortization expense was $0.5 million and $1.3 million for the 13 and 39 weeks ended October 29, 2011, respectively, and $0.2 million and $0.5 million for the 13 and 39 weeks ended October 30, 2010, respectively.

 

The table below summarizes the estimated future amortization expense through Fiscal 2015:

 

(In thousands)    Future
Amortization
 

Remainder of 2011

   $ 493   

2012

     1,937   

2013

     1,935   

2014

     1,935   

2015

     1,931
Other Credit Arrangements
Other Credit Arrangements

8. Other Credit Arrangements

The Company has borrowing agreements with four separate financial institutions under which it may borrow an aggregate of $295.0 million United States Dollars (“USD”) and $25.0 million Canadian Dollars (“CAD”). Of this amount, $185.0 million USD can be used for demand letter of credit issuances, $50.0 million USD and $25.0 million CAD can be used for demand line borrowings and the remaining $60.0 million USD can be used for either letters of credit or demand line borrowings at the Company’s discretion. These lines are provided at the discretion of the respective financial institutions and are subject to their periodic review.

As of October 29, 2011, the Company had outstanding demand letters of credit of $43.7 million USD and no demand line borrowings. The availability of any future borrowings is subject to acceptance by the respective financial institutions.

Comprehensive Income
Comprehensive Income

9. Comprehensive Income

Comprehensive income is comprised of the following:

 

      13 Weeks Ended      39 Weeks Ended  
(In thousands)    October 29,
2011
    October 30,
2010
     October 29,
2011
     October 30,
2010
 

Net income

   $ 52,427      $ 33,024       $ 100,421       $ 53,609   

Other comprehensive (loss) income:

          

Temporary impairment reversal related to ARS, net of tax (1)

     —          6,722         —           6,361   

Foreign currency translation adjustment

     (3,518     779         1,102         3,552   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income:

     (3,518     7,501         1,102         9,913   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total comprehensive income

   $ 48,909      $ 40,525       $ 101,523       $ 63,522   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Amounts are shown net of tax of ($4.2) million and ($4.0) million for the 13 and 39 weeks ended October 30, 2010, respectively.
Share-Based Compensation
Share-Based Compensation

10. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), 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 and 39 weeks ended October 29, 2011 was $3.2 million ($2.0 million, net of tax) and $9.1 million ($5.6 million net of tax) and for the 13 and 39 weeks ended October 30, 2010 was $3.5 million ($2.2 million, net of tax) and $21.9 million ($13.5 million, net of tax), respectively.

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 employee’s 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 Company’s stock option activity for the 39 weeks ended October 29, 2011 follows:

 

    Options     Weighted-Average
Exercise Price
    Weighted-Average
Remaining
Contractual

Term
    Aggregate
Intrinsic Value
 
    (In thousands)           (In years)     (In thousands)  

Outstanding - January 29, 2011

    12,124      $ 15.25       

Granted

    47      $ 15.02       

Exercised (1)

    (260   $ 10.28       

Cancelled

    (131   $ 21.09       
 

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding - October 29, 2011

    11,780      $ 15.29        2.8      $ 29,157   
 

 

 

   

 

 

   

 

 

   

 

 

 

Vested and expected to vest - October 29, 2011

    11,658      $ 15.31        2.8      $ 28,914   
 

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable - October 29, 2011 (2)

    3,970      $ 6.99        1.8      $ 26,127   

 

(1) Options exercised during the 39 weeks ended October 29, 2011 had exercise prices ranging from $4.54 to $11.66.
(2) Options exercisable are determined based upon the weighted average exercise price of vested options compared to the Company’s stock price at October 29, 2011.

The weighted-average grant date fair value of stock options granted during the 39 weeks ended October 29, 2011 and October 30, 2010 was $4.73 and $5.19, respectively. The aggregate intrinsic value of options exercised during the 39 weeks ended October 29, 2011 and October 30, 2010 was $1.3 million and $10.7 million, respectively.

Cash received from the exercise of stock options was $2.7 million for the 39 weeks ended October 29, 2011 and $5.8 million for the 39 weeks ended October 30, 2010. The actual tax benefit realized from stock option exercises totaled $0.3 million for the 39 weeks ended October 29, 2011 and $12.8 million for the 39 weeks ended October 30, 2010.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     39 Weeks Ended

Black-Scholes Option Valuation Assumptions

   October 29,
2011
  October 30,
2010

Risk-free interest rate (1)

   2.1%   2.3%

Dividend yield

   2.6%   2.1%

Volatility factor (2)

   42.7%   40.2%

Weighted-average expected term (3)

   5.0 years   4.5 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 Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

As of October 29, 2011, there was $1.8 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.1 years.

