AMERICAN EAGLE OUTFITTERS INC, 10-Q filed on 8/23/2012
Quarterly Report
Document and Entity Information
6 Months Ended
Jul. 28, 2012
Aug. 20, 2012
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jul. 28, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
AEO 
 
Entity Registrant Name
AMERICAN EAGLE OUTFITTERS INC 
 
Entity Central Index Key
0000919012 
 
Current Fiscal Year End Date
--02-02 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
196,596,615 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Current assets:
 
 
 
Cash and cash equivalents
$ 696,077 
$ 719,545 
$ 389,299 
Short-term investments
5,995 
25,499 
124,697 
Merchandise inventory
462,013 
367,514 
457,282 
Assets held for sale
9,985 
10,912 
12,960 
Accounts receivable
40,202 
40,310 
31,530 
Prepaid expenses and other
76,584 
74,947 
90,788 
Deferred income taxes
55,607 
48,761 
48,585 
Total current assets
1,346,463 
1,287,488 
1,155,141 
Property and equipment, at cost, net of accumulated depreciation
544,751 
582,162 
635,540 
Intangible assets, at cost, net of accumulated amortization
38,682 
39,832 
40,295 
Goodwill
11,445 
11,469 
11,668 
Non-current deferred income taxes
22,477 
13,467 
2,460 
Other assets
15,064 
16,384 
21,398 
Total assets
1,978,882 
1,950,802 
1,866,502 
Current liabilities:
 
 
 
Accounts payable
171,655 
183,783 
187,572 
Accrued compensation and payroll taxes
54,168 
42,625 
24,928 
Accrued rent
78,514 
76,921 
72,477 
Accrued income and other taxes
15,822 
20,135 
13,998 
Unredeemed gift cards and gift certificates
24,342 
44,970 
26,542 
Current portion of deferred lease credits
14,679 
15,066 
15,938 
Other liabilities and accrued expenses
26,694 
21,901 
21,037 
Total current liabilities
385,874 
405,401 
362,492 
Non-current liabilities:
 
 
 
Deferred lease credits
69,598 
71,880 
77,925 
Non-current accrued income taxes
26,285 
35,471 
38,256 
Other non-current liabilities
18,711 
21,199 
20,842 
Total non-current liabilities
114,594 
128,550 
137,023 
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 249,566 shares issued; 196,264, 193,848 and 194,901 shares outstanding, respectively
2,496 
2,496 
2,496 
Contributed capital
574,671 
552,797 
546,677 
Accumulated other comprehensive income
28,073 
28,659 
32,692 
Retained earnings
1,770,546 
1,771,464 
1,713,778 
Treasury stock, 53,302, 55,718 and 54,665 shares, respectively
(897,372)
(938,565)
(928,656)
Total stockholders' equity
1,478,414 
1,416,851 
1,366,987 
Total liabilities and stockholders' equity
$ 1,978,882 
$ 1,950,802 
$ 1,866,502 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Preferred stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000 
5,000 
5,000 
Preferred stock, issued
Preferred stock, 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 
249,566 
Common stock, shares outstanding
196,264 
193,848 
194,901 
Treasury stock, shares
53,302 
55,718 
54,665 
Consolidated Statements of Operations and Retained Earnings (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jul. 28, 2012
Jul. 30, 2011
Net sales
$ 739,680 
$ 669,120 
$ 1,448,375 
$ 1,272,204 
Cost of sales, including certain buying, occupancy and warehousing expenses
463,116 
432,942 
896,898 
802,207 
Gross profit
276,564 
236,178 
551,477 
469,997 
Selling, general and administrative expenses
182,125 
163,113 
360,664 
318,365 
Depreciation and amortization expense
32,643 
34,997 
64,709 
69,433 
Operating income
61,796 
38,068 
126,104 
82,199 
Other (expense) income, net
(343)
1,431 
3,164 
5,943 
Income before income taxes
61,453 
39,499 
129,268 
88,142 
Provision for income taxes
18,607 
14,407 
42,387 
31,179 
Income from continuing operations
42,846 
25,092 
86,881 
56,963 
Loss from discontinued operations, net of tax
(23,819)
(5,423)
(28,157)
(8,969)
Net income
19,027 
19,669 
58,724 
47,994 
Basic income per common share
 
 
 
 
Income from continuing operations
$ 0.22 
$ 0.13 
$ 0.44 
$ 0.29 
Loss from discontinued operations
$ (0.12)
$ (0.03)
$ (0.14)
$ (0.05)
Basic income per common share
$ 0.10 
$ 0.10 
$ 0.30 
$ 0.24 
Diluted income per common share
 
 
 
 
Income from continuing operations
$ 0.21 
$ 0.13 
$ 0.44 
$ 0.29 
Loss from discontinued operations
$ (0.12)
$ (0.03)
$ (0.14)
$ (0.05)
Diluted income per common share
$ 0.09 
$ 0.10 
$ 0.30 
$ 0.24 
Cash dividends per common share
$ 0.11 
$ 0.11 
$ 0.22 
$ 0.22 
Weighted average common shares outstanding-basic
196,160 
194,909 
195,525 
194,800 
Weighted average common shares outstanding-diluted
199,807 
196,578 
198,329 
196,626 
Retained earnings, beginning
1,774,205 
1,716,173 
1,771,464 
1,711,929 
Net income
19,027 
19,669 
58,724 
47,994 
Cash dividends and dividend equivalents
(22,117)
(21,850)
(44,062)
(43,602)
Reissuance of treasury stock
(569)
(214)
(15,580)
(2,543)
Retained earnings, ending
$ 1,770,546 
$ 1,713,778 
$ 1,770,546 
$ 1,713,778 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jul. 28, 2012
Jul. 30, 2011
Net income
$ 19,027 
$ 19,669 
$ 58,724 
$ 47,994 
Other comprehensive income:
 
 
 
 
Foreign currency translation (loss) gain
(2,459)
(881)
(586)
4,620 
Other comprehensive (loss) income
(2,459)
(881)
(586)
4,620 
Comprehensive income
$ 16,568 
$ 18,788 
$ 58,138 
$ 52,614 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Operating activities:
 
