American Eagle Outfitters 2008 Annual Report Download - page 26

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costs from cost of sales, including them in a line item such as selling, general and administrative expenses. Refer to
Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales,
including certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 4% to $740.7 million from $715.2 million. As a percent
to net sales, selling, general and administrative expenses increased by 140 basis points to 24.8% from 23.4% last
year. These amounts include $6.7 million, or 20 basis points, of asset impairment charges related primarily to the
impairment of five M+O stores this year.
The higher rate this year is primarily due to the comparable store sales decline, partially offset by an
improvement in incentive compensation of 100 basis points. Share-based payment expense included in selling,
general and administrative expenses decreased to approximately $14.6 million compared to $27.5 million last year.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 20% to $131.2 million from $109.2 million last year. This
increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a
percent to net sales, depreciation and amortization expense increased to 4.4% from 3.6% due to the increased
expense as well as the impact of the comparable store sales decline.
Other Income, Net
Other income, net decreased to $17.8 million from $37.6 million, due primarily to interest income decreasing
to $18.9 million from $39.3 million. This resulted from decreased interest rates and lower investment balances
compared to last year. Additionally, interest expense relating to our borrowings increased. Partially offsetting this
decrease was a net $1.1 million foreign currency transaction gain compared to a $1.2 million loss last year. This is
the result of a stronger U.S. dollar.
Other-than-Temporary Impairment Charge
OTTI charges relating to our investment securities were $22.9 million for Fiscal 2008. There was no OTTI
recorded during Fiscal 2007.
Refer to the Fair Value Measurements caption below for additional information.
Provision for Income Taxes
The effective tax rate increased to approximately 40% from 37% last year. The increase in the effective tax rate
is primarily related to the OTTI charges recorded in connection with the valuation of our investment securities in
which no income tax benefit was recognized.
Net Income
Net income decreased 55% to $179.1 million, or 6.0% as a percent to net sales, from $400.0 million, or 13.1%
as a percent to net sales last year. Net income per diluted share decreased to $0.86 from $1.82 last year. The decrease
in net income was attributable to the factors noted above. The decrease in net income per diluted share was
attributable to the factors noted above partially offset by a lower weighted average share count this year compared to
last year as a result of share repurchases during Fiscal 2007, as well as a lower average price of our common stock
during Fiscal 2008.
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