-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ObxUzbfNz55hBHMX/NhNLgCNd3UyNAbYk4j/DUnD8BDP9xinsaoQvHanEQMENlL0 StN21Wt7/48hYkbY1OqCUA== 0000950152-96-006340.txt : 19961202 0000950152-96-006340.hdr.sgml : 19961202 ACCESSION NUMBER: 0000950152-96-006340 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19961127 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EAGLE OUTFITTERS INC CENTRAL INDEX KEY: 0000919012 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 251724320 STATE OF INCORPORATION: OH FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23760 FILM NUMBER: 96673106 BUSINESS ADDRESS: STREET 1: 150 THORN HILL DR CITY: WARRENDALE STATE: PA ZIP: 15095 BUSINESS PHONE: 4127764857 MAIL ADDRESS: STREET 1: 150 THORN HILL DRIVE STREET 2: P O BOX 788 CITY: WARRENDALE STATE: PA ZIP: 15095 10-Q 1 AMERICAN EAGLE OUTFITTERS, INC. QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 2, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- COMMISSION FILE NUMBER: 0-23760 AMERICAN EAGLE OUTFITTERS, INC. (Exact name of registrant as specified in its charter) OHIO NO. 25-1724320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 THORN HILL DRIVE, WARRENDALE, PA 15086-7528 (Address of principal executive offices) (Zipcode) (412) 776-4857 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, NO PAR VALUE, 9,905,950 SHARES OUTSTANDING AS OF NOVEMBER 15, 1996 2 AMERICAN EAGLE OUTFITTERS, INC. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO. --------------------- -------- Item 1. Financial Statements Consolidated Balance Sheets November 2, 1996 (unaudited) and February 3, 1996 3 Consolidated Statements of Operations (unaudited) Three months ended and nine months ended November 2, 1996 and October 28, 1995 4 Consolidated Statements of Cash Flows (unaudited) Nine months ended November 2, 1996 and October 28, 1995 5 Notes to Consolidated Financial Statements 6-7 Review By Independent Accountants 8 Independent Accountants' Review Report 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 12 Item 2. Changes in Securities N/A Item 3. Defaults Upon Senior Securities N/A Item 4. Submission of Matters to a Vote of Security Holders N/A Item 5. Other Information N/A Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit 23 Acknowledgment of Independent Accountants 15
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except common stock share amounts) November 2, February 3, ASSETS 1996 1996 ----- ----- Current assets: (Unaudited) Cash and cash equivalents $ 8,918 $19,986 Merchandise inventory 58,227 23,394 Receivables 4,094 5,642 Prepaid expenses and other 4,187 4,429 Deferred income taxes 4,710 2,891 -------- ------- Total current assets 80,136 56,342 -------- ------- Fixed assets: Fixtures and equipment 22,651 26,447 Leasehold improvements 31,480 30,326 -------- ------- 54,131 56,773 Less: Accumulated depreciation and amortization 21,051 23,044 -------- ------- 33,080 33,729 -------- ------- Notes receivable -- 3,568 Other assets 2,378 1,724 -------- ------- Total assets $115,594 $95,363 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,002 $16,166 Accrued compensation and payroll taxes 3,963 4,255 Accrued rent 5,553 4,550 Accrued income and franchise taxes 1,213 3,536 Other liabilities and accrued expenses 2,300 3,060 -------- ------- Total current liabilities 51,031 31,567 -------- ------- Stockholders' equity: Common stock, 30,000,000 shares authorized, 10,028,950 shares issued (10,000,000 shares at February 3, 1996) 53,951 52,507 Contributed capital 4,590 4,262 Retained earnings 10,694 11,194 -------- ------- 69,235 67,963 Less: Deferred compensation 3,156 2,651 Treasury stock, 125,000 shares 1,516 1,516 -------- ------- Total stockholders' equity 64,563 63,796 -------- ------- Stockholders' equity Total liabilities and stockholders' equity $115,594 $95,363 ======== =======