Restricted Stock Grants

Time-based restricted stock awards are comprised of time-based restricted stock units. These awards 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 performance-based restricted stock units. These awards cliff vest at the end of a three year period based upon the Company’s achievement of pre-established goals throughout the term of the award. 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 and forfeiture provisions as the original award. The grant date fair value of all restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
     39 Weeks Ended
October 29, 2011
     39 Weeks Ended
October 29, 2011
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 29, 2011

     877      $ 17.45         630      $ 12.59   

Granted

     1,406        15.03         1,240        15.03   

Vested

     (372     17.45         —          —     

Cancelled

     (110     16.09         (108     12.64   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - October 29, 2011

     1,801      $ 15.73         1,762      $ 14.23   

As of October 29, 2011, there was $20.7 million of unrecognized compensation expense related to non-vested time-based restricted stock unit awards that is expected to be recognized over a weighted average period of 2.0 years.

As of October 29, 2011, the Company had 25.0 million shares available for all equity grants.

Income Taxes
Income Taxes

11. Income Taxes

The provision for income taxes from continuing operations is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for quarterly events. The effective income tax rate from continuing operations based on actual operating results for the 13 weeks ended October 29, 2011 was 36.7% compared to 52.1% for the 13 weeks ended October 30, 2010. The effective income tax rate from continuing operations based on actual operating results for the 39 weeks ended October 29, 2011 was 35.8% compared to 40.7% for the 39 weeks ended October 30, 2010. The higher effective income tax rate for the 13 and 39 weeks ended October 30, 2010 was primarily due to losses on the sale of certain ARS investments for which no income tax benefits were recognized.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as the result of the evaluation of new information not previously available. There were no significant changes in unrecognized tax benefits during the 39 weeks ended October 29, 2011 and October 30, 2010, respectively. The Company does not anticipate any significant changes to the unrecognized tax benefits recorded at the balance sheet date within the next 12 months.

Legal Proceedings
Legal Proceedings

12. Legal Proceedings

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), 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 ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position or results of operations of the Company.

Discontinued Operations
Discontinued Operations

13. Discontinued Operations

On March 5, 2010, the Company’s Board approved management’s recommendation to proceed with the closure of the M+O brand. The Company completed the closure of the M+O stores and e-commerce operation during the second quarter of Fiscal 2010. These Consolidated Financial Statements reflect the results of M+O as a discontinued operation for all periods presented.

Costs associated with exit or disposal activities are recorded when incurred. A summary of the exit and disposal costs recognized within Loss from Discontinued Operations on the Consolidated Income Statement for the 39 weeks ended October 30, 2010 are included in the table as follows. Results from discontinued operations were nominal for the 13 weeks ended October 30, 2010.

 

(In thousands)    39 Weeks Ended
October 30, 2010
 

Non-cash charges:

  

Asset impairments

   $ 17,980   

Cash charges:

  

Lease-related charges (1)

     15,377   

Inventory charges

     2,422   

Severence charges

     7,660   
  

 

 

 

Total Charges

   $ 43,439   
  

 

 

 

 

(1) Presented net of the reversal of non-cash lease credits.

The table below presents the significant components of M+O’s results included in Loss from Discontinued Operations on the Consolidated Statement of Operations for the 13 and 39 weeks ended October 30, 2010.

 

     13 Weeks Ended
October 30, 2010
    39 Weeks Ended
October 30, 2010
 
(In thousands)             

Net sales

   $ —        $ 21,881   
  

 

 

   

 

 

 

Loss from discontinued operations, before income taxes

   $ (271   $ (66,959

Income tax benefit

     104        25,672   
  

 

 

   

 

 

 

Loss from discontinued operations, net of tax

   $ (167   $ (41,287

Loss per common share from discontinued operations:

    

Basic

   $ —        $ (0.20

Diluted

   $ —        $ (0.20

There were no assets or liabilities included in the Consolidated Balance Sheets for M+O as of October 29, 2011 or January 29, 2011. The major classes of assets and liabilities included in the Consolidated Balance Sheets for M+O as of October 30, 2010 are as follows:

 

(In thousands)    October 30, 2010  

Current assets

   $ 226   

Non-current assets

     —     
  

 

 

 

Total assets

   $ 226   
  

 

 

 

Total current liabilities

   $ 2,793   

Total non-current liabilities

     —     
  

 

 

 

Total liabilities

   $ 2,793   
  

 

 

 

 

Summary of Significant Accounting Policies (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 October 29, 2011, the Company operated in one reportable segment.

