American Eagle Outfitters 2005 Annual Report Download - page 62

PAGE 38 AMERICAN EAGLE OUTFITTERS
losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. When events such as these occur, the impaired assets are adjusted to estimated fair value and
an impairment loss is recorded in selling, general and administrative expenses. The Company recognized $1.2 million
in impairment losses during Fiscal 2005 and $1.4 million in impairment losses during both Fiscal 2004 and Fiscal 2003.
Goodwill
As of January 28, 2006, the Company had approximately $10.0 million of goodwill, which is primarily related to the
acquisition of our importing operations on January 31, 2000. In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, Management evaluates goodwill for possible impairment on at least an annual basis.
Long-term Investments
As of January 28, 2006, long-term investments included investments with an original maturity of greater than twelve
months, but not exceeding five years (averaging approximately twenty months) and consisted primarily of agency
bonds and debt securities issued by states and local municipalities classified as available-for-sale.
Other Assets
Other assets consist primarily of deferred taxes, lease buyout costs, trademark costs and acquisition costs. The lease
buyout costs are amortized over the remaining life of the leases, generally for no greater than ten years. The trademark
costs are amortized over five to fifteen years. Acquisition costs are amortized over five years. These assets, net of
amortization, are presented as other assets (long-term) on the Consolidated Balance Sheets.
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 as a reduction of rent expense over the term of the lease (including the pre-opening build-out period) and the
receivable is reduced as amounts are received from the landlord.
Self-Insurance Reserve
The Company is self-insured for certain losses related to employee medical benefits. 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.
Customer Loyalty Program
During Fiscal 2005, the Company introduced the AE All-Access Pass (the “Pass”), a customer loyalty program. Using
the Pass, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds
during three month earning periods. Rewards earned during these periods are valid through the stated expiration date,
which is approximately one month from the mailing date and can be redeemed for a discount on a future purchase of
merchandise. Rewards not redeemed during the one month redemption period are forfeited. A current liability is
recorded for the estimated cost of anticipated redemptions and is adjusted through cost of sales based on reward earning
activity. Rewards are recorded as markdowns at the time of redemption.