American Eagle Outfitters 2009 Annual Report Download - page 46

When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment
loss is recorded separately as a component of operating income under loss on impairment of assets.
During Fiscal 2009, the Company recorded asset impairment charges of $18.0 million related primarily to the
impairment of 10 M+O stores. During Fiscal 2008 the Company recorded asset impairment charges of $6.7 million
related primarily to the impairment of five M+O stores. Based on the Company’s review of the operating
performance and projections of future performance of these stores, the Company determined that these stores
would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial
investment in them. During Fiscal 2007, the Company recognized impairment losses of $0.6 million related to AE
stores.
When the Company closes, remodels or relocates a store prior to the end of its lease term, the remaining net
book value of the assets related to the store is recorded as a write-off of assets. During Fiscal 2009, Fiscal 2008 and
Fiscal 2007, the Company recorded $2.3 million, $4.9 million and $6.7 million related to asset write-offs within
depreciation and amortization expense.
Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned
closure of MARTIN+OSA.
Goodwill
As of January 30, 2010, the Company had approximately $11.2 million of goodwill compared to $10.7 million
as of January 31, 2009. The Company’s goodwill is primarily related to the acquisition of its importing operations
on January 31, 2000, as well as the acquisition of its Canadian business on November 29, 2000. The increase in
goodwill is due to the fluctuation in the foreign exchange spot rate at which the Canadian goodwill is translated. In
accordance with ASC 350, Intangibles-Goodwill and Other, the Company evaluates goodwill for possible
impairment on at least an annual basis and last performed an annual impairment test as of January 30, 2010.
Resulting from the Company’s annual goodwill impairment test performed as of January 30, 2010, the Company
concluded that its goodwill was not impaired.
Other Assets, Net
Other assets, net consist primarily of assets related to our deferred compensation plans and trademark costs, net
of accumulated amortization. Trademark costs are amortized over five to 15 years.
Deferred Lease Credits
Deferred lease credits represent the unamortized portion of construction allowances received from landlords
related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received
by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a
deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred
lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease
(including the pre-opening, build-out period) and any subsequent renewal terms. The receivable is reduced as
amounts are received from the landlord.
Self-Insurance Liability
The Company is self-insured for certain losses related to employee medical benefits and worker’s compen-
sation. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims
and historical experience. Management believes that it has adequately reserved for its self-insurance liability, which
is capped through the use of stop loss contracts with insurance companies. However, any significant variation of
future claims from historical trends could cause actual results to differ from the accrued liability.
45
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)