American Eagle Outfitters 2011 Annual Report Download - page 26

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Table of Contents
Our gross profit may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network, as well as
design costs in cost of sales. Other retailers may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and
administrative expenses. Refer to Note 2 to the Consolidated Financial Statements for a description of our accounting policy regarding cost of sales, including
certain buying, occupancy and warehousing expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expense increased 3% to $735.8 million, compared to $713.2 million last year, and includes $5.5 million of
executive transition costs. As a rate to net sales, selling, general and administrative expenses improved 70 basis points to 23.3%, compared to 24.0% last year.
Expense reduction efforts, partially offset by new store growth, variable expense related to the sales increase and a planned investment in advertising
contributed to the improvement in the rate.
There was $6.9 million of share-based payment expense, consisting of time-based awards, included in selling, general and administrative expenses this
year compared to $17.1 million last year.
Loss on Impairment of Assets
The loss on impairment of assets of $20.7 million resulted from our evaluation of under performing stores which exhibited an unanticipated increase in
negative cash flow trends driven by fourth quarter 2011 results. This impairment consisted of 59 retail stores, largely related to the aerie brand.
Depreciation and Amortization Expense
Depreciation and amortization expense increased slightly to $140.6 million from $140.5 million last year. This increase is primarily due to a greater
property and equipment base driven by our level of capital expenditures, partially offset by disposals related to 29 store closures during the year. As a percent
to net sales, depreciation and amortization expense decreased to 4.4% from 4.8% as a result of higher comparable store sales for the period.
Realized Loss on Sale of Investment Securities
There was no realized loss on sale of investment securities this year, compared to $24.4 million, or $0.12 per diluted share, last year. The loss in Fiscal
2010 was primarily due to the liquidation of 95% of our Auction Rate Security investment portfolio.
Other Income, Net
Other income, net increased to $5.9 million from $2.2 million last year. The change is primarily due to additional proceeds received from the ARS Call
Option this year.
Provision for Income Taxes
The effective income tax rate from continuing operations decreased to approximately 36.0% in Fiscal 2011 from 38.3% in Fiscal 2010. The higher
effective income tax rate in Fiscal 2010 was primarily due to losses on the sale of certain ARS investments for which no income tax benefit was recognized.
Refer to Note 14 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.
Income from Continuing Operations
Income from continuing operations for Fiscal 2011 was $151.7 million, or $0.77 per diluted share, and includes a $0.07 per diluted share impact related
to store impairment charges and a $0.02 per diluted share
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