American Eagle Outfitters 2004 Annual Report Download - page 56

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42
Part II
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the
options’ vesting period. The Company’s pro forma information follows:
For the Years Ended
(In thousands, except per share amounts) January 29,
2005
January 31,
2004
(Restated)
February 1,
2003
(Restated)
Net income, as reported $213,343 $59,622 $88,108
Add: stock-based compensation expense included in
reported net income, net of tax
1,301 767 592
Less: total stock-based compensation expense
determined under fair value method, net of tax
(10,948)
(14,463)
(8,489)
Pro forma net income $203,696 $45,926 $80,211
Basic income per common share:
As reported $1.47 $0.42 $0.61
Pro forma $1.40 $0.32 $0.56
Diluted income per common share:
As reported $1.42 $0.41 $0.60
Pro forma $1.36 $0.32 $0.55
Revenue Recognition
The Company records revenue for store sales upon the purchase of merchandise by customers. The Company's
e-commerce operation records revenue at the time the goods are shipped. 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. Revenue is recorded net of sales returns.
Revenue is not recorded on the sell-off of end-of-season, overstock and irregular merchandise to off-price retailers.
These sell-offs are typically sold below cost and the proceeds are reflected in cost of sales. See Note 3 of the
Consolidated Financial Statements for further discussion.
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 promotional costs. Buying, occupancy and warehousing costs consists of compensation
and travel for our buyers; rent and utilities related to our stores, corporate headquarters, distribution centers and
other office space; freight from our distribution centers to the stores; and compensation and supplies for our
distribution centers, including purchasing, receiving and inspection costs.
The gross profit impact of a sales returns reserve, which is recorded in cost of sales, is provided on gross sales for
projected merchandise returns based on historical average return percentages.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and employee benefit expenses, other than for
our design, sourcing and importing teams, our buyers and our distribution centers. Such compensation and employee
benefit expenses include salaries, incentives and related benefits associated with our stores and corporate
headquarters, except as previously noted. Selling, general and administrative expenses also include advertising costs,