American Eagle Outfitters 2008 Annual Report Download - page 31

through current cash holdings as well as cash generated from operations. In the future, we expect that our uses of cash
will also include new brand concept development, including development of 77kids by american eagle.
Our growth strategy includes internally developing new brands and the possibility of acquisitions. We
periodically consider and evaluate these options to support future growth. In the event we do pursue such options,
we could require additional equity or debt financing. There can be no assurance that we would be successful in
closing any potential transaction, or that any endeavor we undertake would increase our profitability.
The following sets forth certain measures of our liquidity:
January 31,
2009
February 2,
2008
Working Capital (in 000’s) .................................... $523,596 $644,656
Current Ratio .............................................. 2.30 2.71
Our current ratio decreased to 2.30 as of January 31, 2009 from 2.71 last year due primarily to a decrease in
total cash and short-term investments as well as an increase in short-term notes payable. Notes payable increased by
$75.0 million as a result of drawing on our credit facilities to increase our cash position to add financial flexibility.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $302.2 million during Fiscal 2008 compared to $464.3 million
during Fiscal 2007 and $749.3 million during Fiscal 2006. Our major source of cash from operations was
merchandise sales. Our primary outflows of cash for operations were for the purchase of inventory and operational
costs.
The decrease in net cash provided by operating activities of $162.1 million from the prior year was due
primarily to lower net income driven by lower sales and gross margin. Additionally, the decrease in net cash from
operating activities was driven by an increase in prepaid taxes due to the timing of payments and a reduction in
accrued compensation due to lower incentive compensation accruals during Fiscal 2008.
Cash Flows from Investing Activities
Investing activities for Fiscal 2008 included $344.9 million from the net sale of investments classified as
available-for-sale partially offset by $265.3 million for capital expenditures. Investing activities for Fiscal 2007
included $354.2 million from the net sale of investments classified as available-for-sale, partially offset by
$250.4 million for capital expenditures. Investing activities for Fiscal 2006 primarily included $437.4 million for
the net purchase of investments classified as available-for-sale as well as $225.9 million for capital expenditures.
We invest our cash primarily in liquid money market funds. We also have investments, made under our prior
investment policy, in auction rate and auction rate preferred securities, with an original contractual maturity of up to
39 years and an expected rate of return of approximately a 2.7% taxable equivalent yield. All investments made
under our new investment policy must have a highly liquid secondary market at the time of purchase and an effective
maturity not exceeding two years.
Cash Flows from Financing Activities
During Fiscal 2008, cash used for financing activities resulted primarily from $82.4 million used for the
payment of dividends partially offset by $75.0 million in borrowings against our demand line of credit. During
Fiscal 2007, cash used for financing activities resulted primarily from $438.3 million used for the repurchase of our
common stock as part of our publicly announced repurchase programs and $80.8 million used for the payment of
dividends. During Fiscal 2006, cash used for financing activities resulted primarily from $146.5 million used for the
repurchase of our common stock and $61.5 million used for the payment of dividends.
SFAS No. 123(R) requires that cash flows resulting from the benefits of tax deductions in excess of recognized
compensation cost be classified as financing cash flows. Accordingly, for Fiscal 2008, 2007 and 2006, the excess tax
benefit from share-based payments of $0.7 million, $6.2 million and $19.5 million, respectively, are classified as
financing cash flows.
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