On March 5, 2010, the Company’s Board of Directors (the “Board”) approved management’s recommendation to proceed with the closure of the M+O brand. The Company completed the closure of the M+O stores and e-commerce operation during the second quarter of Fiscal 2010. These Consolidated Financial Statements reflect the results of M+O as a discontinued operation for all periods presented.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2012” and “Fiscal 2011” refer to the 53 and 52 week periods ending February 2, 2013 and January 28, 2012, respectively. “Fiscal 2010” and “Fiscal 2009” refer to the 52 week periods ended January 29, 2011 and January 30, 2010, respectively.

Estimates

The preparation of financial statements in conformity with GAAP 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 June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. The Company is currently evaluating the impact of ASU 2011-05 on its financial statement presentation of comprehensive income.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 applies to all companies that have goodwill reported in their financial statements. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company will adopt ASU 2011-08 in Fiscal 2012. As a result of the adoption, the Company does not expect an impact to its Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income (refer to Note 9 to the Consolidated Financial Statements).

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s 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 Company’s 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 Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes revenue generated from its franchise agreements based upon a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of net sales when earned.

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 (collectively “merchandise costs”) and buying, occupancy, and warehousing costs. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Merchandise profit is the difference between net sales and merchandise costs. Gross profit is the difference between net sales and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses other than those realized upon the sale of investment securities, which are recorded separately on the Consolidated Statements of Operations.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, InvestmentsDebt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”).

There was no net impairment loss recognized in earnings during the 39 weeks ended October 29, 2011. During the 39 weeks ended October 30, 2010, there was $1.2 million of net impairment loss recognized in earnings which consisted of gross other-than-temporary losses of $5.1 million, partially offset by $3.9 million of OTTI losses recognized in other comprehensive income.

Refer to Note 4 to the Consolidated Financial Statements for additional information regarding net impairment losses.

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 October 29, 2011, short-term investments included treasury bills, term deposits and corporate bonds purchased with a maturity of greater than three months, but less than one year. It also includes auction rate securities (“ARS”) classified as available for sale that the Company expects to be redeemed at par within 12 months.

As of October 29, 2011, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. The ARS Call Option expires on October 29, 2013.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. The components of OTTI losses related to credit losses, as defined by ASC 320, are considered by the Company to be realized and are recorded in earnings. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s 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 income tax rate.

The Company evaluates its income tax positions in accordance with ASC 740, 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 ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

Buildings

     25 years

Leasehold improvements

     Lesser of 10 years or the term of the lease

Fixtures and equipment

     5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), 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, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired as the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recognized within selling, general and administrative expenses on the Consolidated Statements of Operations.

No asset impairment charges were recorded during the 39 weeks ended October 29, 2011. Based on the Company’s decision to close all M+O stores in Fiscal 2010, the Company determined that the stores not previously impaired would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them and an impairment charge of $18.0 million was recorded during the 39 weeks ended October 30, 2010. The asset impairment charges during Fiscal 2010 are recorded within Loss from Discontinued Operations on the Consolidated Statements of Operations.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.

Goodwill

The Company had approximately $11.5 million of goodwill as of October 29, 2011 and as of January 29, 2011. The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. The change in recorded goodwill is due to fluctuations in the foreign exchange spot rate at which the Canadian goodwill is translated. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 29, 2011. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in either the 13 or 39 weeks ended October 29, 2011 and October 30, 2010.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

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 October 29, 2011 and October 30, 2010, the Company recorded $0.9 million and $0.7 million, respectively, of revenue related to gift card breakage. During the 39 weeks ended October 29, 2011 and October 30, 2010, the Company recorded $2.9 million and $2.5 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 Company’s 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

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the American Eagle, aerie and 77kids brands. 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 Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases at AE, aerie and 77kids are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE, aerie or 77kids purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. 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 Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified four operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores, 77kids retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Summary of Significant Accounting Policies (Tables)
Useful Lives of Major Classes of Assets