 
Net income
$ 58,724 
$ 47,994 
Loss from discontinued operations
(28,157)
(8,969)
Income from continuing operations
86,881 
56,963 
Adjustments to reconcile income from continuing operations to net cash from operating activities of continuing operations:
 
 
Depreciation and amortization
65,761 
70,742 
Share-based compensation
28,029 
5,523 
Provision for deferred income taxes
(16,556)
16,389 
Tax benefit from share-based payments
4,396 
290 
Excess tax benefit from share-based payments
(2,894)
(152)
Foreign currency transaction loss
472 
219 
Loss on impairment of assets
514 
 
Changes in assets and liabilities:
 
 
Merchandise inventory
(94,762)
(162,081)
Accounts receivable
(532)
6,650 
Prepaid expenses and other
(739)
(36,450)
Other assets
808 
(2,767)
Accounts payable
(5,519)
21,694 
Unredeemed gift cards and gift certificates
(20,620)
(14,630)
Deferred lease credits
(2,592)
(2,719)
Accrued compensation and payroll taxes
10,871 
(10,166)
Accrued income and other taxes
(15,028)
(17,567)
Accrued liabilities
9,256 
689 
Total adjustments
(39,135)
(124,336)
Net cash provided by (used for) operating activities from continuing operations
47,746 
(67,373)
Investing activities:
 
 
Capital expenditures for property and equipment
(48,240)
(56,212)
Acquisition of intangible assets
(674)
(33,545)
Purchase of available-for-sale securities
(570)
(166,443)
Sale of available-for-sale securities
20,592 
115,229 
Net cash used for investing activities from continuing operations
(28,892)
(140,971)
Financing activities:
 
 
Payments on capital leases
(1,666)
(1,556)
Repurchase of common stock from employees
(4,108)
(2,189)
Net proceeds from stock options exercised
18,495 
2,659 
Excess tax benefit from share-based payments
2,894 
152 
Cash dividends paid
(43,108)
(42,869)
Net cash used for financing activities from continuing operations
(27,493)
(43,803)
Effect of exchange rates changes on cash
(517)
848 
Cash flows of discontinued operations
 
 
Net cash used for operating activities
(13,544)
(17,606)
Net cash used for investing activities
(768)
(9,389)
Net cash used for financing activities
   
   
Effect of exchange rates changes on cash
   
   
Net cash used for discontinued operations
(14,312)
(26,995)
Net decrease in cash and cash equivalents
(23,468)
(278,294)
Cash and cash equivalents-beginning of period
719,545 
667,593 
Cash and cash equivalents-end of period
696,077 
389,299 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for income taxes
61,606 
59,533 
Cash paid during the period for interest
$ 132 
$ 0 
Interim Financial Statements
Interim Financial Statements

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at July 28, 2012 and July 30, 2011 and for the 13 and 26 week periods ended July 28, 2012 and July 30, 2011 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 2011 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. “AEO Direct” refers to our e-commerce operations, ae.com and aerie.com. “77kids” refers to our 77kids by american eagle® stores and related e-commerce operation.

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 July 28, 2012, the Company operated in one reportable segment.

On May 18, 2012, the Company announced plans to exit the 77kids business, which includes all 22 stores and related e-commerce operations. These Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented. Refer to Note 12 to the Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids.

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” refers to the 53 week period ending February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, 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 adopted ASU 2011-05 on January 29, 2012 by presenting total other comprehensive income and its components as a separate statement following the Consolidated Statements of Operations and Retained Earnings.

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 adopted ASU 2011-08 on January 29, 2012 with no 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.

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 royalty revenue generated from its franchise agreements based on 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 (Expense) Income, Net

Other (expense) income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

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 for investment securities recognized in earnings during the 13 or 26 weeks ended July 28, 2012 or July 30, 2011.

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 July 28, 2012, short-term investments include treasury bills with a maturity of greater than three months, but less than one year. Historically, short-term investments have included treasury bills, corporate bonds, term-deposits, commercial paper and state and local government ARS with a maturity of greater than three months, but less than one year.

As of July 28, 2012, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. Long-term investments are included within other assets on the Company’s Consolidated Balance Sheets. 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 the Company’s 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.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

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 and 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 recorded.

During the 26 weeks ended July 28, 2012, the Company recorded asset impairment charges of $16.6 million related to the impairment of all 22 77kids stores and $0.5 million related to the impairment of one aerie store. Based on the Company’s decision to exit all 77kids stores, the Company determined that the stores 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. The 77kids asset impairment charges for the 26 weeks ended July 28, 2012 are recorded within Loss from Discontinued Operations on the Consolidated Statements of Operations. No long-lived asset impairment charges were recorded during the 26 weeks ended July 30, 2011.

 

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. 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 28, 2012. 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 the 26 weeks ended July 28, 2012 or July 30, 2011.

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. The Company recorded $0.9 million of revenue related to gift card breakage during both the 13 weeks ended July 28, 2012 and July 30, 2011. During the 26 weeks ended July 28, 2012 and July 30, 2011, the Company recorded $2.8 million and $2.0 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). 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 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 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 or aerie 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 three operating segments (American Eagle Brand US and Canadian retail stores, aerie 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 on the Consolidated Balance Sheets:

 

(In thousands)    July 28,
2012
     January 28,
2012
     July 30,
2011
 

Cash and cash equivalents:

        

Cash

   $ 623,277       $ 548,728       $ 287,753   

Money-market

     44,789         131,785         74,387   

Treasury bills

     23,011         9,034         3,163   

Commercial paper

     5,000         29,998         23,996   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 696,077       $ 719,545       $ 389,299   

Short-term investments:

        

Treasury bills

   $ 5,995       $ 19,999       $ 76,262   

State and local government ARS

     —           5,500         6,900   

Corporate bonds

     —           —           16,111   

Term-deposits

     —           —           15,427   

Commercial paper

     —           —           9,997   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 5,995       $ 25,499       $ 124,697   

Long-term investments:

        

ARS Call Option

   $ 254       $ 847       $ 648   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 254       $ 847       $ 648   
  

 

 

    

 

 

    

 

 

 

Total

   $ 702,326       $ 745,891       $ 514,644   
  

 

 

    

 

 

    

 

 

 

Proceeds from the sale of investments were $20.6 million and $115.2 million for the 26 weeks ended July 28, 2012 and July 30, 2011, respectively. The purchase of investments was $0.6 million and $166.4 million for the 26 weeks ended July 28, 2012 and July 30, 2011, respectively.

