American Eagle Outfitters 2006 Annual Report Download - page 34

In June2006, theFASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 06-3,
How Sales Taxes Collected from Customers and Remitted to GovernmentalAuthorities Should Be Presented in
the IncomeStatement (That Is, Gross Versus Net Presentation) (“EITF No. 06-3”). EITF No. 06-3 indicates that
acompany may adopt a policy of presenting taxes within the scope of EITF No. 06-3 either gross within revenue
or net. If taxes subject toEITF No. 06-3 are significant, acompany is required to disclose its accounting policy
for presenting taxes and theamounts of the taxesthat are recognized on agross basis. EITF No. 06-3 is effective
for the first interim period beginning after December 15, 2006, and theCompany will adopt EITF No. 06-3
beginning in the first quarter of Fiscal 2007. The Company presents sales taxes collected from customers on anet
basis within accrued income and other taxes on its Consolidated Balance Sheets, and will include disclosure of
this accounting policy in its Consolidated Financial Statements upon adoption of EITF No. 06-3.
Foreign Currency Translation
The Canadian dollar is the functional currency for the Canadian businesses. In accordance with SFAS No. 52,
Foreign Currency Translation,assets and liabilities denominated in foreign currencies were translated into U.S.
dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses
denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the
period. Gains or losses resulting from foreign currency transactions are includedinthe results of operations,
whereas, related translation adjustments are reported as an elementofother comprehensive income in accordance
with SFAS No. 130, Reporting ComprehensiveIncome (see Note 7 of the Consolidated Financial Statements).
Fair Value of FinancialInstruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS No. 107”), requires management
to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial
instruments. At February 3, 2007, management believes that the carrying amounts of cash and cash equivalents,
receivables and payables approximatefair value because of the short maturity of these financial instruments.
Short-term and long-term investments consist of available-for-sale securities and are recorded on the
Consolidated Balance Sheetsatfair value, which is estimated based on quoted market prices for the investments.
Any difference between the original cost and thefair value of these investments is recorded in other
comprehensive income.
Cash andCash Equivalents, Short-term Investments and Long-term Investments
Cash includes cash equivalents. The Company considers allhighly liquid investments purchased withamaturity
of three months or less to be cash equivalents.
As of February 3, 2007, short-term investments generally included investments with remaining maturities of less
than 12 months (averaging approximately three months), consisting primarily of tax-exempt municipal bonds,
taxable agency bonds and corporate notes classified as available-for-sale. Additionally, short-term investments
include variable rate demand notes (“VRDNs”) and auction rate securities classified as available-for-sale, which
have long-term contractual maturities but feature variable interest rates that reset at short-term intervals.
As of February 3, 2007, long-term investments included investments with remaining maturities of greater than 12
months, but not exceeding five years (averaging approximately 27 months) and consisted primarily of agency
bonds classified as available-for-sale.
Unrealized gains and losses on the Company’s available-for-salesecurities are excluded from earnings and are
reported as aseparate component of stockholders’ equity, within accumulated other comprehensive income, until
realized. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used
to determine any realized gain or loss. Proceeds from the sale of available-for-sale securities were $916.0
million, $876.1 million and$330.4 million for Fiscal 2006, Fiscal 2005 and Fiscal 2004, respectively. These
proceeds are offset against purchases of $1.353 billion, $1.188 billion and$508.8 million for Fiscal 2006, Fiscal
PAGE 38 ANNUAL REPORT 2006
2005 and Fiscal 2004, respectively. ForFiscal 2006 and Fiscal 2005, realized losses related to available-for-sale
securities of $0.6 million and$0.2 million, respectively, were included in other income, net. ForFiscal 2004, a
nominal amount of realized gain related to the sale of available-for-sale securities was included in other income,
net.
During Fiscal 2006, the Company transferred certain investment securities from available-for-sale classification
to trading classification (the “trading securities”). As aresult of this transfer, during Fiscal 2006 areclassification
adjustment of $(0.3) million was recorded in other comprehensive income related to the gain realized in net
income at the time of transfer. As aresult of trading classification, the Company realized $3.5 million of capital
gains, which were recorded in other income, net during Fiscal 2006. The trading securities were sold during
Fiscal 2006, at whichtime the Company received proceeds of $184.0 million. As of February 3, 2007, the
Company had no investments classified as trading securities.
The following table summarizesthefair market value of our cash and marketable securities, whichare recorded
as cashandcash equivalents on the Consolidated Balance Sheets, our short-term investments and our long-term
investments:
February 3, 2007
(In thousands) Balance
Unrealized
Holding Gains
Unrealized
Holding Losses
Cash and cash equivalents:
Cash and money market investments $59,079 $ -$-
Taxableinvestments 658 - -
Total cash and cashequivalents $ 59,737 $- $ -
Short-term investments:
Tax exempt and advantaged investments $659,906 $ -$28
Taxableinvestments 107,470 -130
Total short-term investments $767,376 $ -$158
Long-term investments
Tax exempt and advantaged investments $7,477 $4 $ 23
Taxableinvestments 244,167 1 366
Total long-term investments $251,644 $5 $389
Total $1,078,757 $5 $547
January 28, 2006
(In thousands) Balance
Unrealized
Holding Gains
Unrealized
Holding Losses
Cash and cash equivalents:
Cash and money market investments $69,641 $- $-
Taxableinvestments 60,888 --
Total cash and cashequivalents $130,529 $- $-
Short-term investments:
Tax exempt and advantaged investments $517,199 $- $ 57
Taxableinvestments 103,790 -61
Total short-term investments $620,989 $- $118
Long-term investments
Taxableinvestments $145,774 $- $636
Total long-term investments $145,774 $- $636
Total $897,292 $- $754
AMERICAN EAGLE OUTFITTERS PAGE 39