American Eagle Outfitters 2009 Annual Report Download - page 28

MARTIN+OSA Fiscal 2009 Results of Operations
On March 5, 2010, our Board approved management’s recommendation to proceed with the closure M+O. We
notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this
action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it
was not achieving performance levels that warranted further investment.
In Fiscal 2009, M+O recorded net sales from store and online operations of approximately $50 million and
generated an after-tax loss of approximately $44 million, including a non-cash impairment charge of approximately
$11 million, net of tax. The results of operations include store, online, corporate and other expenses directly
attributable to M+O operations.
Fiscal 2010 Outlook
Looking ahead, we expect consumers to remain cautious and highly sensitive to pricing. However, our outlook
for Fiscal 2010 is more favorable than for Fiscal 2009, based on improvements across merchandising and design.
We believe that on-trend merchandise assortments, more frequent flow of new merchandise and strong value
offerings should drive sales and earnings growth. We are continuing to control expenses and have planned capital
spending below Fiscal 2009. We believe that our current cash holdings and cash generated from operations in Fiscal
2010 will be sufficient to fund anticipated capital expenditures and working capital requirements.
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated
with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the
measurement date. We have adopted the provisions of ASC 820 as of February 3, 2008, for our items measured at
fair value on a recurring basis, which include ARS. We have adopted the provisions of ASC 820-10-65 as of
February 1, 2009 for items measured at fair value on a nonrecurring basis, including goodwill and property and
equipment. Additionally, we adopted the provisions of ASC 320-10-65 as of May 3, 2009 for our financial
instruments measured at fair value.
Financial Instruments
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs
and minimize the use of unobservable inputs. In addition, ASC 820 establishes this three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These tiers include:
•Level 1 — Quoted prices in active markets for identical assets or liabilities
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Unobservable inputs (i.e. projections, estimates, interpretations, etc.) that are supported by little
or no market activity and that are significant to the fair value of the assets or liabilities.
As of January 30, 2010, we held certain assets that are required to be measured at fair value on a recurring
basis. These include cash equivalents and short and long-term investments, including ARS.
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