UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended January ~~30, 2010~~29, 2011
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission FileNumber: 1-33338

American Eagle Outfitters, Inc.

(Exact name of registrant as specified in its charter)


Delaware		~~No. 13-2721761~~
(State or other jurisdiction of incorporation or organization)		No. 13-2721761 (I.R.S. Employer Identification No.)
77 Hot Metal Street, Pittsburgh, PA (Address of principal executive offices)		15203-2329 (Zip Code)

Registrant’s telephone number, including area code:

(412) 432-3300

Securities registered pursuant to Section 12(b) of the Act:


Common Shares, $0.01 par value		~~New York Stock Exchange~~
(Title of class)		New York Stock Exchange (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act. YES o NO þ

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 a shorter period that the registrant was required to ~~submit and post~~file such ~~files)~~reports), and (2) has been subject to the filing requirements for at the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES oþ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). YES o NO þ

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of ~~August 1, 2009~~July 31, 2010 was ~~$2,583,043,775.~~$2,196,680,330.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: ~~209,044,166~~194,690,703 Common Shares were outstanding at March ~~19, 2010.~~7, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Part III — Proxy Statement for ~~2010~~2011 Annual Meeting of Stockholders, in part, as indicated.

PART I


ITEM 1.	*BUSINESS.*

General

American Eagle Outfitters, Inc., a Delaware corporation, (the “Company”) operates under the American Eagle^®, aerie^® by American Eagle^®, and 77kids by american eagle^® brands. The Company operated the MARTIN+OSA^® brand (“M+O”) until its closure during the 52 weeks ended January 29, 2011.

Founded in 1977, American Eagle Outfitters^® is a leading apparel and accessories retailer that operates more than 1,000 retail stores in the U.S. and Canada, and online at ae.com^®. Through its family of brands, American Eagle Outfitters, Inc. offers high quality, on-trend clothing, accessories and personal care products at affordable prices. Our online business, AEO Direct, ships to 76 countries worldwide.

As used in this report, all references to “we,” ~~“our,”~~“our” and the “Company” refer to American Eagle Outfitters, Inc. (“AEO, Inc.”) and its wholly-owned subsidiaries. “American Eagle Outfitters,” “American Eagle,” ~~“AE,”~~“AE” and the “AE Brand” refer to our U.S. and Canadian American Eagle Outfitters stores. “AEO Direct” refers to oure-commerce operations, ae.com, aerie.com ~~martinandosa.com~~ and 77kids.com. “MARTIN+OSA” or “M+O” refers to the MARTIN+OSA stores ande-commerce operation which we operated until its closure during the 52 week period ended January 29, 2011. “NLS” refers to National Logistics Services which we operated in Canada prior to its disposition during the 53 week period ended February 3, 2007.

Our financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal ~~2010”~~2011” refers to the 52 week period ending January ~~29, 2011.~~28, 2012. “Fiscal ~~2009”,~~2010,” “Fiscal 2009,” “Fiscal 2008” and “Fiscal 2007” refer to the 52 week periods ended January 29, 2011, January 30, 2010, January 31, 2009 and February 2, 2008, respectively. “Fiscal 2006” refers to the 53 week period ended February 3, 2007. ~~“Fiscal 2005” refers to the 52 week period ended January 28, 2006.~~

~~American Eagle Outfitters, Inc., a Delaware corporation, operates under the American Eagle~~^® ~~(“AE~~^®~~”), aerie~~^® ~~by American Eagle~~^®~~, 77kids~~^® ~~by american eagle~~^® ~~and MARTIN+OSA~~^® ~~(“M+O”) brands.~~

~~Founded in 1977, American Eagle Outfitters~~^® ~~is a leading apparel and accessories retailer that operates more than 1,000 retail stores in the U.S. and Canada, and online at ae.com~~^®. Through its family of brands, AEO, Inc. offers high quality, on-trend clothing, accessories and personal care products at affordable prices. Our online business, AEO Direct, ships to 75 countries worldwide.

~~American Eagle Outfitters~~^® boasts a passionate and loyal customer base ranging from college students to Hollywood celebrities. The Company focuses on delivering the right product at the right price, combined with a philosophy of operational excellence and discipline across the organization.

~~As of January 30, 2010, we operated 938 American Eagle Outfitters stores in the United States and Canada, 137 aerie stand-alone stores and 28 MARTIN+OSA stores.~~

~~Subsequent to Fiscal 2009, on~~On March 5, 2010, the Company’s Board of Directors (the “Board”) ~~of the Company~~ approved management’s recommendation to proceed with the closure of the M+O.O brand. We notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this action resulted from an extensive evaluation of ~~M+O~~the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. ~~As a result~~We completed the closure of ~~this decision, the Company plans to close all 28~~M+O stores and ~~cease all online and corporate operations for~~itse-commerce operation during the 13 weeks ended July 31, 2010. The Consolidated Financial Statements reflect the presentation of M+O ~~in Fiscal 2010.~~as a discontinued operation. Refer to Note 1514 to the Consolidated Financial Statements for additional information regarding the ~~planned closure~~discontinued operations of M+O.

As of January 29, 2011, we operated 929 American Eagle Outfitters stores, 148 aerie stand-alone stores and nine 77kids stores.

Information concerning our segments and certain geographic information is contained in Note 2 of the Consolidated Financial Statements included in thisForm 10-K and is incorporated herein by reference.

Growth Strategy

Our primary growth strategies are focused on the following key areas of opportunity:

AE Brand

The American Eagle Outfitters^® brand targets ~~15-~~15 to25-year old ~~girls~~men and ~~guys,~~women, achieving the perfect combination of American prep and current fashion. Denim is the cornerstone of the American Eagle^® product assortment, which is ~~completed~~complemented by other key categories including sweaters, graphic t-shirts, fleece, outerwear and accessories. ~~The~~ American Eagle^® ~~attitude~~ is honest, real, individual and fun. American Eagle^® is priced to be worn by everyone, everyday, delivering value through quality and style.

Gaining market share in key categories, such as ~~graphic tees~~knit tops and fleece, is a primary focus within the AE ~~brand.~~Brand. In addition, we will build upon our number one position in denim. Delivering value, variety and versatility to our customers remains a top priority. ~~While AE has always been a value brand, we will continue to underscore a value message with customers.~~ We will offer value at all levels of the assortment, punctuated with compelling,

pre-planned promotions that are profitable to the business. We are reducing production lead-times, which enables us to

react more quickly ~~and profit from~~to emerging trends. Finally, we continue to innovate our store experience to be more impactful from front to back.

aerie by American Eagle

In the fall of 2006, the Company launched aerie^® by American Eagle^® (“aerie”), a collection of Dormwear^®, intimates and personal care products for the ~~15- to25-year-old~~ AE^® girl. What started as asub-brand quickly became a standalone concept in its own right. The collection is available in ~~137~~148 standalone aerie stores throughout the United States and Canada, online at ~~www.aerie.com,~~aerie.com, and at select American Eagle^® stores. aerie^® ~~features a complete fitness line called aerie f.i.t.~~^tm~~, as well~~ is being repositioned as a ~~personal care collection~~more complete lifestyle brand with intimates as the inspiration. aerie is a lifestyle brand for a modern21-year-old girl that ~~includes fragrance, body care~~is beautiful, feminine, soft, sensuous, yet comfortable. It is simple and ~~cosmetics~~stylish apparel that is made to ~~complement the aerie lifestyle. Designed to be sexy, comfortable~~live in and ~~cozy, aerie~~^® ~~offers AE~~^® ~~customers a new way to express their personal style everyday.~~wear out.

77kids by american eagle

Introduced in October of 2008 as an online-only brand, 77kids by american eagle^® (“77kids”) offers on-trend, high-quality clothing and accessories for kids ages two to ~~10. We plan to open five~~10 and babies under the brand name little77^tm. Beginning in Fiscal 2010, nine 77kids^® ~~brick-and-mortar~~ stores ~~in Fiscal 2010.~~were opened. The brand draws from the strong heritage of American Eagle Outfitters^®, with apoint-of-view that’s thoughtful, playful and real. Like American Eagle^® clothing, 77kids focuses on great fit, value and style. All 77kids^® clothing is backed by the brand’s 77wash^tm and 77soft^tm guarantees to maintain size, shape and quality and to be extremely soft and comfortable through dozens of washes.

