American Eagle Outfitters 2004 Annual Report Download - page 54

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Part II
Other Assets
Other assets consist primarily of deferred taxes, lease buyout costs, trademark costs and acquisition costs. The lease
buyout costs are amortized over the remaining life of the leases, generally for no greater than ten years. The
trademark costs are amortized over five to fifteen years. Acquisition costs are amortized over five years. These
assets, net of amortization, are presented as other assets (long-term) on the Consolidated Balance Sheets.
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 promised to the
Company by 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 as a reduction of rent expense over the term of the lease (including the pre-opening build-out
period) and the receivable is reduced as amounts are received from the landlord.
Self Insurance Reserve
The Company is self-insured for certain losses related to employee medical benefits. Costs for self-insurance claims
filed and claims incurred but not reported are accrued based on known claims and historical experience.
Management believes that it has adequately reserved for its self-insurance liability, which is capped through the use
of stop loss contracts with insurance companies. However, any significant variation of future claims from historical
trends could cause actual results to differ from the accrued liability.
Interest Rate Swap
During Fiscal 2004, the Company terminated its interest rate swap agreement, which was previously used to manage
interest rate risk. The derivative effectively changed the interest rate on the borrowings under the non-revolving term
facility from a variable rate to a fixed rate. The Company recognized its derivative on the balance sheet at fair value
at the end of each period. Changes in the fair value of the derivative that was designated and met all the required
criteria for a cash flow hedge were recorded in accumulated other comprehensive income (loss). During Fiscal 2003,
unrealized net losses on derivative instruments of approximately $0.1 million, net of related tax effects, were
recorded in other comprehensive income (loss). On October 1, 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 into earnings during Fiscal
2004. The Company does not hold or issue derivative financial instruments for trading purposes.
Stock Repurchases
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
market under this stock repurchase program. As of January 29, 2005, approximately 1,400,000 shares remain
authorized for repurchase. Additionally, during Fiscal 2003 and Fiscal 2002, the Company purchased 16,000 shares
and 116,000 shares, respectively, from certain employees at market prices totaling $0.1 million and $1.6 million,
respectively, for the payment of taxes in connection with the vesting of restricted stock as permitted under the 1999
Stock Incentive Plan. These repurchases have been recorded as treasury stock.