American Eagle Outfitters 2001 Annual Report Download - page 50

AE Notes to Consolidated Financial Statements
49
Contributions to the profit sharing plan, as determined by the Board of Directors, are discretionary. The Company recognized $0.9 million, $1.0 million,
and $2.0 million in expense during Fiscal 2001, Fiscal 2000, and Fiscal 1999, respectively, in connection with these plans.
The Employee Stock Purchase Plan is a non-qualified plan that covers employees who are at least 18 years old, have completed sixty days of service,
and work at least twenty hours a week. Contributions are determined by the employee, with a maximum of $60 per pay period, with the Company matching
15% of the investment. These contributions are used to purchase shares of Company stock in the open market.
Note 13. Stock Incentive Plan, Stock Option Plan, and Restricted Stock Grants
Stock Incentive Plan
The 1999 Stock Incentive Plan (the "Plan") was approved by the shareholders on June 8, 1999. The Plan authorized 6,000,000 shares for issuance in the
form of stock options, stock appreciation rights, restricted stock awards, performance units, or performance shares. The Plan was subsequently amended,
in June 2001, to increase the shares available for grant to 11,000,000. Additionally, the Plan provides that the maximum number of shares awarded to
one individual may not exceed 3,000,000 shares. The Plan allows the Compensation and Stock Option Committee to determine which employees and
consultants will receive awards and the terms and conditions of these awards. The Plan provides for a grant of 15,000 stock options annually to each
director who is not an officer or employee of the Company. At February 2, 2002, 5,776,359 non-qualified stock options and 453,288 shares of restricted
stock were granted under the Plan to employees and certain non-employees. Approximately half of the options granted vest eight years after the date
of grant but can be accelerated to vest over three years if the Company meets annual performance goals. The remaining options granted under the Plan
vest primarily over five years. All options expire after ten years. Restricted stock is earned if the Company meets annual performance goals for the year.
For Fiscal 2001, Fiscal 2000, and Fiscal 1999, the Company recorded approximately $3.1 million, $7.0 million, and $5.8 million, respectively, in compensation
expense related to stock options and restricted stock in connection with the Plan.
During Fiscal 2000, a senior executive assumed a new position within the Company. As a result of this change, the Company accelerated the vesting on
grants covering 780,000 shares of stock for this individual. This acceleration does not result in additional compensation expense unless this executive
ceases employment with the Company prior to the original vesting dates. As of February 2, 2002, under the original terms of this executive’s option
agreements, 442,500 shares would have remained unvested which could result in compensation expense and a reduction to net income by $3.2 million
based on the February 2, 2002 stock value if the executive ceases employment with the Company.
Stock Option Plan
On February 10, 1994, the Company’s Board of Directors adopted the American Eagle Outfitters, Inc. 1994 Stock Option Plan (the “Plan”). The Plan
provides for the grant of 4,050,000 incentive or non-qualified options to purchase common stock. The Plan was subsequently amended to increase the
shares available for grant to 8,100,000 shares. Additionally, the amendment provided that the maximum number of options which may be granted to one
individual may not exceed 2,700,000 shares. The options granted under the Plan are approved by the Compensation and Stock Option Committee of
the Board of Directors, primarily vest over five years, and are exercisable for a ten-year period from the date of grant.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted beginning in the fiscal year subsequent to December 31, 1994 under the fair
value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
For the years ended Feb 2, 2002 Feb 3, 2001 Jan 29, 2000
Risk-free interest rates 4.6% 5.8% 5.5%
Dividend yield None None None
Volatility factors of the expected market price of the Company’s common stock .763 .933 .600
Weighted-average expected life 5 years 5 years 5 years
Expected forfeiture rate 10.2% 9.3% 10.0%