The useful lives of our major classes of assets are as follows:

 

Buildings

     25 years

Leasehold improvements

     Lesser of 10 years or the term of the lease

Fixtures and equipment

     5 years
Cash and Cash Equivalents, Short-term Investments and Long-term Investments (Tables)
Fair Market Values for Cash and Marketable Securities

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded as cash and cash equivalents, short-term investments and long-term investments on the Consolidated Balance Sheets:

 

(In thousands)    October 29,
2011
     January 29,
2011
     October 30,
2010
 

Cash and cash equivalents:

        

Cash

   $ 325,152       $ 122,578       $ 157,921   

Money-market

     32,214         397,440         310,764   

Treasury bills

     22,918         102,996         100,393   

Corporate bonds

     —           3,695         —     

Commercial paper

     —           40,884         61,697   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 380,284       $ 667,593       $ 630,775   

Short-term investments:

        

Treasury bills

   $ 76,078       $ —         $ —     

Term-deposits

     10,082         63,402         —     

Corporate bonds

     9,376         —           —     

State and local government ARS

     5,500         3,700         3,700   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 101,036       $ 67,102       $ 3,700   

Long-term investments:

        

ARS Call Option

   $ 648       $ 415       $ 415   

State and local government ARS

     —           5,500         5,500   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ 5,915       $ 5,915   
  

 

 

    

 

 

    

 

 

 

Total

   $ 481,968       $ 740,610       $ 640,390   
  

 

 

    

 

 

    

 

 

 
Fair Value Measurements (Tables)

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of October 29, 2011 and October 30, 2010:

 

$000,000,000 $000,000,000 $000,000,000 $000,000,000
     Fair Value Measurements at October 29, 2011  
(In thousands)    Carrying Amount      Quoted Market
Prices in  Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable  Inputs

(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 325,152       $ 325,152       $ —         $ —     

Money-market

     32,214         32,214         —           —     

Treasury bills

     22,918         22,918         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 380,284       $ 380,284       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 76,078       $ 76,078       $ —         $ —     

Term-deposits

     10,082         10,082         —           —     

Corporate bonds

     9,376         9,376         —           —     

State and local government ARS

     5,500         —           —           5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 101,036       $ 95,536       $ —         $ 5,500   

Long-term investments:

           

ARS Call Option

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 481,968       $ 475,820       $ —         $ 6,148   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at October 30, 2010  
(In thousands)    Carrying Amount      Quoted Market
Prices in  Active
Markets for
Identical Assets
(Level  1)
     Significant Other
Observable  Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 157,921       $ 157,921       $ —         $ —     

Money-market

     310,764         310,764         —           —     

Treasury bills

     100,393         100,393         —           —     

Commercial paper

     61,697         61,697         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 630,775       $ 630,775       $ —         $ —     

Short-term investments:

           

State and local government ARS

   $ 3,700       $ —         $ —         $ 3,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 3,700       $ —         $ —         $ 3,700   

Long-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $ 5,500   

ARS Call Option

     415         —           —           415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 5,915       $ —         $ —         $ 5,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 640,390       $ 630,775       $ —         $ 9,615   
  

 

 

    

 

 

    

 

 

    

 

 

 

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) as of October 30, 2010 is as follows:

 

     Level 3 (Unobservable inputs)  
(In thousands)    Total     Auction-Rate
Municipal
Securities
    Student Loan-
Backed
Auction-Rate
Securities
    Auction-Rate
Preferred
Securities
    ARS Call
Option
 

Carrying value at January 30, 2010

   $ 202,448      $ 40,244      $ 149,431      $ 12,773      $ —     

Settlements

     (177,472     (29,101     (141,246     (7,125     —     

Gains and (losses):

          

Reported in earnings

     (25,674     (2,399     (16,755     (6,935     415   

Reported in OCI

     10,313        456        8,570        1,287        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 30, 2010

   $ 9,615      $ 9,200      $ —        $ —        $ 415   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Earnings per Share (Tables)
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended      39 Weeks Ended  
(In thousands)    October 29,
2011
     October 30,
2010
     October 29,
2011
     October 30,
2010
 

Weighted average common shares outstanding:

           