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 July 28, 2012, the Company determined that the remaining value of the ARS Call Option, which is classified as a long-term investment, was $0.3 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 July 28, 2012 and July 30, 2011, 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 July 28, 2012 and July 30, 2011:

 

     Fair Value Measurements at July 28, 2012  
(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

   $ 623,277       $ 623,277       $ —         $ —     

Money-market

     44,789         44,789         —           —     

Treasury bills

     23,011         23,011         —           —     

Commercial paper

     5,000         5,000         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 696,077       $ 696,077       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 5,995       $ 5,995       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 5,995       $ 5,995       $ —         $ —     

Long-term investments:

           

ARS Call Option

   $ 254       $ —         $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 254       $ —         $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 702,326       $ 702,072       $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at July 30, 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

   $ 287,753       $ 287,753       $ —         $ —     

Money-market

     74,387         74,387         —           —     

Commercial paper

     23,996         23,996         —           —     

Treasury bills

     3,163         3,163         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 389,299       $ 389,299       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 76,262       $ 76,262       $ —         $ —     

Corporate bonds

     16,111         16,111         —           —     

Term-deposits

     15,427         15,427         —           —     

Commercial paper

     9,997         9,997         —           —     

State and local government ARS

     6,900         —           —           6,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 124,697       $ 117,797       $ —         $ 6,900   

Long-term investments:

           

ARS Call Option

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 514,644       $ 507,096       $ —         $ 7,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company uses a discounted cash flow model to value its Level 3 investments. Excluding the ARS Call Option, there were no Level 3 investments at July 28, 2012. At July 30, 2011, the assumptions in the Company’s model included different recovery periods, ranging from two months to 11 months, a discount factor for yield of 0.2% 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 reasonable assumptions would not result in a material change to the valuation.

As a result of the discounted cash flow analysis, no impairment loss was recorded for the 26 weeks ended July 28, 2012 or July 30, 2011.

 

The fair value of the ARS Call Option described in Note 3 to the Consolidated Financial Statements was also estimated using a discounted cash flow model. The model considered potential changes in yields for securities with similar characteristics to the underlying ARS and evaluated possible future refinancing opportunities for the issuers of the ARS. The analysis then assessed the likelihood that the options would be exercisable as a result of the underlying ARS being redeemed or traded in a secondary market at an amount greater than the exercise price prior to the end of the option term. Changes in the fair value of the ARS Call Option are recorded within the Consolidated Statements of Operations and Retained Earnings.

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the 26 weeks ended July 28, 2012 and July 30, 2011 is as follows.

 

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

Carrying value at January 28, 2012

   $ 6,347      $ 5,500      $ 847   

Settlements

     (5,789     (5,500     (289

Losses:

      

Reported in earnings

     (304     —          (304
  

 

 

   

 

 

   

 

 

 

Balance at July 28, 2012

   $ 254      $ —        $ 254   
  

 

 

   

 

 

   

 

 

 

 

(In thousands)    Total     Auction-Rate
Municipal
Securities
    ARS Call
Option
 

Carrying value at January 29, 2011

   $ 9,615      $ 9,200      $ 415   

Settlements

     (2,300     (2,300     —     

Gains:

      

Reported in earnings

     233        —          233   
  

 

 

   

 

 

   

 

 

 

Balance at July 30, 2011

   $ 7,548      $ 6,900      $ 648   
  

 

 

   

 

 

   

 

 

 

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 28, 2012, the Company concluded that its goodwill was not impaired.

Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During the second quarter Fiscal 2012, certain long-lived assets related to all 22 77kids and one aerie store were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in a loss on impairment of assets of $17.1 million. $16.6 million of the total loss on impairment of assets relates to 77kids stores, which were determined to not to be able to generate sufficient cash flows due to the Company’s decision to exit the brand.

The fair value of the Company’s 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.

Earnings per Share
Earnings per Share

5. Earnings per Share

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

 

     13 Weeks Ended      26 Weeks Ended  
(In thousands)    July 28,
2012
     July 30,
2011
     July 28,
2012
     July 30,
2011
 

Weighted average common shares outstanding:

           

Basic number of common shares outstanding

     196,160         194,909         195,525         194,800   

Dilutive effect of stock options and non-vested restricted stock

     3,647         1,699         2,804         1,826   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted number of common shares outstanding

     199,807         196,578         198,329         196,626   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity awards to purchase approximately 2.9 million and 3.4 million shares of common stock during the 13 and 26 weeks ended July 28, 2012 and approximately 7.5 million and 7.2 million shares of common stock during the 13 and 26 weeks ended July 30, 2011, 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.

There were approximately 30,000 shares for both the 13 and 26 weeks ended July 28, 2012 and approximately 1.9 million shares for both the 13 and 26 weeks ended July 30, 2011 of 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 9 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)    July 28,
2012
    January 28,
2012
    July 30,
2011
 

Property and equipment, at cost

   $ 1,446,213      $ 1,458,522      $ 1,478,208   

Less: Accumulated depreciation

     (901,462     (876,360     (842,668
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 544,751      $ 582,162      $ 635,540   
  

 

 

   

 

 

   

 

 

 
Intangible Assets
Intangible Assets

7. Intangible Assets

Intangible assets consist of the following:

 

(In thousands)    July 28,
2012
    January 28,
2012
    July 30,
2011
 

Trademarks, at cost

   $ 43,844      $ 44,142      $ 43,506   

Less: Accumulated amortization

     (5,162     (4,310     (3,211
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 38,682      $ 39,832      $ 40,295   
  

 

 

   

 

 

   

 

 

 
Other Credit Arrangements
Other Credit Arrangements

8. Other Credit Arrangements

On March 2, 2012, the Company entered into a five-year, $150.0 million syndicated, unsecured, revolving credit agreement (the “Credit Agreement”). The primary purpose of the Credit Agreement is to provide additional access to capital for general corporate purposes, growth initiatives and the issuance of letters of credit.

