American Eagle Outfitters 2013 Annual Report Download - page 24

Table of Contents
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased 2% to $185.1 million from $182.3 million last year. As a rate to total net
revenue, SG&A expenses increased 180 basis points to 28.6%. Investments in omni-channel and international contributed to the dollar increase.
Expense control initiatives are underway, resulting in home office and store expense flat to last year.
There was $1.8 million and $3.0 million of share-
based payment expense included in selling, general and administrative expenses for the periods
ended May 3, 2014 and May 4, 2013, respectively, comprised of both time and performance-based awards. The decrease is due to a change in
performance this year and reduced levels of outstanding share awards.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased to $32.4 million, compared to $35.5 million last year. Included in depreciation and
amortization expense last year was $7.6 million of corporate and store asset write-offs. As a rate to total net revenue, depreciation and
amortization expense was 5.0% this year as compared to 5.3% last year. The decrease was primarily a result of maturing assets.
Other Income (Expense), Net
Other income was $0.7 million, compared to expense of $0.7 million last year. The change resulted primarily from foreign currency fluctuations.
Provision for Income Taxes
The provision for income taxes from continuing operations is based on the current estimate of the annual effective income tax rate and is
adjusted as necessary for quarterly events. The effective income tax rate from continuing operations based on actual operating results for the
13 weeks ended May 3, 2014 was 57.6% compared to 38.0% for the 13 weeks ended May 4, 2013. The increase in the effective income tax rate
this year is primarily due to valuation allowances on foreign losses.
Net Income
Net income decreased to $3.9 million, or 0.6% as a percent to total net revenue, from $28.0 million, or 4.1% as a percent to total net revenue last
year. Net income per diluted share decreased to $0.02 per diluted share from $0.14 per diluted share in the prior year. The change in net income
is attributable to the factors noted above.
International Operations
We have agreements with multiple third party operators to expand our brands internationally. Through these agreements, a series of franchised,
licensed or other brand-dedicated American Eagle Outfitters stores have opened and will continue to open in areas including Eastern Europe, the
Middle East, Central and South America, Northern Africa and parts of Asia. These agreements do not involve a significant capital investment or
operational involvement from the Company. We continue to increase the number of countries in which we enter into these types of arrangements
as part of our strategy to expand internationally. As of May 3, 2014, we had 77 stores operated by our third party operators in 13 countries.
International third party operated stores are not included in the consolidated store data or the total gross square feet calculation.
As of May 3, 2014, we had 95 company-operated stores in Canada, eight in Mexico, three in Hong Kong, five in China and six in Puerto Rico.
We continue to evaluate further opportunities to expand internationally, which may include additional company-operated stores in Mexico, Asia
and the United Kingdom as well as stores operated by third party operators under license, franchise and/or joint venture agreements.
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.
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