American Eagle Outfitters 2009 Annual Report Download - page 55

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Carrying Amount
as of January 31,
2009
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 31, 2009
(In thousands)
Cash and Cash Equivalents
Cash ...................... $ 61,355 $ 61,355 $ — $ —
Money-market ............... 411,987 411,987 — —
Total cash and cash equivalents .... $473,342 $473,342 $ — $ —
Short-term Investments
Preferred Stock .............. $ 6,219 $ 6,219 $ — $ —
Auction rate preferred securities . . 4,292 — 4,292 —
Total Short-term Investments ...... $ 10,511 $ 6,219 $4,292 $ —
Long-term Investments
Student-loan backed ARS ....... $169,254 $ — $ — $169,254
State and local government ARS . . 69,970 — — 69,970
Auction rate preferred securities . . 11,783 — — 11,783
Total Long-term Investments ...... $251,007 $ — $ — $251,007
Total ........................ $734,860 $479,561 $4,292 $251,007
Percent to total ................ 100.0% 65.3% 0.6% 34.1%
The Company used a discounted cash flow (“DCF”) model to value our Level 3 investments. For Fiscal 2009,
the assumptions in the Company’s 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%. For Fiscal 2008, the assumptions in the Company’s model included different recovery
periods, ranging from 1.1 years to 11 years, depending on the type of security and varying discount factors for yield,
ranging from 1.7% to 18.8%, and illiquidity, ranging from 0.0% to 1.0%. These assumptions are subjective. They
are based on the Company’s current judgment and view of current market conditions. The use of different
assumptions would result in a different valuation and related charge. As a result of the discounted cash flow analysis
for Fiscal 2009, the Company 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 calls, 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.
54
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)