Basic number of common shares outstanding

     194,378         195,590         194,659         201,678   

Dilutive effect of stock options and non-vested restricted stock

     1,607         1,733         1,771         1,861   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted number of common shares outstanding

     195,985         197,323         196,430         203,539   
  

 

 

    

 

 

    

 

 

    

 

 

 
Property and Equipment (Tables)
Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    October 29,
2011
    January 29,
2011
    October 30,
2010
 

Property and equipment, at cost

   $ 1,503,858      $ 1,432,802      $ 1,414,453   

Less: Accumulated depreciation

     (874,372     (789,682     (762,092
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 629,486      $ 643,120      $ 652,361   
  

 

 

   

 

 

   

 

 

 
Intangible Assets (Tables)

The following table represents intangible assets as of October 29, 2011, January 29, 2011 and October 30, 2010.

 

(In thousands)    October 29,
2011
    January 29,
2011
    October 30,
2010
 

Trademarks, at cost

   $ 43,847      $ 9,967      $ 9,009   

Less: Accumulated amortization

     (3,759     (2,482     (2,315
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 40,088      $ 7,485      $ 6,694   
  

 

 

   

 

 

   

 

 

 

The table below summarizes the estimated future amortization expense through Fiscal 2015:

 

(In thousands)    Future
Amortization
 

Remainder of 2011

   $ 493   

2012

     1,937   

2013

     1,935   

2014

     1,935   

2015

     1,931
Comprehensive Income (Tables)
Comprehensive Income

Comprehensive income is comprised of the following:

 

      13 Weeks Ended      39 Weeks Ended  
(In thousands)    October 29,
2011
    October 30,
2010
     October 29,
2011
     October 30,
2010
 

Net income

   $ 52,427      $ 33,024       $ 100,421       $ 53,609   

Other comprehensive (loss) income:

          

Temporary impairment reversal related to ARS, net of tax (1)

     —          6,722         —           6,361   

Foreign currency translation adjustment

     (3,518     779         1,102         3,552   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) income:

     (3,518     7,501         1,102         9,913   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total comprehensive income

   $ 48,909      $ 40,525       $ 101,523       $ 63,522   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Amounts are shown net of tax of ($4.2) million and ($4.0) million for the 13 and 39 weeks ended October 30, 2010, respectively.
Share-Based Compensation (Tables)

A summary of the Company’s stock option activity for the 39 weeks ended October 29, 2011 follows:

 

    Options     Weighted-Average
Exercise Price
    Weighted-Average
Remaining
Contractual

Term
    Aggregate
Intrinsic Value
 
    (In thousands)           (In years)     (In thousands)  

Outstanding - January 29, 2011

    12,124      $ 15.25       

Granted

    47      $ 15.02       

Exercised (1)

    (260   $ 10.28       

Cancelled

    (131   $ 21.09       
 

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding - October 29, 2011

    11,780      $ 15.29        2.8      $ 29,157   
 

 

 

   

 

 

   

 

 

   

 

 

 

Vested and expected to vest - October 29, 2011

    11,658      $ 15.31        2.8      $ 28,914   
 

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable - October 29, 2011 (2)

    3,970      $ 6.99        1.8      $ 26,127   

 

(1) Options exercised during the 39 weeks ended October 29, 2011 had exercise prices ranging from $4.54 to $11.66.
(2) Options exercisable are determined based upon the weighted average exercise price of vested options compared to the Company’s stock price at October 29, 2011.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     39 Weeks Ended

Black-Scholes Option Valuation Assumptions

   October 29,
2011
  October 30,
2010

Risk-free interest rate (1)

   2.1%   2.3%

Dividend yield

   2.6%   2.1%

Volatility factor (2)

   42.7%   40.2%

Weighted-average expected term (3)

   5.0 years   4.5 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 Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
     39 Weeks Ended
October 29, 2011
     39 Weeks Ended
October 29, 2011
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 29, 2011

     877      $ 17.45         630      $ 12.59   

Granted

     1,406        15.03         1,240        15.03   

Vested

     (372     17.45         —          —     

Cancelled

     (110     16.09         (108     12.64   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - October 29, 2011

     1,801      $ 15.73         1,762      $ 14.23
Discontinued Operations (Tables)

Results from discontinued operations were nominal for the 13 weeks ended October 30, 2010.