AEO Direct

We sell merchandise via oure-commerce operations, ae.com^®, aerie.com ~~77kids.com~~ and ~~martinandosa.com,~~77kids.com, which are extensions of the lifestyle that we convey in our stores. We currently ship to 7576 countries. In addition to purchasing items online, customers can experience AEO Direct in-store throughStore-to-Door.Store-to-Door enables store associates to sell any item available online to an in-store customer in a single ~~transaction, without placing a phone call.~~transaction. Customers are taking advantage ofStore-to-Door by purchasing extended sizes that are not available in-store, as well as finding a certain size or color that happens to beout-of-stock at the time of their visit. The ordered items are shipped to the customer’s home free of charge. We accept PayPal^® and Bill Me Later^® as a means of payment from our ae.com^®, aerie.com and 77kids.com customers. We are continuing to focus on the growth of AEO Direct through various initiatives, including improved site efficiency and faster check-out, expansion of sizes and styles, on-line specialty shops and targeted marketing strategies.

~~Information concerning our segments and certain geographic information is contained in Note 2 of the Consolidated Financial Statements included in thisForm 10-K~~ ~~and is incorporated herein by reference.~~

Real Estate

~~During Fiscal 2009 and~~We are continuing ~~into Fiscal 2010, we are taking~~to take a more cautious stance on real estate growth in light of ~~a slow-down in~~ the ~~economy.~~current economic environment. However, we remain focused on ~~several well-defined~~the real-estate strategies that we have in place to grow our business and strengthen our financial performance.

We are continuing the expansion of our brands throughout the United States. At the end of Fiscal ~~2009,~~2010, we operated in all 50 states, Puerto Rico and Canada. During Fiscal ~~2009,~~2010, we opened 2934 new stores, consisting of ~~eight U.S.~~14 AE stores, ~~and 21~~11 aerie stores ~~including two Canadian aerie~~and nine 77kids stores. These store openings, offset by 2451 store closings ~~increased~~that include all 28 M+O stores, decreased our total store base to ~~1,103~~1,086 stores.

~~Additionally, our~~Our gross square footage increased by approximately 1%2% during Fiscal ~~2009,~~2010, excluding the impact of M+O closings, with approximately ~~58%~~71% attributable to new store openings and the remaining 29% attributable to the incremental square footage from ~~22 AE U.S. and Canadian~~29 store remodels and ~~the remaining 42% attributable to new store openings.~~

In Fiscal 2010, we plan to open 14 AE and 20 aerie stores and remodel approximately 20 existing AE stores. We plan to close all 28 M+O stores and 15 to 25 AE stores. We also plan to open five 77kids stores with an average size of 5,000 gross square feet. Our consolidated square footage growth is expected to be relatively flat compared to Fiscal

~~2009. We believe that there are attractive retail locations where we can continue to open American Eagle stores and our other brands in enclosed regional malls, urban areas and lifestyle centers.~~

~~The tables below show certain information relating to our historical store growth in the U.S. and Canada:~~

Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

2009 2008 2007 2006 2005

Consolidated stores at beginning of period 1,098 987 911 869 846
Consolidated stores opened during the period 29 122 80 50 36
Consolidated stores closed during the period (24 ) (11 ) (4 ) (8 ) (13 )

Total consolidated stores at end of period
1,103 1,098 987 911 869

Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

2009 2008 2007 2006 2005

AE Brand stores at beginning of period 954 929 903 869 846
AE Brand stores opened during the period 8 35 30 42 36
AE Brand stores closed during the period (24 ) (10 ) (4 ) (8 ) (13 )

Total AE Brand stores at end of period
938 954 929 903 869

Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

2009 2008 2007 2006 2005

aerie stores at beginning of period 116 39 3 — —
aerie stores opened during the period 21 77 36 3 —
aerie stores closed during the period — — — — —

Total aerie stores at end of period
137 116 39 3 —

��
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal

2009 2008 2007 2006 2005

M+O stores at beginning of period 28 19 5 — —
M+O stores opened during the period — 10 14 5 —
M+O stores closed during the period — (1 ) — — —

Total M+O stores at end of period
28 28 19 5 —

refurbishes.

Remodeling of our AE stores into our current store format is important to enhance our customer’s shopping experience. In order to maintain a balanced presentation and to accommodate additional product categories, we selectively enlarge our stores during the remodeling process to an average ~~7,000~~6,500 gross square feet, either within their existing location or by upgrading the store location within the mall. We believe the larger format can better

accommodate our expansion of merchandise categories. We select stores for expansion or relocation based on market demographics and store volume forecasts.

During Fiscal ~~2009,~~2010, we remodeled 2218 stores, including 17 AE ~~U.S.~~stores and ~~Canadian stores.~~one aerie store. Of the 2218 remodeled stores, 10nine stores were remodeled ~~and expanded within~~or refurbished with an expansion to their existing locations, ~~nine~~six stores were relocated to a larger space within the mall and three stores were remodeled within their existing locations. Additionally, ~~three~~11 stores were refurbished as discussed below.

We maintain a cost effective store refurbishment program targeted towards our lower volume stores, typically located in smaller markets. Stores selected as part of this program maintain their current location and size but are updated to include certain aspects of our current store format, including paint and ~~certain~~ new fixtures.

In Fiscal 2011, we plan to open approximately 14 AE, 10 aerie and 12 77kids stores. We also plan to remodel between 55 and 75 existing AE stores. Our square footage growth is expected to increase slightly in Fiscal 2011. We believe that there are attractive retail locations where we can continue to open American Eagle stores and our other brands in enclosed regional malls, urban areas and lifestyle centers.

The table below shows certain information relating to our historical store growth.


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	2010			2009			2008			2007			2006

Consolidated stores at beginning of period		1,103			1,098			987			911			869
Consolidated stores opened during the period		34			29			122			80			50
Consolidated stores closed during the period		(51	)		(24	)		(11	)		(4	)		(8	)

Total consolidated stores at end of period		1,086			1,103			1,098			987			911


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	2010			2009			2008			2007			2006

AE Brand stores at beginning of period		938			954			929			903			869
AE Brand stores opened during the period		14			8			35			30			42
AE Brand stores closed during the period		(23	)		(24	)		(10	)		(4	)		(8	)

Total AE Brand stores at end of period		929			938			954			929			903


	Fiscal		Fiscal		Fiscal		Fiscal		Fiscal
	2010		2009		2008		2007		2006

aerie stores at beginning of period		137		116		39		3		—
aerie stores opened during the period		11		21		77		36		3
aerie stores closed during the period		—		—		—		—		—

Total aerie stores at end of period		148		137		116		39		3


	Fiscal		Fiscal		Fiscal		Fiscal		Fiscal
	2010		2009		2008		2007		2006

77kids stores at beginning of period		—		—		—		—		—
77kids stores opened during the period		9		—		—		—		—
77kids stores closed during the period		—		—		—		—		—

Total 77kids stores at end of period		9		—		—		—		—


	Fiscal			Fiscal		Fiscal			Fiscal		Fiscal
	2010			2009		2008			2007		2006

M+O stores at beginning of period		28			28		19			5		—
M+O stores opened during the period		—			—		10			14		5
M+O stores closed during the period		(28	)		—		(1	)		—		—

Total M+O stores at end of period		—			28		28			19		5

Consolidated Store Locations

Our stores average approximately 5,800 gross square feet and approximately 4,700 on a selling square foot basis. As of January ~~30, 2010,~~29, 2011, we operated ~~1,103~~1,086 stores in the United States and Canada under the American Eagle Outfitters, aerie and ~~MARTIN+OSA~~77kids brands as shown below:

United States, including the Commonwealth of Puerto Rico — ~~1,015~~994 stores


Alabama	18	Indiana	22	Nebraska	8	Rhode Island	4	18	Indiana	22	Nebraska	8	Rhode Island	4
Alaska	5	Iowa	13	Nevada	6	South Carolina	16	5	Iowa	13	Nevada	4	South Carolina	16
Arizona	16	Kansas	10	New Hampshire	8	South Dakota	3	16	Kansas	10	New Hampshire	8	South Dakota	3
Arkansas	9	Kentucky	13	New Jersey	28	Tennessee	24	8	Kentucky	12	New Jersey	29	Tennessee	25
California	89	Louisiana	14	New Mexico	3	Texas	72	81	Louisiana	14	New Mexico	3	Texas	72
Colorado	14	Maine	4	New York	62	Utah	12	12	Maine	5	New York	64	Utah	12
Connecticut	18	Maryland	21	North Carolina	31	Vermont	3	18	Maryland	18	North Carolina	30	Vermont	3
Delaware	5	Massachusetts	33	North Dakota	4	Virginia	29	5	Massachusetts	32	North Dakota	4	Virginia	28
Florida	50	Michigan	35	Ohio	40	Washington	20	50	Michigan	33	Ohio	39	Washington	19
Georgia	34	Minnesota	22	Oklahoma	12	West Virginia	9	34	Minnesota	22	Oklahoma	12	West Virginia	9
Hawaii	4	Mississippi	8	Oregon	11	Wisconsin	18	4	Mississippi	8	Oregon	11	Wisconsin	18
Idaho	4	Missouri	19	Pennsylvania	66	Wyoming	2	4	Missouri	19	Pennsylvania	66	Wyoming	2
Illinois	37	Montana	2	Puerto Rico	5			35	Montana	2	Puerto Rico	5

Canada — 8892 stores


Alberta	11	New Brunswick	4	Ontario	44	14	New Brunswick	4	Ontario	46
British Columbia	12	Newfoundland	2	Quebec	9	12	Newfoundland	1	Quebec	9
Manitoba	2	Nova Scotia	2	Saskatchewan	2	2	Nova Scotia	2	Saskatchewan	2

International Expansion

In Fiscal 2009, we entered into an international franchise agreement with Alshaya Trading Co. to open a series of American Eagle stores in the Middle East, Northern Africa and Eastern Europe over the next several years. The first three franchised stores opened during Fiscal 2010 in Dubai and Kuwait City and are not included in the table above.