See notes to Consolidated Financial Statements 3 4 AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended ------------------ ----------------- November 2, October 28, November 2, October 28, 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $78,846 $ 85,885 $ 203,499 $ 199,639 Cost of sales, including certain buying, occupancy and warehousing expenses 52,996 62,089 142,800 151,408 ------- -------- --------- --------- Gross profit 25,850 23,796 60,699 48,231 Selling, general and administrative expenses 21,075 20,763 57,780 56,069 Loss on sale of outlets -- 3,081 -- 3,081 Depreciation and amortization 1,451 1,619 4,544 4,399 ------- -------- --------- --------- Operating income (loss) 3,324 (1,667) (1,625) (15,318) Interest income (expense), net 211 (700) 800 (1,253) ------- -------- --------- --------- Income (loss) before income taxes 3,535 (2,367) (825) (16,571) Provision (benefit) for income taxes 1,390 (931) (325) (6,660) ------- -------- --------- --------- Net income (loss) $ 2,145 $ (1,436) $ (500) $ (9,911) ======= ======== ========= ========= Net income (loss) per common and common share equivalent $ 0.21 $ (0.14) $ (0.05) $ (0.99) ======= ======== ========= ========= Weighted average number of shares outstanding 10,255 10,000 10,129 10,008 ======= ======== ========= ========= Retained earnings, beginning $ 8,549 $ 4,052 $ 11,194 $ 12,527 Net income (loss) 2,145 (1,436) (500) (9,911) ------- -------- --------- --------- Retained earnings, ending $10,694 $ 2,616 $ 10,694 $ 2,616 ======= ======== ========= =========
See notes to Consolidated Financial Statements 4 5 AMERICAN EAGLE OUTFITTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH (In thousands) (Unaudited)
Nine Months Ended ----------------- November 2, October 28, ----------- ----------- 1996 1995 ---- ---- Net loss $ (500) $ (9,911) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Depreciation and amortization 4,544 4,399 Loss on disposal 1,459 385 Loss on sale of outlets -- 3,081 Restricted stock compensation 723 729 Deferred income taxes (2,094) (308) CHANGES IN ASSETS AND LIABILITIES: Merchandise inventory (34,833) (37,530) Receivables 1,533 (2,514) Prepaid and other (209) (3,736) Accounts payable 21,836 8,750 Accrued liabilities (2,201) (2,443) -------- -------- Total adjustments (9,242) (29,187) -------- -------- Net cash used for operating activities (9,742) (39,098) -------- -------- INVESTING ACTIVITIES: Capital expenditures (7,575) (12,749) Collection on notes from sale of outlet stores 3,568 -- Proceeds from sale of outlets -- 5,000 Proceeds from sales of fixed assets 2,299 -- -------- -------- Net cash used for investing activities (1,708) (7,749) -------- -------- FINANCING ACTIVITIES: Net borrowings on notes payable -- 39,800 Exercise of stock options 382 -- -------- -------- Net cash provided by financing activities 382 39,800 -------- -------- Net increase (decrease) in cash (11,068) (7,047) Cash - beginning of period 19,986 10,363 -------- -------- Cash - end of period $ 8,918 $ 3,316 ======== ========
See notes to Consolidated Financial Statements 5 6 AMERICAN EAGLE OUTFITTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INTERIM FINANCIAL STATEMENTS The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the "Company") at November 2, 1996 and for the three and nine month periods ended November 2, 1996 (the "current period") and October 28, 1995 (the "prior period") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Consolidated Balance Sheet at February 3, 1996 was derived from the audited financial statements. The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company's Transition 1996 Annual Report. 2. BASIS OF PRESENTATION ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. EARNINGS PER SHARE Earnings per share are based upon the average number of shares of common stock and common stock equivalents outstanding during the period. RECLASSIFICATION Certain reclassifications have been made to the Consolidated Financial Statements for the prior period in order to conform to the November 2, 1996 presentation. 3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Because no borrowings were required under the terms of the Company's line of credit, there were no amounts paid for interest during the nine months ended November 2, 1996. Interest costs were $1.3 million during the nine months ended October 28, 1995. Income tax payments were $4.1 million and $0.2 million during the nine months ended November 2, 1996 and October 28, 1995, respectively. 