 

(In thousands)    39 Weeks Ended
October 30, 2010
 

Non-cash charges:

  

Asset impairments

   $ 17,980   

Cash charges:

  

Lease-related charges (1)

     15,377   

Inventory charges

     2,422   

Severence charges

     7,660   
  

 

 

 

Total Charges

   $ 43,439   
  

 

 

 

 

(1) Presented net of the reversal of non-cash lease credits.

The table below presents the significant components of M+O’s results included in Loss from Discontinued Operations on the Consolidated Statement of Operations for the 13 and 39 weeks ended October 30, 2010.

 

     13 Weeks Ended
October 30, 2010
    39 Weeks Ended
October 30, 2010
 
(In thousands)             

Net sales

   $ —        $ 21,881   
  

 

 

   

 

 

 

Loss from discontinued operations, before income taxes

   $ (271   $ (66,959

Income tax benefit

     104        25,672   
  

 

 

   

 

 

 

Loss from discontinued operations, net of tax

   $ (167   $ (41,287

Loss per common share from discontinued operations:

    

Basic

   $ —        $ (0.20

Diluted

   $ —        $ (0.20 )

The major classes of assets and liabilities included in the Consolidated Balance Sheets for M+O as of October 30, 2010 are as follows:

 

(In thousands)    October 30, 2010  

Current assets

   $ 226   

Non-current assets

     —     
  

 

 

 

Total assets

   $ 226   
  

 

 

 

Total current liabilities

   $ 2,793   

Total non-current liabilities

     —     
  

 

 

 

Total liabilities

   $ 2,793   
  

 

 

 
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended
Oct. 29, 2011
3 Months Ended
Oct. 30, 2010
9 Months Ended
Oct. 29, 2011
Year
9 Months Ended
Oct. 30, 2010
12 Months Ended
Jan. 29, 2011
Significant Accounting Policies [Line Items]
 
 
 
 
 
Net impairment loss recognized in earnings
 
 
$ 0 
$ 1,248,000 
 
Other-than-temporary impairment losses
 
 
 
5,100,000 
 
Loss recognized in other comprehensive income
 
 
 
3,900,000 
 
Finite-lived impairment charges
 
 
 
 
Asset impairment charges related to the closing of M+O stores
 
 
 
17,980,000 
18,000,000 
Goodwill
11,511,000 
11,395,000 
11,511,000 
11,395,000 
11,472,000 
Finite intangibles, useful life, minimum (in years)
 
 
15 
 
 
Finite intangibles, useful life, maximum (in years)
 
 
25 
 
 
Revenue related to gift card breakage
$ 900,000 
$ 700,000 
$ 2,900,000 
$ 2,500,000 
 
Useful Lives of Major Classes of Assets (Detail)
9 Months Ended
Oct. 29, 2011
Buildings
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
25 years 
Leasehold Improvements
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
Lesser of 10 years or the term of the lease 
Fixtures and equipment
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
5 years 
Fair Market Values for Cash and Marketable Securities (Detail) (USD $)
In Thousands
Oct. 29, 2011
Jan. 29, 2011
Oct. 30, 2010
Jan. 30, 2010
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
$ 380,284 
$ 667,593 
$ 630,775 
$ 693,960 
Short-term investments
101,036 
67,102 
3,700 
 
Long-term investments
648 
5,915 
5,915 
 
Total
481,968 
740,610 
640,390 
 
ARS |
State and local government
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Short-term investments
5,500 
3,700 
3,700 
 
Long-term investments
 
5,500 
5,500 
 
Cash
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
325,152 
122,578 
157,921 
 
Money Market Funds
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
32,214 
397,440 
310,764 
 
US Treasury Securities
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
22,918 
102,996 
100,393 
 
Short-term investments
76,078 
 
 
 
Corporate Bond Securities
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
 
3,695 
 
 
Short-term investments
9,376 
 
 
 
Commercial Paper
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Cash and cash equivalents
 
40,884 
61,697 
 
Bank Time Deposits
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Short-term investments
10,082 
63,402 
 
 
ARS Call Option
 
 
 
 
Cash, cash equivalents and marketable securities [Line Items]
 
 
 
 
Long-term investments
$ 648 
$ 415 
$ 415 
 
Cash and Cash Equivalents, Short-term Investments and Long-term Investments - Additional Information (Detail) (USD $)
3 Months Ended
Oct. 30, 2010
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
12 Months Ended
Jan. 29, 2011
Schedule of Available-for-sale Securities [Line Items]
 