The Credit Agreement contains financial covenants that require the Company to maintain certain coverage and leverage ratios, and various customary affirmative and negative covenants such as the ability to incur additional debt not otherwise permitted under the Credit Agreement.

 

The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate (“LIBOR” as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly.

Under the Credit Agreement, the Company is also required to pay a commitment fee ranging from 0.175% to 0.30%, based on the defined leverage ratio, on the unused portion of the total lender commitments.

As of July 28, 2012, the Company was in compliance with the terms of the Credit Agreement and had $7.6 million outstanding in letters of credit and no borrowings.

The Credit Agreement replaced uncommitted demand lines in the aggregate amount of $110.0 million United States dollars (“USD”) and $25.0 million Canadian dollars (“CAD”).

Additionally, the Company has borrowing agreements with two separate financial institutions under which it may borrow an aggregate of $135.0 million USD for the purposes of trade letter of credit issuances. As of July 28, 2012, the Company had outstanding trade letters of credit of $57.9 million. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions.

Share-Based Compensation
Share-Based Compensation

9. 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 26 weeks ended July 28, 2012 was $7.1 million ($4.4 million, net of tax) and $28.0 million ($17.3 million net of tax), respectively and for the 13 and 26 weeks ended July 30, 2011 was $3.2 million ($2.0 million, net of tax) and $5.5 million ($3.4 million net of tax), respectively.

Stock Option Grants

The Company grants both time-based and performance-based stock options under its 2005 Stock Award and Incentive 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 one year and are earned if the Company meets pre-established performance goals.

A summary of the Company’s stock option activity for the 26 weeks ended July 28, 2012 follows:

 

    Options     Weighted-Average
Exercise Price
    Weighted-Average
Remaining
Contractual

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

Outstanding—January 28, 2012

    11,197      $ 15.31       

Granted

    1,046      $ 14.26       

Exercised (1)

    (1,946   $ 9.55       

Cancelled

    (597   $ 14.62       
 

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding—July 28, 2012

    9,700      $ 16.39        2.2      $ 55,957   
 

 

 

   

 

 

   

 

 

   

 

 

 

Vested and expected to vest—July 28, 2012

    9,579      $ 16.41        2.2      $ 55,261   
 

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable—July 28, 2012 (2)

    6,425      $ 13.88        1.7      $ 45,242   

 

(1) Options exercised during the 26 weeks ended July 28, 2012 had exercise prices ranging from $4.54 to $20.62.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted average exercise price of vested options compared to the Company’s stock price at July 28, 2012.

The weighted-average grant date fair value of stock options granted during the 26 weeks ended July 28, 2012 and July 30, 2011 was $3.69 and $4.73, respectively. The aggregate intrinsic value of options exercised during the 26 weeks ended July 28, 2012 and July 30, 2011 was $15.0 million and $1.3 million, respectively.

 

Cash received from the exercise of stock options was $18.5 million for the 26 weeks ended July 28, 2012 and $2.7 million for the 26 weeks ended July 30, 2011. The actual tax benefit realized from stock option exercises totaled $4.4 million for the 26 weeks ended July 28, 2012 and $0.3 million for the 26 weeks ended July 30, 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:

 

     26 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   July 28,
2012
    July 30,
2011
 

Risk-free interest rate (1)

     0.6     2.1

Dividend yield

     2.8     2.6

Volatility factor (2)

     41.2     42.7

Weighted-average expected term (3)

     4.0 years        5.0 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 July 28, 2012, there was $2.9 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 2.2 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  
     26 Weeks Ended
July 28, 2012
     26 Weeks Ended
July 28, 2012
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 28, 2012

     1,784      $ 15.73         1,762      $ 14.23   

Granted

     1,497        14.77         888        14.76   

Vested

     (1,074     16.65         —          —     

Cancelled

     (588     16.17         (401     11.70   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - July 28, 2012

     1,619      $ 14.07         2,249      $ 14.89   

As of July 28, 2012, there was $28.3 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.

 

Additionally, there was $17.0 million of unrecognized compensation expense related to performance-based restricted stock unit awards which will be recognized as achievement of performance goals is probable.

As of July 28, 2012, the Company had 23.4 million shares available for all equity grants.

Income Taxes
Income Taxes

10. 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 July 28, 2012 was 30.3% compared to 36.5% for the 13 weeks ended July 30, 2011. The effective income tax rate from continuing operations based on actual operating results for the 26 weeks ended July 28, 2012 was 32.8% compared to 35.4% for the 26 weeks ended July 30, 2011. The lower effective income tax rate for the 13 and 26 weeks ended July 28, 2012 was primarily due to income tax settlements and other changes in income tax reserves.

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

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. Unrecognized tax benefits decreased by $7.3 million during the 13 weeks ended July 28, 2012. The decreases were primarily due to income tax settlements and other changes in income tax reserves. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $8.2 million due to settlements, expiration of statute of limitations or other changes in unrecognized tax benefits.

Legal Proceedings
Legal Proceedings

11. 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

12. Discontinued Operations

On May 18, 2012, the Company announced plans to exit the 77kids business, which includes all 22 stores and related e-commerce operations. Management determined that it is in the best interest of the Company and its shareholders to prioritize and focus its efforts on businesses with the highest return potential. Prior to the issuance of these Consolidated Financial Statements, the Company completed the sale of the 77kids business to a third party. The sale, which included store assets, the related on-line business, inventory and a temporary license to use the 77kids name through January 15, 2013, was effective on August 3, 2012. Therefore, these Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented.

Additionally, the third party purchaser has assumed certain liabilities associated with the 77kids business and paid the Company an amount equal to 65% of the cost of the acquired inventory. Therefore, 77kids inventory is presented as an asset held for sale for all periods on the Consolidated Balance Sheets.