4. RELATED PARTY TRANSACTIONS As described in the information that follows, the Company has various transactions with related parties. The nature of the relationship is primarily through common ownership. The Company has an operating lease for its corporate headquarters and distribution center with an affiliate of the Company. The lease, which was entered into on January 1, 1996, and expires on December 31, 2010, provides for annual rental payments of approximately $1.2 million through 2001, $1.6 million through 2006, and $1.8 million through the end of the lease. In addition, the Company purchases merchandise from and sells merchandise to various related parties and uses the services of a related importing company. 6 7 Transactions with these related parties and associated balance sheet amounts were as follows:
(In thousands) Three Months Ended Nine Months Ended ------------------ ----------------- November 2, October 28, November 2, October 28, 1996 1995 1996 1995 ---- ---- ---- ---- Merchandise purchases plus import administrative charges $15,865 $12,703 $34,665 $35,025 Accounts payable $16,235 $15,264 $16,235 $15,264 Accounts receivable $ 756 $ 1,115 $ 756 $ 1,115 Rent expense $ 388 $ 309 $ 1,450 $ 1,371 Merchandise sales $ 231 $ 2,506 $ 1,211 $ 3,838
The Company has provided loans to certain officers and other individuals to pay the taxes on the restricted stock that vested in April 1995. As of November 2, 1996, the outstanding value of these loans, including interest at 6.8%, approximated $361,000 as compared with $345,000 at February 3, 1996. 5. INCOME TAXES The provisions of FASB No. 109, "Accounting for Income Taxes", have been reflected in the accompanying Consolidated Financial Statements. For the three months and nine months ended November 2, 1996 and October 28, 1995, the effective tax rate used to provide income tax amounts approximated 39%. 6. LEGAL PROCEEDINGS On November 30, 1995, a complaint was filed in the United States District Court for the Western District of Pennsylvania under the caption Thomas G. DiCicco v. American Eagle Outfitters, Inc., et al., No. 95-1937, as a class action on behalf of purchasers of the Company's common stock during the period August 4, 1994 through October 26, 1995. It alleged violations of the federal securities laws arising out of purported misrepresentations and non-disclosures concerning the Company and its financial condition. The matter has been settled on a basis satisfactory to the Company. A settlement agreement has been entered into, subject to final court approval, which approval is anticipated by the end of the calendar year. The 1996 results of operations reflect a $475,000 cost associated with this settlement. 7 8 REVIEW BY INDEPENDENT ACCOUNTANTS Ernst & Young LLP, our independent accountants, have performed a limited review of the Consolidated Financial Statements for the quarters ended November 2, 1996 and October 28, 1995, as indicated in their report on the limited review included below. Since they did not perform an audit, they express no opinion on the Consolidated Financial Statements referred to above. Management has given effect to any significant adjustments and disclosures proposed in the course of the limited review. INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Stockholders American Eagle Outfitters, Inc. We have reviewed the accompanying consolidated balance sheet of American Eagle Outfitters, Inc. as of November 2, 1996, and the related consolidated statements of operations for the three-month and nine-month periods ended November 2, 1996, and October 28, 1995 and the consolidated statements of cash flows for the nine-month periods ended November 2, 1996 and October 28, 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of American Eagle Outfitters, Inc. as of February 3, 1996, and the related consolidated statements of operations and cash flows for the transition period then ended (not presented herein) and in our report dated March 29, 1996 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 3, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Pittsburgh, Pennsylvania November 20, 1996 8 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to net sales of the listed items included in the Company's Consolidated Statements of Operations.