During Fiscal 2010, we entered into a franchise agreement with Dickson Concepts (International) Limited to open a series of American Eagle stores in Hong Kong, China and Macau beginning in Fiscal 2011. Additionally, we entered into franchise agreements with Sumikin Bussan Corporation and Fox-Wizel, Ltd. to open a series of American Eagle and aerie stores in Japan and Israel, respectively. The first stores are scheduled to be opened in Fiscal 2012. These franchise arrangements do not involve a capital investment from AEO and require minimal operational involvement.

Purchasing

We purchase merchandise from suppliers who either manufacture their own merchandise, supply merchandise manufactured by others or both. During Fiscal ~~2009,~~2010, we purchased a majority of our merchandise from non-North American suppliers.

All of our merchandise suppliers receive a vendor compliance manual that describes our quality standards and shipping instructions. We maintain a quality control department at our distribution centers to inspect incoming merchandise shipments for uniformity of sizes and colors and for overall quality of manufacturing. Periodic inspections are also made by our employees and agents at manufacturing facilities to identify quality problems prior to shipment of merchandise.

Corporate Responsibility

The Company is firmly committed to the principle that the people who make our clothes should be treated with dignity and respect. We seek to work with apparel suppliers throughout the world who share our commitment to providing safe and healthy workplaces. At a minimum, we require our suppliers to maintain a workplace environment that complies with local legal requirements and meets universally-accepted human rights standards.

Our Vendor Code of Conduct (the “Code”), which is based on universally-accepted human rights principles, sets forth our expectations for suppliers. The Code must be posted in every factory that manufactures our clothes in the local language of the workers. All suppliers must agree to abide by the terms of our Code before we will place production with them.

We maintain an extensive factory inspection program, through our Hong Kong compliance office, to monitor compliance with our Code. The Hong Kong team validates the inspection reporting of our third-party vendor compliance auditors and works with new and existing factories on remediation of issues. New garment factories must pass an initial inspection in order to do business with us. Once new factories are approved, we then strive to re-inspect them at least once a year. We review the outcome of these inspections with factory management

with the goal of helping them to continuously improve their performance. In cases where a factory is unable or unwilling to meet our standards, we will take steps up to and including the severance of our business relationship.

In Fiscal 2007, we opened a compliance office in Hong Kong. Today, the Hong Kong-based team validates the inspection reporting of our third-party vendor compliance auditors and works with new and existing factories on remediation of issues. Also in Fiscal 2007, we instituted a process of pre-inspection for facilities being considered for AE production and expanded our annual re-audit program to strive to include all primary existing facilities.

Security Compliance

During recent years, there has been an increasing focus within the international trade community on concerns related to global terrorist activity. Various security issues and other terrorist threats have brought increased demands from the Bureau of Customs and Border Protection (“CBP”) and other agencies within the Department of Homeland Security that importers take responsible action to secure their supply chains. In response, we became a certified member of the Customs — Trade Partnership Against Terrorism program (“C-TPAT”) during 2004. C-TPAT is a voluntary program offered by CBP in which an importer agrees to work with CBP to strengthen overall supply chain security. Our internal security procedures were reviewed by CBP during February 2005 and a validation of processes with respect to our external partners was completed in June 2005 and then re-evaluated in June 2008. We received formal written validations of our security procedures from CBP during ~~the first quarter of~~ Fiscal 2006 and ~~the second quarter of~~ Fiscal 2008, each indicating the highest level of benefits afforded to C-TPAT members.

Historically, we took significant steps to expand the scope of our security procedures, including, but not limited to: a significant increase in the number of factory audits performed; a revision of the factory audit format to include a review of all critical security issues as defined by CBP; a review of security procedures of our other international trading partners, including forwarders, consolidators, shippers and brokers; and a requirement that all of our international trading partners be members of C-TPAT. In Fiscal 2007, we further increased the scope of our inspection program to strive to include pre-inspections of all potential production facilities. In Fiscal 2009, we again expanded the program to require all suppliers that have passed pre-inspections and reached a satisfactory level of security compliance through annual factory re-audits to provide us with security self-assessments on at least an annual basis. Additionally, in Fiscal 2009, we began evaluating additional oversight options for high-risk security ~~countries.~~countries and among other things, implemented full third-party audits on an annual basis.

Trade Compliance

Merchandise Inventory, Replenishment and Distribution

Customer Credit and Returns

We offer a co-branded credit card (the ~~“AE~~“AEO Visa Card”) and a private label credit card (the ~~“AE~~“AEO Credit Card”) under ~~both~~ the American Eagle, aerie, and ~~aerie~~77kids brands. ~~Both of these~~These credit cards are issued by a third-party bank (the “Bank”), and we have no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEAEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in our credit card rewards ~~program. Under the rewards~~ program that ~~expired~~was implemented on December 31, 2009, points are earned on purchases made with the AE Visa Card at AE and aerie, and at other retailers where the card is accepted. Points earned under the credit cards reward program resulted in the issuance of an AE gift card when a certain point threshold was reached. The AE gift card does not expire, however points earned that have not been used towards the issuance of an AE gift card expire after 36 months of no purchase activity. On January 1, ~~2010, we modified the benefits on the AE Visa and AE Credit Card programs to make both credit cards a part of the rewards program.~~2010. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEAEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance. AEAEO Credit Card holders will ~~still~~also receive special promotional offers and advance notice of all American Eagle in-store sales events. The AEAEO Credit Card is accepted at all of our stores and at ae.com, aerie.com, and 77kids.com. The AEO Visa Card is accepted in all of our stores and AEO Direct sites ~~while the AE Credit Card is accepted at American Eagle, aerie, ae.com, aerie.com and 77kids.com, only.~~as well as merchants worldwide that accept Visa^®.

~~Our customers~~Customers in ~~the~~our U.S. and Canada stores may also pay for their purchases with American Express^®, Discover^®, MasterCard^®, Visa^®, bank debit cards, cash or check. Our AEO Direct customers may pay for their purchases using American Express^®, Discover^®, MasterCard^® and Visa^®. ~~In addition, our ae.com, aerie.com, and 77kids.com customers~~They may also pay for their purchases using PayPal^® and Bill Me Later^®.

Customers may also use gift cards to pay for their purchases. AE, aerie, and ~~aerie~~77kids gift cards can be purchased in our American Eagle, aerie, and ~~aerie~~77kids stores, respectively, and can be used both in-store and online. In addition, AE, aerie and 77kids gift cards are available for purchase through ae.com, aerie.com or 77kids.com. ~~MARTIN+OSA gift cards can be used both in-store and online.~~ When the recipient uses the gift card, the value of the purchase is electronically deducted from the card and any remaining value can be used for future purchases. Our gift cards do not expire and we do not charge a service fee on inactive gift cards.

We offer our retail customers a hassle-free return policy. We believe that ~~certain of~~ our competitors offer similar credit card and customer service policies.

Trademarks and Service Marks

These trademarks are renewable indefinitely ~~as long as they are still in use~~ and their registrations are properly ~~maintained.~~maintained in accordance with the laws of the country in which they are registered. We believe that the recognition associated with these trademarks makes them extremely valuable and, therefore, we intend to use and renew our trademarks in accordance with our business plans.

Employees

As of January ~~30, 2010,~~29, 2011, we had approximately ~~39,400~~39,900 employees in the United States and Canada, of whom approximately 33,000 were part-time and seasonal hourly employees. We consider our relationship with our employees to be good.