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 are as follows:

 

     13 and 26
Weeks Ended
 
(In thousands)    July 28,
2012
 

Non-cash charges

  

Asset impairments

   $ 16,623   

Cash charges

  

Inventory charges

     7,768   

Severence charges

     3,439   
  

 

 

 

Total charges

   $ 27,830   
  

 

 

 

A rollforward of the liabilities recognized in the Consolidated Balance Sheet is as follows:

 

      July 28,  
(In thousands)    2012  

Accrued liability as of January 28, 2012

   $ —     

Add: Costs incurred, excluding non-cash charges

     3,439   

Less: Cash payments

     (2,635
  

 

 

 

Accrued liability as of July 28, 2012 (1)

   $ 804   
  

 

 

 

 

(1) Accrued liability at July 28, 2012 relates to severance and employee related charges recorded as a current liability within accrued compensation and payroll taxes.

The table below presents the significant components of 77kids’ results included in Loss from Discontinued Operations on the Consolidated Statement of Operations.

 

     13 Weeks Ended     26 Weeks Ended  
(In thousands, except per share amounts)    July 28,
2012
    July 30,
2011
    July 28,
2012
    July 30,
2011
 

Net sales

   $ 9,719      $ 6,583      $ 20,117      $ 13,331   

Loss from discontinued operations, before income taxes

   $ (38,600   $ (8,781   $ (45,648   $ (14,522

Income tax benefit

     14,781        3,358        17,491        5,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net of tax

   $ (23,819   $ (5,423   $ (28,157   $ (8,969
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per common share from discontinued operations:

        

Basic

   $ (0.12   $ (0.03   $ (0.14   $ (0.05

Diluted

   $ (0.12   $ (0.03   $ (0.14   $ (0.05

The major classes of assets and liabilities included in the Consolidated Balance Sheets for 77kids are as follows:

 

(In thousands)    July 28,
2012
     January 28,
2012
     July 30,
2011
 

Current assets

   $ 10,189       $ 12,296       $ 15,526   

Non-current assets

     —           15,722         18,064   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 10,189       $ 28,018       $ 33,590   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

   $ 9,034       $ 5,838       $ 6,100   

Total non-current liabilities

     2,597         2,646         2,873   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 11,631       $ 8,484       $ 8,973   
  

 

 

    

 

 

    

 

 

 

 

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the sale of 77kids.

Subsequent Events
Subsequent Events

13. Subsequent Events

On August 3, 2012, the Company completed the sale of its 77kids business pursuant to an Asset Purchase Agreement (the “Agreement”) with Ezrani 2 Corp. (the “Purchaser”), a company formed by Ezra Dabah, the former Chairman and Chief Executive Officer of The Children’s Place. The Purchaser has acquired substantially all of the assets comprising the 77kids business.

As a result of the Agreement, the Company expects to incur an after-tax loss of approximately $35 million, which includes approximately $19 million of asset impairments, inventory write-downs and severance, $6 million of support payments to the purchaser and $10 million of operational costs. The total after-tax exit charges incurred in the 13 weeks ended July 28, 2012 were $17.2 million and after-tax operational costs were $6.6 million. The remaining after-tax exit charges, which include $6.3 million of support payments to the Purchaser, and operational costs are anticipated to be taken in the third quarter of Fiscal 2012.

Refer to Note 12 to the Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids.

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 July 28, 2012, the Company operated in one reportable segment.

On May 18, 2012, the Company announced plans to exit the 77kids business, which includes all 22 stores and related e-commerce operations. These Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented. Refer to Note 12 to the Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids.

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” refers to the 53 week period ending February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, 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 adopted ASU 2011-05 on January 29, 2012 by presenting total other comprehensive income and its components as a separate statement following the Consolidated Statements of Operations and Retained Earnings.

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 adopted ASU 2011-08 on January 29, 2012 with no 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.

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 royalty revenue generated from its franchise agreements based on 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 (Expense) Income, Net

Other (expense) income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

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 for investment securities recognized in earnings during the 13 or 26 weeks ended July 28, 2012 or July 30, 2011.

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 July 28, 2012, short-term investments include treasury bills with a maturity of greater than three months, but less than one year. Historically, short-term investments have included treasury bills, corporate bonds, term-deposits, commercial paper and state and local government ARS with a maturity of greater than three months, but less than one year.

As of July 28, 2012, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. Long-term investments are included within other assets on the Company’s Consolidated Balance Sheets. 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 the Company’s 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.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

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 and 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 recorded.

During the 26 weeks ended July 28, 2012, the Company recorded asset impairment charges of $16.6 million related to the impairment of all 22 77kids stores and $0.5 million related to the impairment of one aerie store. Based on the Company’s decision to exit all 77kids stores, the Company determined that the stores 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. The 77kids asset impairment charges for the 26 weeks ended July 28, 2012 are recorded within Loss from Discontinued Operations on the Consolidated Statements of Operations. No long-lived asset impairment charges were recorded during the 26 weeks ended July 30, 2011.

 

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. 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 28, 2012. 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 the 26 weeks ended July 28, 2012 or July 30, 2011.

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. The Company recorded $0.9 million of revenue related to gift card breakage during both the 13 weeks ended July 28, 2012 and July 30, 2011. During the 26 weeks ended July 28, 2012 and July 30, 2011, the Company recorded $2.8 million and $2.0 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). 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 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 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 or aerie 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 three operating segments (American Eagle Brand US and Canadian retail stores, aerie 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 on the Consolidated Balance Sheets:

 

(In thousands)    July 28,
2012
     January 28,
2012
     July 30,
2011
 

Cash and cash equivalents:

        

Cash

   $ 623,277       $ 548,728       $ 287,753   

Money-market

     44,789         131,785         74,387   

Treasury bills

     23,011         9,034         3,163   

Commercial paper

     5,000         29,998         23,996   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 696,077       $ 719,545       $ 389,299   

Short-term investments:

        

Treasury bills

   $ 5,995       $ 19,999       $ 76,262   

State and local government ARS

     —           5,500         6,900   

Corporate bonds

     —           —           16,111   

Term-deposits

     —           —           15,427   

Commercial paper

     —           —           9,997   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 5,995       $ 25,499       $ 124,697   