Three months ended Nine months ended ------------------ ----------------- Nov .2, Oct. 28, Nov. 2, Oct. 28, 1996 1995 1996 1995 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales, including certain buying, occupancy and warehousing expenses 67.3 72.3 70.2 75.9 ----- ----- ----- ----- Gross profit 32.7 27.7 29.8 24.1 Selling, general and administrative expenses 26.7 24.2 28.4 28.1 Loss on sale of outlets -- 3.6 -- 1.5 Depreciation and amortization 1.8 1.9 2.2 2.2 ----- ----- ----- ----- Operating income (loss) 4.2 (2.0) (0.8) (7.7) Interest income (expense), net 0.3 (0.8) 0.4 (0.6) ----- ----- ----- ----- Income (loss) before income taxes 4.5 (2.8) (0.4) (8.3) Provision (benefit) for income taxes 1.8 (1.1) (0.2) (3.3) ----- ----- ----- ----- Net income (loss) 2.7% (1.7)% (0.2)% (5.0)% ===== ===== ===== =====
COMPARISON OF THREE MONTHS ENDED NOVEMBER 2, 1996 TO THREE MONTHS ENDED OCTOBER 28, 1995 Net sales for the three months ended November 2, 1996 (the "current period") increased 2.2% to $78.8 million from $77.1 million for the three months ended October 28, 1995 (the "prior period"). When including $8.7 million from outlet stores which were sold in October 1995 in last year's sales, sales would have decreased 8.2%. Comparable store sales increased 0.8% compared to the prior period. The Company operated 297 stores, excluding 1 temporary location, at the end of the current period, compared to 274 stores, including 2 outlet stores and excluding 17 temporary locations, operated at the end of the prior period. The total increase in net sales for the ongoing American Eagle stores resulted from an increase of approximately 7% in the average unit selling price rather than from an increase in units sold. Gross profit for the current period increased to $25.9 million from $23.8 million for the prior period. Gross profit as a percent of net sales for the current period increased to 32.7% from 27.7% for the prior period. The increase in gross profit was attributable to lower markdowns and higher initial mark-ups compared to the prior period. Selling, general and administrative expenses for the current period increased to $21.1 million from $20.8 million for the prior period. As a percent of net sales, these expenses increased to 26.7% from 24.2% for the prior period. The increase of $0.3 million resulted primarily from increases in impairment reserves and write-offs of fixed assets as compared to the prior period. The 2.5% increase, as a percent to sales, was primarily due to the lost sales volume resulting from outlet and temporary store locations that were open last Fall, but were sold or closed during the past 12 months. Net sales for the prior period included $8.7 million of sales from the outlet stores, which were sold at the end of October 1995, as well as $3.4 million from temporary store locations which were open last year, but were subsequently closed at the end of the 1995 holiday season. As a result, the Company was not able to leverage its expense base in the current period to the extent of the prior period. The Company sold net assets of 32 outlet stores and a warehouse, effective as of the close of business on October 28, 1995 to Forman 9 10 Enterprises, Inc., which is owned by a former Vice Chairman and director of the Company. The loss on the sale of assets recognized during the three months ended October 28, 1995 was $3.1 million and represented 3.6% of prior period sales. Depreciation and amortization expense for the current period decreased to $1.5 million from $1.6 million for the prior period and represented 1.8% of sales in the current period as compared to 1.9% of sales in the prior period. Interest income for the current period was $0.2 million compared to interest expense of $0.7 million for the prior period. Interest income was generated because no borrowings were required under the terms of the Company's line of credit during the quarter ended November 2, 1996. Income before income taxes for the current period increased to $3.5 million from a $2.4 million loss before income taxes for the prior period. As a percent of net sales, income before income taxes for the current period increased to 4.5% from (2.8%) for the prior period. The increase in income before income taxes of $5.9 million was primarily a result of higher margins attributable to lower markdowns and higher initial mark-ups, reduced interest costs, and the loss on the sale of outlets recognized in the prior period. COMPARISON OF NINE MONTHS ENDED NOVEMBER 2, 1996 TO NINE MONTHS ENDED OCTOBER 28, 1995 Net sales for the nine months ended November 2, 1996 (the "current period") increased 14.2% to $ 203.5 million from $178.1 million for the nine months ended October 28, 1995 (the "prior period"). When including the $21.5 million in last year's sales for the sold outlet stores, sales increased 1.9%. Comparable store sales were up 6.1% versus the prior period. The Company operated 297 stores, excluding 