American Eagle Outfitters 2004 Annual Report Download - page 57

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43
Part II
supplies for our stores and home office, freight related to inter-store transfers, communication costs, travel and
entertainment, leasing costs and services purchased.
Advertising Costs
Certain advertising costs, including direct mail, in-store photographs and other promotional costs are expensed when
the marketing campaign commences. Costs associated with the production of television advertising are expensed
over the life of the campaign. All other advertising costs are expensed as incurred. The Company recognized $41.4
million, $44.8 million and $44.4 million in advertising expense during Fiscal 2004, Fiscal 2003 and Fiscal 2002,
respectively.
Design Costs
The Company has certain design costs, including compensation, rent, travel, supplies and samples, which are
included in cost of sales as the respective inventory is sold.
Store Pre-Opening Costs
Store pre-opening costs consist primarily of rent, advertising, supplies and payroll expenses. These costs are
expensed as incurred.
Legal Proceedings and Claims
The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In
accordance with SFAS No. 5, Accounting for Contingencies, Management records a reserve for estimated losses
when the amount is probable and can be reasonably estimated. If a range of possible loss exists, the Company
records the accrual at the low end of the range, in accordance with FIN 14, an interpretation of SFAS No. 5. As the
Company has provided adequate reserves, it believes that the ultimate outcome of any matter currently pending
against the Company will not materially affect the financial position or results of operations of the Company.
Supplemental Disclosures of Cash Flow Information
(In thousands) For the Years Ended
January 29,
2005
January 31,
2004
February 1,
2003
Cash paid during the periods for: (Restated) (Restated)
Income taxes $121,138 $25,496 $64,547
Interest $1,188 $1,510 $1,964
Earnings Per Share
The following table shows the amounts used in computing earnings per share and the effect on income and the
weighted average number of shares of potential dilutive common stock equivalents (stock options and restricted
stock).