American Eagle Outfitters 2004 Annual Report Download - page 31

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Part II
Net cash provided by operating activities from continuing operations totaled $368.7 million during Fiscal 2004. The
Company's major source of cash from operations was merchandise sales. Our primary outflows of cash for
operations were for the purchase of inventory, operational costs, and the payment of taxes.
Investing activities from continuing operations for Fiscal 2004 included $97.3 million for capital expenditures and
$173.9 million for the net purchase of investments. Capital expenditures consisted primarily of $56.8 million related
to 50 new and 36 remodeled stores in the United States and Canada, as well as $20.0 million for the acquisition of
our corporate headquarters and distribution center. The remaining capital expenditures related primarily to fixtures
and improvements to existing stores and technological improvements.
The Company purchased both short and long-term investments during Fiscal 2004. We invest primarily in tax-
exempt municipal bonds, taxable agency bonds and corporate notes with an original maturity between three and
twenty-four months and an expected rate of return of approximately a 3% taxable equivalent yield. The Company
places an emphasis on investing in tax-exempt and tax-advantaged asset classes. Additionally, all investments must
have a highly liquid secondary market.
Cash provided by financing activities from continuing operations for Fiscal 2004 resulted from $57.5 million in
proceeds from stock option exercises during the year partially offset by $16.9 million used for the early retirement of
debt and termination of the related swap agreement, as further described below, as well as $8.8 million used for the
payment of dividends.
The Company has an unsecured demand lending arrangement (the "facility") with a bank to provide a $118.6 million
line of credit at either the lender's prime lending rate (5.25% at January 29, 2005) or at LIBOR plus a negotiated
margin rate. The facility has a limit of $40.0 million to be used for direct borrowing. No borrowings were required
against the line for the current or prior periods. At January 29, 2005, letters of credit in the amount of $55.0 million
were outstanding on this facility, leaving a remaining available balance on the line of $63.6 million. The Company
also has an uncommitted letter of credit facility for $50.0 million with a separate financial institution. At January 29,
2005, letters of credit in the amount of $17.6 million were outstanding on this facility, leaving a remaining available
balance on the line of $32.4 million.
During Fiscal 2004, the Company retired its $29.1 million non-revolving term facility (the "term facility") that it had
in connection with its Canadian acquisition. The term facility required annual payments of $4.8 million, with interest
at the one-month Bankers' Acceptance Rate plus 140 basis points, and was originally scheduled to mature in
December 2007. At redemption, the term facility had an outstanding balance, including foreign currency translation
adjustments, of $16.2 million.
On November 30, 2000, the Company entered into an interest rate swap agreement totaling $29.2 million in
connection with the term facility. The swap amount decreased on a monthly basis beginning January 1, 2001 until the
early termination of the agreement during Fiscal 2004. During Fiscal 2004, the interest rate swap was terminated at
its fair value, which represented a net loss of $0.7 million, in conjunction with the payoff of the term facility. As a
result, the Company reclassified approximately $0.4 million, net of tax, of unrealized net losses from other
comprehensive income into earnings during Fiscal 2004.
The Company also had an $11.2 million revolving operating facility (the "operating facility") that was used to
support the working capital and capital expenditures of the acquired Canadian businesses. The operating facility was
due in November 2003 and had four additional one-year extensions. During Fiscal 2003, the Company chose not to
extend the operating facility.
On February 24, 2000, the Company's Board of Directors authorized the repurchase of up to 7,500,000 shares of its
stock. The Company did not purchase any shares of common stock on the open market during Fiscal 2004 as part of
this stock repurchase program. The Company purchased 80,000 and 2,280,000 shares of common stock for
approximately $0.6 million and $17.8 million on the open market during Fiscal 2003 and Fiscal 2002, respectively.
Prior to Fiscal 2002, the Company had purchased approximately 3,740,000 shares of common stock on the open