Seasonality

Historically, our operations have been seasonal, with a large portion of net sales and operating income occurring in the third and fourth fiscal quarter, reflecting increased demand during theback-to-school and year-end holiday selling seasons, respectively. As a result of this seasonality, any factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic conditions.

Available Information

Our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and amendments to those reports are available, free of charge, under the “About AEO, Inc.” section of our website at www.ae.com. These reports are available as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”).

Our corporate governance materials, including our corporate governance guidelines, the charters of our audit, compensation, and nominating and corporate governance committees, and our code of ethics may also be found under the “About AEO, Inc.” section of our website at www.ae.com. Any amendments or waivers to our code of ethics will also be available on our website. A copy of the corporate governance materials is also available upon written request.

Additionally, our investor presentations are available under the “About AEO, Inc.” section of our website at www.ae.com. These presentations are available as soon as reasonably practicable after they are presented at investor conferences.


ITEM 1A.	*RISK FACTORS*

Our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner

Our future success depends, in part, upon our ability to identify and respond to fashion trends in a timely manner. The specialty retail apparel business fluctuates according to changes in the economy and customer preferences, dictated by fashion and season. These fluctuations especially affect the inventory owned by apparel retailers because merchandise typically must be ordered well in advance of the selling season. While we endeavor to test many merchandise items before ordering large quantities, we are still susceptible to changing fashion trends and fluctuations in customer demands.

In addition, the cyclical nature of the retail business requires that we carry a significant amount of inventory, especially during our peak selling seasons. We enter into agreements for the manufacture and purchase of our private label apparel well in advance of the applicable selling season. As a result, we are vulnerable to changes in consumer demand, pricing shifts and the timing and selection of merchandise purchases. The failure to enter into agreements for the manufacture and purchase of merchandise in a timely manner could, among other things, lead to a shortage of inventory and lower sales. Changes in fashion trends, if unsuccessfully identified, forecasted or responded to by us, could, among other things, lead to lower sales, excess inventories and higher markdowns, which in turn could have a material adverse effect on our results of operations and financial condition.

The effect of economic pressures and other business factors

The global ~~recession~~economic crisis that began during the second half of 2008 continues to cause uncertainty and a wide-ranging lack of liquidity in the credit markets. This market uncertainty continues to result in a lack of consumer confidence and ~~widespread reduction of business activity.~~spending.

The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, consumer debt, interest rates, increases in energy costs and consumer confidence. There can be no assurance that consumer spending will not be further negatively affected by general or local economic conditions, thereby adversely impacting our continued growth and results of operations.

Our ability to react to raw material cost increases, labor and energy prices

Increases in our costs, such as raw materials, labor and fuel, may reduce our overall profitability. Specifically, fluctuations in the price of cotton that is used in the manufacture of merchandise we purchase from our suppliers have begun to negatively impact our cost of sales. We have strategies in place to mitigate the rising cost of raw materials and our overall profitability depends on the success of those strategies. Additionally, increases in other costs, including labor and energy, could further reduce our profitability if not mitigated.

Our ability to grow through new store openings and existing store remodels and expansions

Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. During Fiscal ~~2010,~~2011, we plan to open 14 new American Eagle stores in the U.S. and Canada, 2010 aerie stand-alone stores and ~~five~~12 77kids stores. Additionally, we plan to remodel or expand 20between 55 and 75 existing American Eagle stores during Fiscal ~~2010.~~2011. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to obtain suitable sites

for new and expanded stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, the integration of new stores into existing operations and the expansion of our buying and inventory capabilities. There can be no assurance that we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new and remodeled stores profitably.

Our ability to achieve planned store financial performance

The results achieved by our stores may not be indicative of long-term performance or the potential performance of stores in other locations. The failure of stores to achieve acceptable results could result in store asset impairment charges, which could adversely affect our continued growth and results of operations.

Our ability to grow through the internal development of new brands

We launched our new brand concepts, aerie and 77kids, during Fiscal 2006 and Fiscal 2008, respectively. Our ability to succeed in these new brands requires significant expenditures and management attention. Additionally, any new brand is subject to certain risks including customer acceptance, competition, product differentiation, the

ability to attract and retain qualified personnel, including management and designers, and the ability to obtain suitable sites for new stores at acceptable costs. There can be no assurance that these new brands will grow or become profitable. If we are unable to succeed in developing profitable new brands, this could adversely impact our continued growth and results of operations.

~~Our planned closure of MARTIN+OSA~~

On March 5, 2010, our Board approved management’s recommendation to proceed with the closure of MARTIN+OSA. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. As a result of this decision, we plan to close all 28 stores and cease all online and corporate operations for the brand in Fiscal 2010. The timing of the store closures is dependent on a number of factors including negotiating third-party agreements, adherence to notification requirements and local laws.

Store closures are expected to be substantially complete by the end of the second quarter of Fiscal 2010. To the extent not previously recognized, the charges associated with the decision are expected to be recognized primarily over the first and second quarters of Fiscal 2010. Our current estimates of the charges are preliminary and are based on a number of significant assumptions that could change materially. Any change in estimates of the charges could adversely impact our consolidated results of operations.

~~Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.~~

Our international merchandise sourcing strategy

Substantially all of our merchandise is purchased from foreign suppliers. Although we purchase a significant portion of our merchandise through a single foreign buying agent, we do not maintain any exclusive commitments to purchase from any vendor. Since we rely on a small number of foreign sources for a significant portion of our purchases, any event causing the disruption of imports, including the insolvency of a significant supplier or a significant labor dispute, could have an adverse effect on our operations. Other events that could also cause a disruption of imports include the imposition of additional trade law provisions or import restrictions, such as increased duties, tariffs, anti-dumping provisions, increased CBP enforcement actions, or political or economic disruptions.

We have a Vendor Code of Conduct (the “Code”) that provides guidelines for all of our vendors regarding working conditions, employment practices and compliance with local laws. A copy of the Code is posted on our website, www.ae.com, and is also included in our vendor manual in English and multiple other languages. We have a factory compliance program to audit for compliance with the Code. However, there can be no assurance that our factory compliance program will be fully effective in discovering all violations. Publicity regarding violation of our Code or other social responsibility standards by any of our vendor factories could adversely affect our sales and financial performance.

We believe that there is a risk of terrorist activity on a global basis, and such activity might take the form of a physical act that impedes the flow of imported goods or the insertion of a harmful or injurious agent to an imported shipment. We have instituted policies and procedures designed to reduce the chance or impact of such actions including, but not limited to, factory audits and ~~factory~~ self-assessments, ~~on security measures; a factory~~including audit ~~protocol and factory self-assessment protocol that includes~~protocols on all critical security issues; the review of security procedures of our other international trading partners, including forwarders, consolidators, shippers and brokers; and the cancellation of agreements with entities who fail to meet our security requirements. In addition, the United States CBP has recognized us as a validated, tier three member of the Customs — Trade Partnership Against Terrorism program, a voluntary program in which an importer agrees to work with ~~US Customs~~customs to strengthen overall supply chain security. However, there can be no assurance that terrorist activity can be prevented entirely and we cannot predict the likelihood of any such activities or the extent of their adverse impact on our operations.

Our reliance on external vendors

Given the volatility and risk in the current markets, our reliance on external vendors leaves us subject to certain risks should one or more of these external vendors become insolvent. Although we monitor the financial stability of our key vendors and plan for contingencies, the financial failure of a key vendor could disrupt our operations and have an adverse effect on our cash flows, results of operations and financial condition.

Seasonality

Our reliance on our ability to implement and sustain information technology systems

We regularly evaluate our information technology systems and are currently implementing modificationsand/or upgrades to the information technology systems that support our business. Modifications include replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. We are aware of inherent risks associated with replacing and modifying these systems, including inaccurate system information and system disruptions. We believe we are taking appropriate action to mitigate the risks through testing, training and staging implementation, as well as securing appropriate commercial contracts with third-party vendors supplying such replacement technologies. Information technology system disruptions and inaccurate system information, if not anticipated and appropriately mitigated, could have a material adverse effect on our results of operations.

Our reliance on key personnel

Our success depends to a significant extent upon the continued services of our key personnel, including senior management, as well as our ability to attract and retain qualified key personnel and skilled employees in the future. Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in our management.

Failure to comply with regulatory requirements

As a public company, we are subject to numerous regulatory requirements. Our policies, procedures and internal controls are designed to comply with all applicable laws and regulations, including those imposed by the Sarbanes-Oxley Act of 2002, the SEC and the NYSE. Failure to comply with such laws and regulations could have a material adverse effect on our reputation, financial condition and on the market price of our common stock.