Long-term investments:

        

ARS Call Option

   $ 254       $ 847       $ 648   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 254       $ 847       $ 648   
  

 

 

    

 

 

    

 

 

 

Total

   $ 702,326       $ 745,891       $ 514,644   
  

 

 

    

 

 

    

 

 

 
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 July 28, 2012 and July 30, 2011:

 

     Fair Value Measurements at July 28, 2012  
(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

   $ 623,277       $ 623,277       $ —         $ —     

Money-market

     44,789         44,789         —           —     

Treasury bills

     23,011         23,011         —           —     

Commercial paper

     5,000         5,000         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 696,077       $ 696,077       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 5,995       $ 5,995       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 5,995       $ 5,995       $ —         $ —     

Long-term investments:

           

ARS Call Option

   $ 254       $ —         $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 254       $ —         $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 702,326       $ 702,072       $ —         $ 254   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at July 30, 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

   $ 287,753       $ 287,753       $ —         $ —     

Money-market

     74,387         74,387         —           —     

Commercial paper

     23,996         23,996         —           —     

Treasury bills

     3,163         3,163         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 389,299       $ 389,299       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 76,262       $ 76,262       $ —         $ —     

Corporate bonds

     16,111         16,111         —           —     

Term-deposits

     15,427         15,427         —           —     

Commercial paper

     9,997         9,997         —           —     

State and local government ARS

     6,900         —           —           6,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 124,697       $ 117,797       $ —         $ 6,900   

Long-term investments:

           

ARS Call Option

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 648       $ —         $ —         $ 648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 514,644       $ 507,096       $ —         $ 7,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the 26 weeks ended July 28, 2012 and July 30, 2011 is as follows.

 

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

Carrying value at January 28, 2012

   $ 6,347      $ 5,500      $ 847   

Settlements

     (5,789     (5,500     (289

Losses:

      

Reported in earnings

     (304     —          (304
  

 

 

   

 

 

   

 

 

 

Balance at July 28, 2012

   $ 254      $ —        $ 254   
  

 

 

   

 

 

   

 

 

 

 

(In thousands)    Total     Auction-Rate
Municipal
Securities
    ARS Call
Option
 

Carrying value at January 29, 2011

   $ 9,615      $ 9,200      $ 415   

Settlements

     (2,300     (2,300     —     

Gains:

      

Reported in earnings

     233        —          233   
  

 

 

   

 

 

   

 

 

 

Balance at July 30, 2011

   $ 7,548      $ 6,900      $ 648   
  

 

 

   

 

 

   

 

 

 
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      26 Weeks Ended  
(In thousands)    July 28,
2012
     July 30,
2011
     July 28,
2012
     July 30,
2011
 

Weighted average common shares outstanding:

           

Basic number of common shares outstanding

     196,160         194,909         195,525         194,800   

Dilutive effect of stock options and non-vested restricted stock

     3,647         1,699         2,804         1,826   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted number of common shares outstanding

     199,807         196,578         198,329         196,626   
  

 

 

    

 

 

    

 

 

    

 

 

 
Property and Equipment (Tables)
Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    July 28,
2012
    January 28,
2012
    July 30,
2011
 

Property and equipment, at cost

   $ 1,446,213      $ 1,458,522      $ 1,478,208   

Less: Accumulated depreciation

     (901,462     (876,360     (842,668
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 544,751      $ 582,162      $ 635,540   
  

 

 

   

 

 

   

 

 

 
Intangible Assets (Tables)
Intangible assets

Intangible assets consist of the following:

 

(In thousands)    July 28,
2012
    January 28,
2012
    July 30,
2011
 

Trademarks, at cost

   $ 43,844      $ 44,142      $ 43,506   

Less: Accumulated amortization

     (5,162     (4,310     (3,211
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 38,682      $ 39,832      $ 40,295   
  

 

 

   

 

 

   

 

 

 
Share-Based Compensation (Tables)

A summary of the Company’s stock option activity for the 26 weeks ended July 28, 2012 follows:

 

    Options     Weighted-Average
Exercise Price
    Weighted-Average
Remaining
Contractual

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

Outstanding—January 28, 2012

    11,197      $ 15.31       

Granted

    1,046      $ 14.26       

Exercised (1)

    (1,946   $ 9.55       

Cancelled

    (597   $ 14.62       
 

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding—July 28, 2012

    9,700      $ 16.39        2.2      $ 55,957   
 

 

 

   

 

 

   

 

 

   

 

 

 

Vested and expected to vest—July 28, 2012

    9,579      $ 16.41        2.2      $ 55,261   
 

 

 

   

 

 

   

 

 

   

 

 

 

Exercisable—July 28, 2012 (2)

    6,425      $ 13.88        1.7      $ 45,242   

 

(1) Options exercised during the 26 weeks ended July 28, 2012 had exercise prices ranging from $4.54 to $20.62.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted average exercise price of vested options compared to the Company’s stock price at July 28, 2012.

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:

 

     26 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   July 28,
2012
    July 30,
2011
 

Risk-free interest rate (1)

     0.6     2.1

Dividend yield

     2.8     2.6

Volatility factor (2)

     41.2     42.7

Weighted-average expected term (3)

     4.0 years        5.0 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  
     26 Weeks Ended
July 28, 2012
     26 Weeks Ended
July 28, 2012
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 28, 2012

     1,784      $ 15.73         1,762      $ 14.23   

Granted

     1,497        14.77         888        14.76   

Vested

     (1,074     16.65         —          —     

Cancelled

     (588     16.17         (401     11.70   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - July 28, 2012

     1,619      $ 14.07         2,249      $ 14.89   
Discontinued Operations (Tables)

A summary of the exit and disposal costs recognized within Loss from Discontinued Operations on the Consolidated Income Statement are as follows:

 

     13 and 26
Weeks Ended
 
(In thousands)    July 28,
2012
 

Non-cash charges

  

Asset impairments

   $ 16,623   

Cash charges

  

Inventory charges

     7,768   

Severence charges

     3,439   
  

 

 

 

Total charges

   $ 27,830   
  

 

 

 

A rollforward of the liabilities recognized in the Consolidated Balance Sheet is as follows:

 

      July 28,  
(In thousands)    2012  

Accrued liability as of January 28, 2012

   $ —     

Add: Costs incurred, excluding non-cash charges

     3,439   

Less: Cash payments

     (2,635
  

 

 

 

Accrued liability as of July 28, 2012 (1)

   $ 804   
  

 

 

 

 

(1) Accrued liability at July 28, 2012 relates to severance and employee related charges recorded as a current liability within accrued compensation and payroll taxes.