1 temporary location, at the end of the current period, compared to 274 stores, including 2 outlet stores and excluding 17 temporary locations, operated at the end of the prior period. The total increase in net sales for the ongoing American Eagle stores resulted from an increase of approximately 6% in the average unit selling price as well as an increase in units sold. Gross profit for the current period increased to $60.7 million from $48.2 million for the prior period. Gross profit as a percent of net sales for the current period increased to 29.8% from 24.1% for the prior period. The increase in gross profit was attributable to both a decrease in markdowns and higher initial mark-ups. Selling, general and administrative expenses for the current period increased to $57.8 million from $56.1 million for the prior period. As a percent of net sales, these expenses increased to 28.4% from 28.1% for the prior period. The increase of $1.7 million resulted primarily from an increase in write-offs related to fixture upgrades at the stores and increases in impairment reserves on fixed assets in the amount of $1.5 million in the current period versus $0.4 million in fixture write-offs in the prior period. Additionally, expenses in connection with the settlement of the class action suit in the amount of $0.5 million were incurred in the current period (See Note 6 to the Consolidated Financial Statements). The Company sold net assets of 32 outlet stores and a warehouse, effective as of the close of business on October 28, 1995 to Forman Enterprises, Inc., which is owned by a former Vice Chairman and director of the Company. The loss on the sale of assets recognized during the nine months ended October 28, 1995 was $3.1 million and represented 1.5% of prior period sales. Depreciation and amortization expense for the current period increased to $4.5 million and 2.2% of sales as compared to $4.4 million and 2.2% of sales in the prior period. The increase in expense related primarily to additions for new stores that were opened offset by the decrease in depreciation expense related to outlet stores that were sold. Interest income for the current period was $0.8 million compared to interest expense of $1.3 million for the prior period. Interest income was generated because no borrowings were required under the terms of the Company's line of credit during the nine months ended November 2, 1996. The loss before income taxes for the current period decreased to $0.8 million from a $16.6 million loss before income taxes for the prior period. As a percent of net sales, loss before income taxes for the current period decreased to 0.4% from 8.3% for the prior period. The decrease in the loss before income taxes of $15.8 million was primarily a result of higher margins attributable to lower markdowns and higher initial mark-ups, reduced interest costs, and the loss on sale of outlets recognized in the prior period. 10 11 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of working capital are cash and cash equivalents provided by operating activities and borrowings under its revolving credit facility. The primary uses of working capital are for the acquisition of inventory and fixed assets. The Company had working capital of $28.9 and $15.0 million at November 2, 1996 and October 28, 1995, respectively. The current period increase in working capital compared to the prior period resulted primarily from a decrease in current liabilities resulting from lower inventory levels and improved inventory turnover. For the nine months ended November 2, 1996, the cash used for operating activities of $9.7 million was primarily the result of inventory increases net of accounts payable increases. At November 2, 1996, the Company had an unsecured demand lending arrangement with a bank to provide a $60.0 million line of credit at either the lender's prime lending rate (8.25% at November 2, 1996) or a negotiated rate such as LIBOR. The facility has a limit of $40.0 million that can be used for direct borrowing. No borrowings were outstanding and letters of credit in the amount of $34.1 million were outstanding at November 2, 1996. The remaining available balance on the line was $25.9 million at November 2, 1996. Additionally, the Company had $8.9 million of cash and short-term investments on hand as of November 2, 1996. Capital expenditures, net of construction allowances, totaled $7.6 million for the nine months ended November 2, 1996. These expenditures included the addition of 28 new store locations, 8 store remodels and replacement of fixtures and additional leasehold improvements in existing stores. The Company expects to open an additional 9 stores during the remainder of the fiscal year, all of which should be open by the end of November 1996. The Company believes that the cash flow from operations and its bank line of credit together with available cash on hand will be sufficient to meet its presently