~~Negative conditions in global credit markets may further impair our investment securities portfolio~~

Auction rate securities (“ARS”) are long-term debt instruments with interest rates reset through periodic short-term auctions. Holders of ARS can either sell into the auctions; bid based on a desired interest rate or hold and accept the reset rate. If there are insufficient buyers, then the auction fails and holders are unable to liquidate their investment through the auction. A failed auction is not a default of the debt instrument, but does set a new interest rate in accordance with the original terms of the debt instrument. The result of a failed auction is that the ARS continues to pay interest in accordance with its terms; however, liquidity for holders is limited until there is a successful auction or until such time as another market for ARS develops. ARS are generally callable at any time by the issuer. Auctions continue to be held as scheduled until the ARS matures or until it is called.

As a result of the global recession, we have been unable to liquidate our holdings of certain ARS because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities and the auctions failed. For failed auctions, we continue to earn interest on these investments at the contractual rate. In the event we need to access these funds, we will not be able to do so until a future auction is successful, the issuer redeems the securities, a buyer is found outside of the auction process or the securities mature.

If our ARS holdings continue to be unable to clear successfully at future auctions or if issuers do not redeem the securities, we may be required to adjust the carrying value of the securities and record additional impairment charges. If we determine that the fair value of these ARS is temporarily impaired, we would record a temporary impairment within other comprehensive income, a component of stockholders’ equity. If it is determined that the fair value of our ARS is~~other-than-temporarily~~ ~~impaired, we would record a loss in our Consolidated Statements of Operations, which could materially adversely impact our results of operations and financial condition.~~

Our ability to obtainand/or maintain our credit facilities ~~due to the ramifications of the global credit crisis and corresponding financial institution failures~~

We believe that we have sufficient cash flows from operating activities to meet our operating requirements. In addition, the banks participating in our various credit facilities are currently rated as investment grade, and ~~substantially~~ all of the amounts under the credit facilities are currently available to us. We draw on our credit facilities to increase our cash position to add financial flexibility. Although we expect to continue to generate positive cash flow despite the current economy, there can be no assurance that we will be able to successfully generate positive cash flow in the future. Continued negative trends in the credit marketsand/or continued financial institution failures could lead to lowered credit availability as well as difficulty in obtaining financing. In the event of limitations on our access to credit facilities, our liquidity, continued growth and results of operations could be adversely affected.

Our efforts to expand internationally through franchising

Other risk factors


ITEM 2.	*PROPERTIES.*

We own ~~a 186,000 square foot building~~two buildings in an urban Pittsburgh, Pennsylvania ~~location~~ which ~~houses~~house our corporate headquarters. ~~Additionally, during Fiscal 2009, we completed construction of a 152,000~~These buildings total 186,000 square ~~foot building on adjacent land, which is used for the expansion of our corporate headquarters.~~feet and 150,000 square feet, respectively. We lease ~~three~~two locations near our headquarters, which are used primarily for store and corporate support services, totaling approximately ~~68,000~~60,000 square feet. These leases expire with various terms through ~~2022.~~2024.

We own a ~~490,000~~423,000 square foot building located in a suburban area near Pittsburgh, Pennsylvania, which houses our distribution center and contains approximately 120,000 square feet of office space. We also own a 45,000 square foot building, which houses our data center and additional office space. We lease an additional location of approximately 18,000 square feet, which is used for storage space. This lease expires in 2015.

We rent approximately 131,000 square feet of office space in New York, New York for our designers and sourcing and production teams. The lease for this space expires in May 2016. We also lease an additional ~~60,000~~55,000 square feet of office space in New York, New York, with various terms expiring through 2018.

We own a distribution facility in Ottawa, Kansas consisting of approximately 1,220,000 total square feet, including atwo expansions of 544,000 square ~~foot expansion which was completed during Fiscal 2007~~feet and a 280,000 square ~~foot expansion which was completed during Fiscal 2008.~~feet, respectively. This expanded facility is used to support new and existing growth initiatives, including AEO Direct, aerie and 77kids.

We lease a building in Mississauga, Ontario with approximately 294,000 square feet, which houses our Canadian distribution center. The lease expires in 2017.

We ~~also entered into a~~ lease ~~in Fiscal 2007 for a new~~our flagship store in the Times Square area of New York, New York. The 25,000 square foot location has an initial term of 15 years with three options to renew for five years each. This flagship store opened in November ~~2009.~~2009 and the initial lease term expires in 2024.

PART II


ITEM 5.	*MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.*

Our common stock is traded on the NYSE under the symbol “AEO”. ~~The following table sets forth the range of high and low closing prices of the common stock as reported on the NYSE during the periods indicated.~~ As of March ~~19, 2010,~~7, 2011, there were ~~668~~628 stockholders of record. However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately ~~55,000.~~50,000. The following table sets forth the range of high and low closing prices of the common stock as reported on the NYSE during the periods indicated.


	Market Price				Cash Dividends per		Market Price				Cash Dividends per
For the Quarters Ended	High		Low		Common Share		High		Low		Common Share

January 29, 2011							$	17.16	$	14.02	$	0.61
October 30, 2010							$	17.36	$	12.04	$	0.11
July 31, 2010							$	17.13	$	11.60	$	0.11
May 1, 2010							$	19.34	$	15.73	$	0.10
January 30, 2010	$	18.06	$	14.54	$	0.10	$	18.06	$	14.54	$	0.10
October 31, 2009	$	19.62	$	13.37	$	0.10	$	19.62	$	13.37	$	0.10
August 1, 2009	$	15.53	$	12.80	$	0.10	$	15.53	$	12.80	$	0.10
May 2, 2009	$	15.60	$	8.44	$	0.10	$	15.60	$	8.44	$	0.10
January 31, 2009	$	10.91	$	7.11	$	0.10
November 1, 2008	$	16.69	$	9.40	$	0.10
August 2, 2008	$	19.05	$	12.13	$	0.10
May 3, 2008	$	23.45	$	15.79	$	0.10

During Fiscal ~~2009~~2010 and Fiscal ~~2008,~~2009, we paid quarterly dividends as shown in the table above. Cash dividends per common share for the quarter ended January 29, 2011 consisted of a regular quarterly dividend of $0.11 per common share and a special cash dividend of $0.50 per common share. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis.

1413

Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following graph compares the changes in the cumulative total return to holders of our common stock with that of the S&P Midcap 400 and the Dynamic Retail Intellidex. The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on January ~~29, 2005~~28, 2006 and includes reinvestment of all dividends. The plotted points are based on the closing price on the last trading day of the fiscal year indicated.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among American Eagle Outfitters, Inc., The S&P Midcap 400 Index
And A Peer Group


	1/29/05		1/28/06		2/3/07		2/2/08		1/31/09		1/30/10		1/28/06		2/3/07		2/2/08		1/31/09		1/30/10		1/29/11
American Eagle Outfitters, Inc.		100.00		106.42		200.06		147.96		58.40		105.80		100.00		187.99		139.04		54.88		99.42		96.79
S&P Midcap 400		100.00		122.31		132.05		129.11		81.37		116.66		100.00		107.97		105.56		66.53		95.38		127.30
Dynamic Retail Intellidex		100.00		102.28		104.44		87.58		55.20		87.91		100.00		105.85		92.90		65.75		94.22		121.79

1514

~~Issuer Purchases of Equity Securities~~

The following table provides information regarding our repurchases of ~~our~~ common stock during the three months ended January ~~30, 2010.~~29, 2011.

Total Number of
Maximum Number of

Total
Average
Shares Purchased as
Shares that May

Number of
Price Paid
Part of Publicly
Yet be Purchased

Shares Purchased
per Share
Announced Programs
Under the Program

Period
(1) (2) (1)(3) (3)

Month #1 (November 1, 2009 through November 28, 2009) — — — 41,250,000
Month #2 (November 29, 2009 through January 2, 2010) 1,031 $ 16.98 — 41,250,000
Month #3 (January 3, 2010 through January 30, 2010) — — — 41,250,000

Total 1,031 $ 16.98 — 41,250,000

Issuer Purchases of Equity Securities


					Total Number of		Maximum Number of
	Total		Average		Shares Purchased as		Shares that May
	Number of		Price Paid		Part of Publicly		Yet be Purchased
	Shares Purchased		Per Share		Announced Programs		Under the Program
Period	(1)		(2)		(1)(3)		(3)

Month #1 (October 31, 2010 through November 27, 2010)		—		—		—		16,000,000
Month #2 (November 28, 2010 through January 1, 2011)		1,501,197	$	15.85		1,500,000		14,500,000
Month #3 (January 2, 2011 through January 29, 2011)		—		—		—		14,500,000

Total		1,501,197	$	15.85		1,500,000		14,500,000


(1)		Shares purchased during Month #2 ~~were all~~included 1.5 million shares repurchased ~~from employees~~as part of our publically announced share repurchase program and 1,197 shares repurchased for the payment of taxes in connection with the vesting of share-based payments.