The table below presents the significant components of 77kids’ results included in Loss from Discontinued Operations on the Consolidated Statement of Operations.

 

     13 Weeks Ended     26 Weeks Ended  
(In thousands, except per share amounts)    July 28,
2012
    July 30,
2011
    July 28,
2012
    July 30,
2011
 

Net sales

   $ 9,719      $ 6,583      $ 20,117      $ 13,331   

Loss from discontinued operations, before income taxes

   $ (38,600   $ (8,781   $ (45,648   $ (14,522

Income tax benefit

     14,781        3,358        17,491        5,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net of tax

   $ (23,819   $ (5,423   $ (28,157   $ (8,969
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per common share from discontinued operations:

        

Basic

   $ (0.12   $ (0.03   $ (0.14   $ (0.05

Diluted

   $ (0.12   $ (0.03   $ (0.14   $ (0.05

The major classes of assets and liabilities included in the Consolidated Balance Sheets for 77kids are as follows:

 

(In thousands)    July 28,
2012
     January 28,
2012
     July 30,
2011
 

Current assets

   $ 10,189       $ 12,296       $ 15,526   

Non-current assets

     —           15,722         18,064   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 10,189       $ 28,018       $ 33,590   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

   $ 9,034       $ 5,838       $ 6,100   

Total non-current liabilities

     2,597         2,646         2,873   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 11,631       $ 8,484       $ 8,973   
  

 

 

    

 

 

    

 

 

 
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jul. 28, 2012
Segment
Jul. 30, 2011
Significant Accounting Policies [Line Items]
 
 
 
 
Number of operating segments
 
 
 
Net impairment loss recognized in earnings
$ 0 
$ 0 
$ 0 
$ 0 
Asset impairment charges
 
 
514,000 
 
Finite-lived impairment charges
 
 
Revenue related to gift card breakage
900,000 
900,000 
2,800,000 
2,000,000 
Discontinued Operations |
77kids store
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
Asset impairment charges
 
 
16,600,000 
 
Number of stores impaired
22 
 
22 
 
Discontinued Operations |
Aerie store
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
Asset impairment charges
 
 
$ 500,000 
 
Number of stores impaired
 
 
Minimum
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
Finite intangibles, useful life (in years)
 
 
15 years 
 
Maximum
 
 
 
 
Significant Accounting Policies [Line Items]
 
 
 
 
Finite intangibles, useful life (in years)
 
 
25 years 
 
Useful Lives of Major Classes of Assets (Detail)
6 Months Ended
Jul. 28, 2012
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 
Useful Lives of Major Classes of Assets (Parenthetical) (Detail) (Maximum, Leasehold Improvements)
6 Months Ended
Jul. 28, 2012
Maximum |
Leasehold Improvements
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
10 years 
Fair Market Values for Cash and Marketable Securities (Detail) (USD $)
In Thousands, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Jan. 29, 2011
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
$ 696,077 
$ 719,545 
$ 389,299 
$ 667,593 
Short-term investments:
 
 
 
 
Short-term investments
5,995 
25,499 
124,697 
 
Fair Value, Measurements, Recurring
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
696,077 
719,545 
389,299 
 
Short-term investments:
 
 
 
 
Short-term investments
5,995 
25,499 
124,697 
 
Long-term investments:
 
 
 
 
Long-term investments
254 
847 
648 
 
Total
702,326 
745,891 
514,644 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
623,277 
548,728 
287,753 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
44,789 
131,785 
74,387 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
5,000 
29,998 
23,996 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
9,997 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
23,011 
9,034 
3,163 
 
Short-term investments:
 
 
 
 
Short-term investments
5,995 
19,999 
76,262 
 
Fair Value, Measurements, Recurring |
Corporate bonds
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
16,111 
 
Fair Value, Measurements, Recurring |
Term-deposits
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
15,427 
 
Fair Value, Measurements, Recurring |
ARS Call Option
 
 
 
 
Long-term investments:
 
 
 
 
Long-term investments
254 
847 
648 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
$ 5,500 
$ 6,900 
 
Cash and Cash Equivalents, Short-term Investments and Long-term Investments - Additional Information (Detail) (USD $)
6 Months Ended 12 Months Ended 12 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jan. 29, 2011
ARS Call Option
Jul. 28, 2012
ARS Call Option
Jan. 29, 2011
ARS
Schedule of Available-for-sale Securities [Line Items]
 
 
 
 
 
Proceeds from sale of available-for-sale securities
$ 20,592,000 
$ 115,229,000 
 
 
$ 177,500,000 
Purchase of available-for-sale securities
570,000 
166,443,000 
 
 
 
Available-for-sale securities sold, carrying value
 
 
 
 
191,400,000 
Realized loss on sale of investment securities
 
 
 
 
24,400,000 
Loss on sale of available-for-sale securities previous included in OCI
 
 
 
 
10,900,000 
Available-for-sale securities sold, par value
 
 
 
 
119,700,000 
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 
 
Assessed Value Of The ARS Call Option Upon Liquidation
 
 
 
24,400,000 
 
Fair value of the ARS Call Option
 
 
 
$ 300,000 
 
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on a Recurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Jan. 29, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
$ 696,077 
$ 719,545 
$ 389,299 
$ 667,593 
Short-term investments
5,995 
25,499 
124,697 
 
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
696,077 
719,545 
389,299 
 
Short-term investments
5,995 
25,499 
124,697 
 
Long-term investments
254 
847 
648 
 
Total
702,326 
745,891 
514,644 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
623,277 
548,728 
287,753 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
44,789 
131,785 
74,387 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
5,000 
29,998 
23,996 
 