 
 
 
Proceeds from sale of available-for-sale securities
 
$ 157,994,000 
$ 177,472,000 
$ 177,500,000 
Realized loss on sale of investment securities
(24,201,000)
 
(24,426,000)
24,400,000 
Purchase of available-for-sale securities
 
186,328,000 
 
Loss on sale of available-for-sale securities previous included in OCI
 
 
 
10,900,000 
ARS
 
 
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
 
 
Available-for-sale securities sold, carrying value
 
 
 
191,400,000 
Available-for-sale securities sold, par value
 
 
 
119,700,000 
ARS Call Option
 
 
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
 
 
Expiration of right to repurchase securities and/or receive certain additional proceeds
 
 
 
Oct. 29, 2013 
Assessed Value Of The ARS Call Option Upon Origination
 
400,000 
 
 
Fair value of the ARS Call Option
 
$ 600,000 
 
 
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on a Recurring Basis (Detail) (USD $)
In Thousands
Oct. 29, 2011
Jan. 29, 2011
Oct. 30, 2010
Jan. 30, 2010
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
$ 380,284 
$ 667,593 
$ 630,775 
$ 693,960 
Short-term investments
101,036 
67,102 
3,700 
 
Long-term investments
648 
5,915 
5,915 
 
Total
481,968 
740,610 
640,390 
 
ARS |
State and local government |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
5,500 
 
3,700 
 
Long-term investments
 
 
5,500 
 
ARS |
State and local government |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
5,500 
 
3,700 
 
Long-term investments
 
 
5,500 
 
Cash |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
325,152 
 
157,921 
 
Cash |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
325,152 
 
157,921 
 
Money Market Funds |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
32,214 
 
310,764 
 
Money Market Funds |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
32,214 
 
310,764 
 
US Treasury Securities |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
22,918 
 
100,393 
 
Short-term investments
76,078 
 
 
 
US Treasury Securities |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
22,918 
 
100,393 
 
Short-term investments
76,078 
 
 
 
Corporate Bond Securities |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
9,376 
 
 
 
Corporate Bond Securities |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
9,376 
 
 
 
Commercial Paper |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
 
 
61,697 
 
Commercial Paper |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
 
 
61,697 
 
Bank Time Deposits |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
10,082 
 
 
 
Bank Time Deposits |
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
10,082 
 
 
 
ARS Call Option |
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
648 
 
415 
 
ARS Call Option |
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
648 
 
415 
 
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
380,284 
 
630,775 
 
Short-term investments
101,036 
 
3,700 
 
Long-term investments
648 
 
5,915 
 
Total
481,968 
 
640,390 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
380,284 
 
630,775 
 
Short-term investments
95,536 
 
 
 
Total
475,820 
 
630,775 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
5,500 
 
3,700 
 
Long-term investments
648 
 
5,915 
 
Total
6,148 
 
9,615 
 
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
5,500 
3,700 
3,700 
 
Long-term investments
 
5,500 
5,500 
 
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
325,152 
122,578 
157,921 
 
Money Market Funds
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
32,214 
397,440 
310,764 
 
US Treasury Securities
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
22,918 
102,996 
100,393 
 
Short-term investments
76,078 
 
 
 
Bank Time Deposits
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
10,082 
63,402 
 
 
Corporate Bond Securities
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
 
3,695 
 
 
Short-term investments
9,376 
 
 
 
ARS Call Option
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
648 
415 
415 
 
Commercial Paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
 
$ 40,884 
$ 61,697 
 
Fair Value Measurements - Additional Information (Detail) (USD $)
9 Months Ended
Oct. 29, 2011
9 Months Ended
Oct. 30, 2010
12 Months Ended
Jan. 29, 2011
Jan. 30, 2010
Fair Value, Measurement Inputs, Disclosure [Line Items]
 
 
 
 
Portion of loss recognized in other comprehensive income, before tax
 
$ 3,900,000 
 
 
Total cumulative impairment recognized in OCI
 
10,900,000 
 
10,300,000 
Total cumulative impairment recognized in OCI, net of tax
 
6,800,000 
 
6,400,000 
Net impairment loss recognized in earnings
1,248,000 
 
 
Value of the Company's Level 3 (unobservable inputs)
 
9,615,000 
 
202,448,000