(2)		Average price paid per share excludes any broker commissions paid.

(3)		OfIn January 2008, our Board authorized the ~~41.3~~repurchase of 30.0 million shares ~~that may yet be purchased under the program, the authorization relating to 11.3 million shares expired~~of our common stock, originally expiring at the end of Fiscal ~~2009 and~~2010. In November 2010, our Board extended the authorization ~~relating to 30.0~~for the remaining 16.0 million shares through Fiscal 2012. Accordingly, the authorization of the remaining 14.5 million shares that may be repurchased under the program expires at the end of Fiscal ~~2010.~~2012.

~~Equity Compensation Plan Table~~

The following table sets forth additional information as of the end of Fiscal ~~2009,~~2010, about shares of our common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements not submitted to the Company’s stockholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options and other rights and the number of shares remaining available for future grants excluding the shares to be issued upon exercise of outstanding options, warrants and other rights.

Column (a) Column (b) Column (c)
Number of Securities

Remaining Available

Number of Securities
Weighted-Average
for Issuance Under

to be Issued Upon
Exercise Price of
Equity Compensation

Exercise of Outstanding
Outstanding Options,
Plans (Excluding

Options,
Warrants and
Securities Reflected

Warrants and Rights(1) Rights(1) in Column (a))(1)

Equity compensation plans approved by stockholders 14,904,942 $ 15.01 28,395,557
Equity compensation plans not approved by stockholders — — —

Total 14,904,942 $ 15.01 28,395,557

Equity Compensation Plan Table

Column (a)

Column (b)

Column(c)

Number of Securities

Remaining Available

Number of Securities

Weighted-Average

for Issuance Under

to be Issued Upon

Exercise Price of

Equity Compensation

Exercise of Outstanding

Outstanding Options,

Plans (Excluding

Options,

Warrants and

Securities Reflected

Warrants and Rights(1)

Rights(1)

in Column (a))(1)

Equity compensation plans approved by stockholders

12,124,456

15.25

25,697,047

Equity compensation plans not approved by stockholders

—

Total

12,124,456

15.25

25,697,047


(1)		Equity compensation plans approved by stockholders include the 1994 Stock Option Plan, the 1999 Stock Incentive Plan and the 2005 Stock Award and Incentive ~~Plan.~~Plan, as amended (the “2005 Plan”).

1615


ITEM 6.	*SELECTED CONSOLIDATED FINANCIAL DATA.*

The following Selected Consolidated Financial Data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included under Item 7 below and the Consolidated Financial Statements and Notes thereto, included in Item 8 below. Most of the selected data presented below is derived from our Consolidated Financial Statements, if applicable, which are filed in response to Item 8 below. The selected Consolidated Statement of Operations data for the years ended February 2, 2008 and February 3, 2007 ~~and January 28, 2006~~ and the selected Consolidated Balance Sheet data as of January 31, 2009, February 2, 2008 and February 3, 2007 ~~and January 28, 2006~~ are derived from audited Consolidated Financial Statements not included herein.


	For the Years Ended(1)															For the Years Ended(1)
	January 30,			January 31,			February 2,			February 3,			January 28,			January 29,			January 30,			January 31,			February 2,			February 3,
	2010			2009			2008			2007			2006			2011			2010			2009			2008			2007
	(In thousands, except per share amounts, ratios and other financial information)															(In thousands, except per share amounts, ratios and other financial information)

*Summary of Operations(2)*
Net sales~~(2)~~	$	2,990,520		$	2,988,866		$	3,055,419		$	2,794,409		$	2,321,962		$	2,967,559		$	2,940,269		$	2,948,679		$	3,041,158		$	2,790,976
Comparable store sales (decrease) increase(3)		(4	)%		(10	)%		1	%		12	%		16	%		(1	)%		(4	)%		(10	)%		1	%		12	%
Gross profit	$	1,158,049		$	1,174,101		$	1,423,138		$	1,340,429		$	1,077,749		$	1,170,959		$	1,173,430		$	1,197,186		$	1,438,236		$	1,353,703
Gross profit as a percentage of net sales		38.7	%		39.3	%		46.6	%		48.0	%		46.4	%		39.5	%		39.9	%		40.6	%		47.3	%		48.5	%
Operating income(4)	$	238,393		$	302,140		$	598,755		$	586,790		$	458,689		$	317,261		$	310,392		$	382,797		$	652,201		$	629,240
Operating income as a percentage of net sales		8.0	%		10.1	%		19.6	%		21.0	%		19.8	%		10.7	%		10.6	%		13.0	%		21.4	%		22.5	%
Income from continuing operations	$	169,022		$	179,061		$	400,019		$	387,359		$	293,711		$	181,934		$	213,398		$	229,984		$	433,507		$	413,583
Income from continuing operations as a percentage of net sales		5.7	%		6.0	%		13.1	%		13.9	%		12.7	%		6.1	%		7.3	%		7.8	%		14.3	%		14.8	%
*Per Share Results*(5)
Income from continuing operations per common share-basic	$	0.82		$	0.87		$	1.85		$	1.74		$	1.29		$	0.91		$	1.04		$	1.12		$	2.01		$	1.86
Income from continuing operations per common share-diluted	$	0.81		$	0.86		$	1.82		$	1.70		$	1.26		$	0.90		$	1.02		$	1.11		$	1.97		$	1.81
Weighted average common shares outstanding — basic		206,171			205,169			216,119			222,662			227,406			199,979			206,171			205,169			216,119			222,662
Weighted average common shares outstanding — diluted		209,512			207,582			220,280			228,384			233,031			201,818			209,512			207,582			220,280			228,384
Cash dividends per common share	$	0.40		$	0.40		$	0.38		$	0.28		$	0.18		$	0.93		$	0.40		$	0.40		$	0.38		$	0.28
*Balance Sheet Information*
Total cash and short-term investments	$	698,635		$	483,853		$	619,939		$	813,813		$	751,518		$	734,695		$	698,635		$	483,853		$	619,939		$	813,813
Long-term investments	$	197,773		$	251,007		$	165,810		$	264,944		$	145,744		$	5,915		$	197,773		$	251,007		$	165,810		$	264,944
Total assets~~(6)~~	$	2,138,148		$	1,963,676		$	1,867,680		$	1,979,558		$	1,605,649		$	1,879,998		$	2,138,148		$	1,963,676		$	1,867,680		$	1,979,558
Short-term debt	$	30,000		$	75,000		$	—		$	—		$	—		$	—		$	30,000		$	75,000		$	—		$	—
Long-term debt	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Stockholders’ equity	$	1,578,517		$	1,409,031		$	1,340,464		$	1,417,312		$	1,155,552		$	1,351,071		$	1,578,517		$	1,409,031		$	1,340,464		$	1,417,312
Working capital~~(6)~~	$	758,075		$	523,596		$	644,656		$	724,490		$	725,294		$	786,573		$	758,075		$	523,596		$	644,656		$	724,490
Current ratio~~(6)~~		2.85			2.30			2.71			2.56			3.06			3.03			2.85			2.30			2.71			2.56
Average return on stockholders’ equity		11.3	%		13.0	%		29.0	%		30.1	%		27.8	%		9.6	%		11.3	%		13.0	%		29.0	%		30.1	%

1716

Other Financial Information(2)


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.*

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements and should be read in conjunction with those statements and notes thereto.

