American Eagle Outfitters 2006 Annual Report Download - page 42

8. Leases
The Company leases all store premises, some of its office spaceand certain information technology and office
equipment. The store leases generally have initial terms of ten years. Most of these store leases provide for base
rentals and the payment of apercentage of sales as additional rent when sales exceed specified levels.
Additionally, most leases contain construction allowances and/or rent holidays. In recognizing landlord
incentives and minimum rent expense, the Company amortizes the charges on astraight line basis over thelease
term (including the pre-opening build-out period). These leases are classifiedasoperating leases.
Asummary of fixed minimum and contingent rent expense for all operating leases follows:
For the Years Ended
(In thousands)
February 3,
2007
January 28,
2006
January 29,
2005
Store rent:
Fixed minimum $145,519 $136,876 $124,507
Contingent 19,138 13,248 6,788
Total store rent, excluding common area maintenance charges, real
estatetaxes and certain other expenses 164,657 150,124 131,295
Offices, distribution facilities, equipment and other 12,540 10,752 11,265
Total rent expense $177,197 $160,876 $142,560
In addition,theCompany is typically responsible under its store, office and distribution center leases for common
area maintenance charges, real estatetaxes and certain other expenses.
The table below summarizes future minimum lease obligations, consisting of fixed minimum rent, under
operating leases in effect at February 3, 2007:
Fiscal years:
(In thousands)
Future Minimum
Lease Obligations
2007 $166,582
2008 168,450
2009 163,394
2010 151,500
2011 132,763
Thereafter 398,477
Total $1,181,166
9. Assets Held-for-Sale and Discontinued Operations
On January 27, 2006, the Company entered into an asset purchase agreement (the “Agreement”) with the NLS
Purchaser, aprivately held Canadian company, for the sale of certain assets of NLS. During February 2006, the
Company completed this transaction with an effective date of February 28, 2006. In accordance with SFAS
No. 144, the accompanying Consolidated Balance Sheet as of January 28, 2006 reflects the assets subject tothe
Agreementasheld-for-sale. As of February 3, 2007, there were no remaining assets related to NLS. An
impairment loss of $0.6 million was recorded in selling, general and administrative expenses on the Company’s
Consolidated Statement of Operations during Fiscal 2005 to record theseassets at their fair value less costs to
sell. Additionally, a$0.3 million loss was recorded in cost of sales during Fiscal 2006 to record theobligation
related to the remaining lease term at aformer NLS distribution sub-center location. These losses were partially
PAGE 54 ANNUAL REPORT 2006
offset by a$0.1 million adjustment to the fair value of the assets upon final disposition, which was recorded in
selling, general and administrative expenses during Fiscal 2006.
During December 2004, the Company completed its disposition of Bluenotes to the Bluenotes Purchaser. The
transaction had an effective date of December 5, 2004. The accompanying Consolidated Statements of
Operations and Consolidated Statements of Cash Flowsreflect Bluenotes’ results of operations as discontinued
operations for allperiods presented. As of January 28, 2006, there were no remaining amounts recorded in the
Company’s Consolidated Balance Sheetsrelated to Bluenotes.
The Company received approximately $23 million as consideration for the sale of certain of its Bluenotes assets,
including inventory and property and equipment. The transaction resulted in an after-tax loss of $4.8 million, or
$0.02 per diluted share, during Fiscal 2004 and was partially offset by net income from the disposition of $0.4
million duringFiscal 2005. Additionally, during Fiscal 2005, the Company recorded a$6.0 million income tax
benefit related to the completion of the Bluenotes’ disposition. At this time, the realization of the aforementioned
income tax benefit is uncertain. As aresult, the Company has recorded areserve for the full amount.
The operating results of Bluenotes, which are being presented as discontinuedoperations, were as follows:
(In thousands)
January 28,
2006
January 29,
2005
Net sales $- $ 69,825
Loss from operations, net of tax $-$(6,070)
Income (loss) on disposition,netoftax 442 (4,819)
Income (loss) from discontinued operations, net of tax (1) $442 $(10,889)
(1) Amounts are netoftax (expense) benefit of $(0.3) million and$3.9 million, respectively.
10. Income Taxes
The components of income from continuing operations before taxes on income were:
(In thousands)
February 3,
2007
January 28,
2006
January 29,
2005
U.S. $561,178 $448,442 $339,328
Foreign 67,889 28,525 27,507
Total $629,067 $476,967 $366,835
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