anticipated cash flow requirements through fiscal 1996. SEASONALITY AND GENERAL ECONOMIC CONDITIONS The Company desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The statements contained in this report which are not historical facts are "forward looking statements" that involve various important risks, uncertainties and other factors which could cause the Company's actual results for fiscal 1996 and beyond to differ materially from those expressed in such forward looking statements. These important factors include, without limitation, the risks and factors set forth below, as well as other risks previously disclosed in the Company's securities filings. Historically, the Company's operations have been seasonal, with highest sales and net income occurring in the fourth fiscal quarter, reflecting increased demand during the year-end holiday selling season and, to a lesser extent, the third quarter, reflecting increased demand during the back-to-school selling season. The Company's results of operations will also fluctuate from quarter to quarter in the future as a result of numerous other factors. These include factors the Company cannot control that impact mall-based apparel retailers generally, such as factors affecting the amount of traffic in enclosed shopping malls and regional and national economic conditions affecting disposable consumer incomes. They also include factors over which the Company has some control, such as distinguishing itself from its competitors based on the quality and design of its private label brand names, identifying and responding to fashion trends in a timely manner, the ability to direct source merchandise closer to need and in appropriate quantities, the ability to retain qualified personnel and the number and timing of the opening of new stores. Any one or a combination of these factors could have a material adverse affect on the Company's results of operations and financial condition. IMPACT OF INFLATION The Company does not believe that the relatively modest levels of inflation which have been experienced in the United States in recent years have had a significant effect on its net sales or its profitability. Substantial increases in cost, however, could have a significant impact on the Company and the industry in the future. 11 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings On November 30, 1995, a complaint was filed in the United States District Court for the Western District of Pennsylvania under the caption Thomas G. DiCicco v. American Eagle Outfitters, Inc., et al., No. 95-1937, as a class action on behalf of purchasers of the Company's common stock during the period August 4, 1994 through October 26, 1995. It alleged violations of the federal securities laws arising out of purported misrepresentations and non-disclosures concerning the Company and its financial condition. The matter has been settled on a basis satisfactory to the Company. A settlement agreement has been entered into, subject to final court approval, which approval is anticipated by the end of the calendar year. The 1996 results of operations reflect a $475,000 cost associated with this settlement. 12 13 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 23. Acknowledgment of Independent Accountants 27. Financial Data Schedule (b) Reports on Form 8-K - None 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated November 27, 1996 American Eagle Outfitters, Inc. (Registrant) ------------------------------------ Laura A. Weil Executive Vice President and Chief Financial Officer ------------------------------------ Dale E. Clifton Vice President, Controller and Chief Accounting Officer 14 EX-23 2 EXHIBIT 23 1 Exhibit 23 Acknowledgment of Ernst & Young LLP The Board of Directors and Stockholders American Eagle Outfitters, Inc. We are aware of the incorporation by reference in the Registration Statements (Forms S-8) of American Eagle Outfitters, Inc. pertaining to the American Eagle Outfitters, Inc. 1994 Stock Option Plan, the Stock Fund of the American Eagle Outfitters, Inc. Profit Sharing and 401(k) Plan, the American Eagle Outfitters, Inc. Employee Stock Purchase Plan, and the American Eagle Outfitters, Inc. 1994 Restricted Stock Plan of our report dated November 20, 1996 relating to the unaudited consolidated interim financial statements of American Eagle Outfitters, Inc. which are included in its Form 10-Q for the quarter ended November 2, 1996. Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. Pittsburgh, Pennsylvania November 20, 1996 15 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED AUGUST 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000919012 AMERICAN EAGLE OUTFITTERS, INC. 3-MOS FEB-01-1997 AUG-04-1996 NOV-02-1996 8,918 0 4,094 0 58,227 80,136 54,131 21,051 115,594 51,031 0 53,951 0 0 10,612 115,594 78,846 78,846 52,996 52,996 22,526 0 (211) 3,535 1,390 2,145 0 0 0 2,145 0.21 0.21
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