American Eagle Outfitters 2004 Annual Report Download - page 24

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10
Part II
(1) Except for the fiscal year ended February 3, 2001, which includes 53 weeks, all fiscal years presented include 52
weeks.
(2) All amounts presented are from continuing operations and exclude Bluenotes’ results of operations for all
periods. See Note 10 of the accompanying Consolidated Financial Statements for additional information
regarding discontinued operations and the disposition of Bluenotes.
(3) The comparable store sales increase for the period ended February 3, 2001 was compared to the corresponding
53-week period in the prior year.
(4) Per share results for all periods presented have been restated to reflect the two-for-one stock split distributed on
March 7, 2005. See Note 16 of the accompanying Consolidated Financial Statements for additional information
regarding the stock split.
(5) Amount represents cash dividends paid for two quarters only. Note that the Company’s first ever cash dividend
was initiated during the third quarter of Fiscal 2004.
(6) All amounts have been updated to reflect American Eagle operations only and exclude Bluenotes for all periods
presented. See Note 10 of the accompanying Consolidated Financial Statements for additional information
regarding the disposition of Bluenotes.
(7) Net sales per average square foot is calculated using retail sales for the year divided by the straight average of
the beginning and ending square footage for the year.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations are based upon the
Company's Consolidated Financial Statements and should be read in conjunction with those statements and notes
thereto.
Restatement of Prior Financial Information
On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”)
issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain
operating lease accounting issues and their application under generally accepted accounting principles (“GAAP”). In
light of this letter, the Company’s management initiated a review of its lease-related accounting and determined that
its historical method of accounting for rent holidays and tenant allowances, as more fully described below, was not in
accordance with GAAP. As a result, the Company restated its previously filed Consolidated Financial Statements for
the years ended January 31, 2004 and February 1, 2003. The Company also restated its quarterly financial
information for Fiscal 2003 and the first three quarters of Fiscal 2004, as shown in Note 15 of the Consolidated
Financial Statements. The restatement also affects periods prior to Fiscal 2002. The impact of the restatement on
prior periods has been reflected as a cumulative adjustment of $5.3 million to retained earnings as of February 2,
2002 in the Consolidated Statement of Stockholders' Equity.
Historically, the Company has recognized straight line rent expense for leases beginning on the store opening date.
This had the effect of excluding the build-out period of its stores from the calculation of the period over which it
expenses rent and recognizes construction allowances. In accordance with Financial Accounting Standards Board
Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases, the Company is now
changing this practice to include the build-out period in the calculations of rent expense and construction allowance
amortization.
Additionally, in accordance with Financial Accounting Standards Board Technical Bulletin No. 88-1, Issues Relating
to Accounting for Leases, the Company is changing its classification of construction allowances on its Consolidated
Financial Statements to record them as deferred liabilities, which will be amortized as a reduction to rent expense.
Furthermore, construction allowances will be presented within operating activities on its Consolidated Statements of
Cash Flows. Historically, construction allowances have been classified on the Company's Consolidated Balance
Sheets as a reduction of property and equipment and the related amortization had been classified as a reduction to