This report contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events, including the following:


	•	the planned opening of 14 new American Eagle stores, 2010 new aerie stores and ~~five~~12 new 77kids stores in the United States and Canada during Fiscal ~~2010;~~2011;

	•	the selection of approximately 2055 to 75 American Eagle stores in the United States and Canada for remodeling during Fiscal ~~2010;~~2011;

	•	the planned closure of 15 to 25 American Eagle stores in the United States and Canada during Fiscal ~~2010;~~2011;

	•	the planned opening of ~~two~~20 new franchised American Eagle stores ~~in the Middle East~~ during Fiscal ~~2010;~~

	•	~~the planned closure of all 28 MARTIN+OSA stores and cessation of all online and corporate operations for the brand in Fiscal 2010;~~2011;

	•	the success of aerie by American Eagle and aerie.com;


	•	the success of 77kids by american eagle and 77kids.com;

	•	the expected payment of a dividend in future periods;

	•	the possibility of engaging in future franchise agreements, growth through acquisitions,and/or internally developing additional new ~~brands,and/or~~ ~~engaging in future franchise agreements;~~brands;

	•	the possibility that weour credit facilities may not be ~~required to take additional temporary impairment charges or net impairment losses recognized in earnings relating to our investment securities;~~available for future borrowings;

	•	the possibility that ~~the amounts drawn on~~rising prices of raw materials, labor, energy and other inputs to our ~~demand borrowing agreements~~manufacturing process, if unmitigated, will ~~be called for repayment and that the facilities may not be available for future borrowings;~~have a significant impact to our profitability; and

	•	the possibility that we may be required to take ~~additional~~ store impairment charges related to underperforming stores.

We caution that these forward-looking statements, and those described elsewhere in this report, involve material risks and uncertainties and are subject to change based on factors beyond our control, as discussed within Part I, Item 1A of thisForm 10-K. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statement.

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require us to make estimates and assumptions that may affect the reported financial condition and results of operations should actual results differ from these estimates. We base our estimates and assumptions on the best available information and believe them to be reasonable for the circumstances. We believe that of our significant accounting policies, the following involve a higher degree of judgment and complexity. Refer to Note 2 to the Consolidated Financial Statements for a complete discussion of our significant accounting policies. Management has reviewed these critical accounting policies and estimates with the Audit Committee of our Board.

Revenue Recognition. We record revenue for store sales upon the purchase of merchandise by customers. Oure-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The estimated sales return reserve is based on projected merchandise returns determined through the use of historical average return percentages. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our sales return reserve. However, if the actual rate of sales returns increases significantly, our operating results could be adversely affected.

~~During Fiscal 2007, we discontinued assessing a service fee on inactive gift cards. As a result, we~~We estimate gift card breakage and recognize revenue in proportion to actual gift card redemptions as a component of net sales. We determine an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed.

Merchandise Inventory. Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

We review our inventory in order to identify slow-moving merchandise and generally use markdowns to clear merchandise. Additionally, we estimate a markdown reserve for future planned markdowns related to current inventory. If inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price, additional markdowns may be necessary. These markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected.

We estimate an inventory shrinkage reserve for anticipated losses for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve is calculated based on historical percentages and

can be affected by changes in merchandise mix and changes in actual shrinkage trends. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our inventory shrinkage reserve. However, if actual physical inventory losses differ significantly from our estimate, our operating results could be adversely affected.

Asset Impairment. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 360,Property, Plant, and Equipment, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable. Assets are evaluated for impairment by comparing the projected undiscounted future cash flows of the asset, over its remaining useful life, to the carrying value. If the future undiscounted cash flows are projected to be less than the carrying value of the asset, we adjust the asset value to its estimated fair value and an impairment loss is recorded as a component of operating income ~~under loss on impairment of assets.~~within selling, general and administrative expense.

Our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our operating results could be adversely affected.

Investment Securities. In accordance with ASC 820,Fair Value Measurements and Disclosures(“ASC 820”), we measure our investment securities using Level 1, Level 2 and Level 3 inputs. Level 1 and Level 2 inputs are valued using quoted market prices while we use a discounted cash flow (“DCF”) model to determine the fair value of our Level 3 investments. The assumptions in our DCF model include different recovery periods depending on the type of security and varying discount factors for yield and illiquidity. These assumptions are subjective and they are based on our current judgment and our view of current market conditions. The use of different assumptions would result in a different valuation and related charge. Future adverse changes in market conditions, continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment’s current carrying value, possibly requiring an additional net impairment loss recognized in earnings in the future. ~~Any such charge could materially affect our results of operations.~~

We evaluate our investments for impairment in accordance with ASC 320,Investments — Debt and Equity Securities(“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment isother-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to beother-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. As of May 3, 2009, we adoptedASC320-10-65,Transition Related to FSPFAS 115-2 andFAS 124-2, Recognition and Presentation ofOther-Than-Temporary-Impairments(“ASC320-10-65”), which modifies the requirements for recognizingother-than-temporary impairment (“OTTI”) and changes the impairment model for debt securities. In addition,ASC320-10-65 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires usthe Company to present total OTTI in the Consolidated Statements of Operations, with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”).

Share-Based Payments. We account for share-based payments in accordance with the provisions of ASC 718,Compensation — Stock Compensation(“ASC 718”). To determine the fair value of our stock option awards, we use the Black-Scholes option pricing model, which requires management to apply judgment and make assumptions to determine the fair value of our awards. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”) and the estimated volatility of the price of our common stock over the expected term.

We calculate a weighted-average expected term based on historical experience. Expected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility. We chose to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone. Changes in these assumptions can materially affect the estimate of

the fair value of our share-based payments and the related amount recognized in our Consolidated Financial Statements.

Income Taxes. We calculate income taxes in accordance with ASC 740,Income Taxes(“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in our level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially impact the effective income tax rate.

~~Effective February 4, 2007, we adopted the accounting pronouncement now codified~~We evaluate our income tax positions in accordance with ASC 740 ~~regarding accounting for unrecognized tax benefits. This pronouncement~~which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. ~~The Company believes~~We believe that ~~its~~our assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Key Performance Indicators

Our management evaluates the following items, which are considered key performance indicators, in assessing our performance:

Comparable store sales — Comparable store sales provide a measure of sales growth for stores open at least one year over the comparable prior year period. In fiscal years following those with 53 weeks, including Fiscal 2007, the prior year period is shifted by one week to compare similar calendar weeks. A store is included in comparable store sales in the thirteenth month of operation. However, stores that have a gross square footage increase of 25% or greater due to a remodel are removed from the comparable store sales base, but are included in total sales. These stores are returned to the comparable store sales base in the thirteenth month following the remodel. Sales from American Eagle ~~aerie~~ and ~~MARTIN+OSA~~aerie stores are included in comparable store sales. Sales from AEO Direct are not included in comparable store sales. Sales from 77kids stores will be included in comparable store sales upon achieving 13 months of operations.

Our management considers comparable store sales to be an important indicator of our current performance. Comparable store sales results are important to achieve leveraging of our costs, including store payroll, store supplies, rent, etc. Comparable store sales also have a direct impact on our total net sales, cash and working capital.

Gross profit — Gross profit measures whether we are optimizing the price and inventory levels of our merchandise and achieving an optimal level of sales. Gross profit is the difference between net sales and cost of sales. Cost of sales consists of: merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage, certain promotional costs and buying, occupancy and warehousing costs. Buying, occupancy and warehousing costs consist of: compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to oure-commerce operation. The inability to obtain acceptable levels of sales, initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.

Operating income — Our management views operating income as a key indicator of our success. The key drivers of operating income are comparable store sales, gross profit, our ability to control selling, general and administrative expenses and our level of capital expenditures.

Store productivity — Store productivity, including net sales per average square foot, sales per productive hour, average unit retail price, conversion rate, the number of transactions per store, the number of units sold per store and the number of units per transaction, is evaluated by our management in assessing our operational performance.

Inventory turnover — Our management evaluates inventory turnover as a measure of how productively inventory is bought and sold. Inventory turnover is important as it can signal slow moving inventory. This can be critical in determining the need to take markdowns on merchandise.

Cash flow and liquidity — Our management evaluates cash flow from operations, investing and financing in determining the sufficiency of our cash position. Cash flow from operations has historically been sufficient to cover our uses of cash. Our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements.

Results of Operations

Overview

In Fiscal ~~2009 started with numerous challenges, including~~2010, we took action to strategically manage our business in what continued to be a ~~difficult consumer environment, which impacted store traffic~~challenging retail environment. During the second quarter, we commenced our corporate profit initiative, aimed at reducing costs, creating efficiencies and transaction volume. This, combined with weak demand for AE merchandise, resulted in a sales and earnings decline during the first two quarters of Fiscal 2009 compared to Fiscal 2008. We made improvements toimproving inventory turns. Additionally, we have strengthened our ~~product~~ assortments and ~~business stabilized, particularly during~~realigned talent. We continue to make progress implementing our corporate profit initiatives, and are driving positive changes across the ~~second half of the year. Although third quarter operating results declined compared to 2008, we began to see an improved customer response to certain core~~

~~categories such as AE jeans~~Company, including supply chain and ~~graphic t-shirts. The business continued to strengthen with the holiday merchandise assortment, driving fourth quarter sales and earnings increases compared to 2008.~~production operations.