Short-term investments
 
 
9,997 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
23,011 
9,034 
3,163 
 
Short-term investments
5,995 
19,999 
76,262 
 
Fair Value, Measurements, Recurring |
ARS Call Option
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
254 
847 
648 
 
Fair Value, Measurements, Recurring |
Corporate bonds
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
16,111 
 
Fair Value, Measurements, Recurring |
Term Loan
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
15,427 
 
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
696,077 
 
389,299 
 
Short-term investments
5,995 
 
117,797 
 
Total
702,072 
 
507,096 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
623,277 
 
287,753 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
44,789 
 
74,387 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
5,000 
 
23,996 
 
Short-term investments
 
 
9,997 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
23,011 
 
3,163 
 
Short-term investments
5,995 
 
76,262 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Corporate bonds
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
16,111 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Term Loan
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
15,427 
 
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
 
 
6,900 
 
Long-term investments
254 
 
648 
 
Total
254 
 
7,548 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
ARS Call Option
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
254 
 
648 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
5,500 
6,900 
 
Fair Value, Measurements, Recurring |
ARS |
Significant Unobservable Inputs (Level 3) |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
$ 6,900 
 
Fair Value Measurements - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 28, 2012
77kids store
Jul. 30, 2011
Significant Unobservable Inputs (Level 3)
Jul. 30, 2011
Significant Unobservable Inputs (Level 3)
Minimum
Jul. 30, 2011
Significant Unobservable Inputs (Level 3)
Maximum
Fair Value, Measurement Inputs, Disclosure [Line Items]
 
 
 
 
 
Discounted cash flow model to value Level 3 investments, assumptions, recovery period
 
 
 
2 months 
11 months 
Discounted cash flow model to value Level 3 investments, assumptions, discount yield
 
 
0.20% 
 
 
Discounted cash flow model to value Level 3 investments, assumptions, illiquidity
 
 
0.50% 
 
 
Impairment of assets
$ 17.1 
$ 16.6 
 
 
 
Reconciliation of Assets Measured at Fair Value On Recurring Basis Using Unobservable Inputs (Level 3) (Detail) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
Beginning Balance
$ 6,347 
$ 9,615 
Settlements
(5,789)
(2,300)
Reported in earnings
(304)
233 
Ending Balance
254 
7,548 
ARS |
State and local government
 
 
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
Beginning Balance
5,500 
9,200 
Settlements
(5,500)
(2,300)
Ending Balance
 
6,900 
ARS Call Option
 
 
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
Beginning Balance
847 
415 
Settlements
(289)
 
Reported in earnings
(304)
233 
Ending Balance
$ 254 
$ 648 
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding (Detail)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jul. 28, 2012
Jul. 30, 2011
Weighted average common shares outstanding:
 
 
 
 
Basic number of common shares outstanding
196,160 
194,909 
195,525 
194,800 
Dilutive effect of stock options and non-vested restricted stock
3,647 
1,699 
2,804 
1,826 
Diluted number of common shares outstanding
199,807 
196,578 
198,329 
196,626 
Earnings Per Share - Additional Information (Detail)
3 Months Ended 6 Months Ended
Jul. 28, 2012
Jul. 30, 2011
Jul. 28, 2012
Jul. 30, 2011
Earnings Per Share Disclosure [Line Items]
 
 
 
 
Equity awards to purchase shares of common stock that were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive
2,900,000 
7,500,000 
3,400,000 
7,200,000 
Restricted Stock Units (RSUs)
 
 
 
 
Earnings Per Share Disclosure [Line Items]
 
 
 
 
Shares of restricted stock units not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on performance
30,000.0 
1,900,000 
30,000.0 
1,900,000 
Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, at cost
$ 1,446,213 
$ 1,458,522 
$ 1,478,208 
Less: Accumulated depreciation
(901,462)
(876,360)
(842,668)
Property and equipment, net
$ 544,751 
$ 582,162 
$ 635,540 
Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
Jul. 28, 2012
Jan. 28, 2012
Jul. 30, 2011
Finite-Lived Intangible Assets [Line Items]
 
 
 
Trademarks, at cost
$ 43,844 
$ 44,142 
$ 43,506 
Less: Accumulated amortization
(5,162)
(4,310)
(3,211)
Intangible assets, net
$ 38,682 
$ 39,832 
$ 40,295 
Other Credit Arrangements - Additional Information (Detail)
In Millions, unless otherwise specified
1 Months Ended 1 Months Ended
Jul. 28, 2012
Entity
Mar. 2, 2012
Unsecured Revolving Credit Facility
USD ($)
Jul. 28, 2012
Unsecured Revolving Credit Facility
USD ($)
Mar. 2, 2012
Unsecured Revolving Credit Facility
Base Rate
Minimum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Base Rate
Maximum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Eurodollar Rates
Minimum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Eurodollar Rates
Maximum
Jul. 28, 2012
Demand letter of credit facilities
Currency, U.S. Dollar
USD ($)
Mar. 2, 2012
Demand letter of credit facilities
Currency, U.S. Dollar
USD ($)
Mar. 2, 2012
Demand line borrowings
Currency, Canadian Dollar
CAD ($)
Debt Disclosure [Line Items]
 
 
 
 
 
 
 
 
 
 
Unsecured revolving credit facility, expiration period
 
5 years 
 
 
 
 
 
 
 
 
Borrowing agreements with financial institutions
 
$ 150.0 
 
 
 
 
 
$ 135.0 
$ 110.0 
$ 25.0 
Credit facility interest rate description
 
The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate ("LIBOR" as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly. 
 
 
 
 
 
 
 
 
Frequency of payments for interest on borrowing
 
Quarterly 
 
 
 
 
 
 
 
 
Interest rate margin
 
 
 
1.00% 
1.75% 
0.00% 
0.75% 
 
 
 
Commitment fee payable on the unused portion of total lender commitments
 
 
 
0.175% 
0.30% 
 
 
 
 
 
Outstanding borrowings
 
 
7.6