American Eagle Outfitters 2009 Annual Report Download - page 29

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In accordance with ASC 820, the following table represents the fair value hierarchy for our financial assets
(cash equivalents and investments) measured at fair value on a recurring basis as of January 30, 2010:
Carrying Amount
as of January 30,
2010
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value Measurements at January 30, 2010
(In thousands)
Cash and Cash Equivalents
Cash ....................... $144,391 $144,391 $ — $ —
Commercial paper ............. 25,420 25,420 — —
Treasury bills ................ 119,988 119,988 — —
Money-market ................ 404,161 404,161 — —
Total cash and cash equivalents ..... $693,960 $693,960 $ — $ —
Short-term Investments
Student-loan backed ARS ....... $ 400 $ — $— $ 400
State and local government ARS . . 4,275 — — 4,275
Total Short-term Investments ....... $ 4,675 $ — $ — $ 4,675
Long-term Investments
Student-loan backed ARS ....... $149,031 $ — $ — $149,031
State and local government ARS . . 35,969 — — 35,969
Auction rate preferred securities. . . 12,773 — — 12,773
Total Long-term Investments ....... $197,773 $ — $ — $197,773
Total......................... $896,408 $693,960 $ — $202,448
Percent to total ................. 100.0% 77.4% 0.0% 22.6%
We used a discounted cash flow (“DCF”) model to value our Level 3 investments. The assumptions in our
model included different recovery periods, ranging from 0.5 year to 11 years, depending on the type of security and
varying discount factors for yield, ranging from 0.3% to 6.6%, and illiquidity, ranging from 0.3% to 4.0%. These
assumptions are subjective. They are based on our current judgment and our view of current market conditions. The
use of different assumptions would result in a different valuation and related charge. For example, an increase in the
recovery period by one year would reduce the fair value of our investment in ARS by approximately $1.4 million.
An increase to the discount rate and illiquidity premium of 100 basis points would reduce the estimated fair value of
our investment in auction rate securities by approximately $5.6 million.
As a result of the discounted cash flow analysis for Fiscal 2009, we recorded a net recovery of $25.0 million
($15.5 million, net of tax) which reduced the total cumulative impairment recognized in other comprehensive
income (“OCI”) as of January 30, 2010 to $10.3 million ($6.4 million, net of tax) from $35.3 million ($21.8 million,
net of tax) at the end of Fiscal 2008. The reversal of temporary impairment was primarily driven by calls at par for
the Company’s private-insured student loan ARS. As a result of the settlements, the securities which were
previously impaired were revalued at par. These amounts were recorded in OCI and resulted in an increase in the
investments’ estimated fair values. The net increase in fair value was partially offset by $0.9 million of net
impairment loss recognized in earnings during Fiscal 2009 as a result of credit rating downgrades.
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