Fiscal ~~2009~~2010 net sales of ~~approximately $3.0~~$2.968 billion increased ~~slightly~~1% compared to $2.940 billion in Fiscal ~~2008.~~2009. Annual comparable store sales decreased 1%, compared to a 4%. decline last year. A higher merchandise margin reflected lower ~~markdowns, due to the improvement during the fall and holiday seasons. Buying,~~markdowns. However, buying, occupancy and warehousing expenses increased as a rate to sales as a result of ~~rent related to~~negative comparable store sales and the impact of new store ~~growth.~~openings. Total selling, general and administrative expenses ~~increased~~decreased 2%~~. Expense reductions~~ due to a combination of lower incentive compensation expense recorded in ~~advertising~~the year and ~~travel were offset by the accrual of incentive costs, which were not earned in Fiscal 2008.~~savings resulting from our corporate profit initiative.

Operating income increased as a percent to net sales ~~was 8.0%~~to 10.7% for Fiscal ~~2009~~2010 compared to ~~10.1%~~10.6% for Fiscal ~~2008.~~2009.

For Fiscal ~~2009, net~~2010, income ~~decreased to $169.0 million.~~from continuing operations was $181.9 million and includes $24.4 million of realized losses from the sale of investment securities. As a percent to net sales, ~~net~~ income from continuing operations was ~~5.7%~~6.1% during Fiscal ~~2009~~2010 and ~~6.0%~~7.3% during Fiscal ~~2008. Net~~2009. Fiscal 2010 income from continuing operations per diluted share was ~~$0.81 and $0.86 during~~$0.90, which includes a $0.12 per diluted share loss from sale of investment securities. Fiscal 2009 ~~and Fiscal 2008, respectively.~~income from continuing operations per diluted share was $1.02, which includes $0.11 per diluted share of tax benefits, partially offset by a $0.01 per diluted share loss on sale of investment securities.

We ended Fiscal ~~2009~~2010 with ~~$896.4~~$740.6 million in cash, short-term and long-term investments, ~~an increase~~a decrease of ~~$161.5~~$155.8 million from last year. During the year, we ~~continued~~generated approximately $402.6 million of cash from operations. The cash from operations was offset by $84.3 million of capital expenditures, a $30.0 million repayment of our outstanding notes payable balance, and value returned to ~~make investments in our business, including $127.4~~shareholders through share repurchases of $216.1 million ~~in capital expenditures. These expenditures related primarily to our new~~ and ~~remodeled stores in the U.S. and Canada, as well as headquarters, distribution center and information technology projects.~~dividend payments of $183.2 million.

The following table shows, for the periods indicated, the percentage relationship to net sales of the listed items included in our Consolidated Statements of Operations.


	For the Fiscal Years Ended									For the Fiscal Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009

Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales, including certain buying, occupancy and warehousing expenses		61.3			60.7			53.4			60.5			60.1			59.4

Gross profit		38.7			39.3			46.6			39.5			39.9			40.6
Selling, general and administrative expenses		25.2			24.6			23.4			24.0			24.6			23.4
Loss on impairment of assets		0.6			0.2			—
Depreciation and amortization expense		4.9			4.4			3.6			4.8			4.7			4.2

Operating income		8.0			10.1			19.6			10.7			10.6			13.0
Other (expense) income, net		(0.2	)		0.6			1.2
Realized loss on sale of investment securities											(0.8	)		(0.1	)		—
Other income (expense), net											0.1			(0.1	)		0.6
Net impairment loss recognized in earnings		—			(0.8	)		—			(0.1	)		—			(0.8	)

Income before income taxes		7.8			9.9			20.8			9.9			10.4			12.8
Provision for income taxes		2.1			3.9			7.7			3.8			3.1			5.0

Income from continuing operations											6.1			7.3			7.8
Loss from discontinued operations, net of tax											(1.4	)		(1.5	)		(1.7	)

Net income		5.7	%		6.0	%		13.1	%		4.7	%		5.8	%		6.1	%

Our operations are conducted in one reportable segment, which includes our ~~938~~929 U.S. and Canadian AE retail stores, ~~137~~148 aerie by American Eagle retail stores, ~~28 MARTIN+OSA~~nine 77kids by american eagle retail stores and AEO Direct, as of January ~~30, 2010.~~29, 2011.

Comparison of Fiscal ~~2009~~2010 to Fiscal ~~2008~~2009

Net Sales

~~Net~~Total sales increased ~~slightly~~1% to ~~$2.991~~$2.968 billion ~~from $2.989 billion. The increase resulted primarily from an increase in our conversion rate driven primarily by strong holiday sales.~~compared to $2.940 billion last year. For Fiscal ~~2009,~~2010, comparable ~~store~~stores sales decreased 1% compared to a 4% decrease last year. AE men’s and women’s comps both declined in the ~~mid-single~~low-single digits ~~for both the AE Brand women’s and men’s business~~ compared to Fiscal ~~2008.~~2009. A decrease in the number of transactions was driven by lower traffic, partially offset by a slight increase in customer conversion.

Gross Profit

Gross profit decreased 1%slightly to ~~$1.158~~$1.171 billion from ~~$1.174~~$1.173 billion in Fiscal ~~2008.~~2009. Gross profit as a percent to net sales decreased by 6040 basis points to ~~38.7%~~39.5% from ~~39.3%~~39.9% last year. The percentage decrease was attributed to a ~~140~~50 basis point increase in buying, occupancy and warehousing costs as a percent to net sales, partially offset by ~~an 80~~a 10 basis point ~~increase~~improvement in ~~the~~ merchandise margin ~~rate~~ as a ~~percent~~rate to ~~net~~ sales. ~~Merchandise margin increased for the period due primarily to decreased markdowns.~~

Buying, occupancy and warehousing expenses increased ~~140 basis points~~ as a ~~percent~~rate to ~~net sales. This was primarily due to a 120 basis point increase in rent~~sales as a ~~percent to net~~result of negative comparable store sales ~~driven by~~and the impact of new store openings. Share-based payment expense included in gross profit ~~increased~~decreased to approximately ~~$12.9~~$8.4 million compared to ~~$5.7~~$11.6 million last year.

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 ~~expenses increased 3%~~expense decreased 2% to ~~$756.3~~$713.2 million ~~from $734.0 million. As a percent~~compared to ~~net sales, selling, general and administrative expenses increased by 60 basis points to 25.2% from 24.6%~~$725.3 million last year. The decrease was due to a combination of reduced incentive compensation expense recorded in the year, as well as the net savings resulting from our corporate profit initiative.

~~The higher rate this year is primarily due to incentive compensation of 90 basis points partially offset by improvement in advertising and travel expenses.~~ Share-based payment expense included in selling, general and administrative ~~expenses increased~~expense decreased to approximately ~~$24.0~~$17.1 million compared to ~~$14.6~~$23.0 million ~~last~~late year.

~~Loss on Impairment of Assets~~

Loss on impairment of assets in Fiscal 2009 was $18.0 million, or 0.6% as a rate to net sales, compared to $6.7 million, or 0.2% as a rate to net sales in Fiscal 2008. This impairment relates primarily to underperforming M+O stores.

~~Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.~~

Depreciation and Amortization Expense

Depreciation and amortization expense increased ~~11%~~2% to ~~$145.4~~$140.5 million from ~~$131.2~~$137.8 million last year. This increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a percent to net sales, depreciation and amortization expense increased to ~~4.9%~~4.8% from ~~4.4%~~4.7% due to the increased expense as well as the impact of the comparable store sales decline.

Other Income (Expense), Net

Other income (expense), net increased to $3.5 million from $(2.3) million last year, due primarily to a non-cash, non-operating foreign currency loss related to holding U.S. dollars in our Canadian subsidiary in anticipation of repatriation recorded last year.

Realized Loss on Sale of Investment Securities

The realized loss on sale of investment securities was $24.4 million, or approximately $0.12 per diluted share, for Fiscal 2010. This compares to a loss of $2.7 million, or $0.01 per diluted share, last year.

The loss in Fiscal 2010 was primarily due to the liquidation of 95% of our Auction Rate Security (“ARS”) investment portfolio. Our ARS investment portfolio was originally purchased as highly liquid short-term instruments. Due to the deterioration of the ARS market and ARS investments experiencing failed auctions or long-term auction resets, our ARS investment portfolio was subsequently classified as long-term, with a weighted average contractual maturity of approximately 26 years. This liquidation allowed us to convert substantially our entire ARS investment portfolio to short-term liquid assets, with total cash proceeds of $149.6 million plus accrued interest and a net realized loss of $24.2 million for the liquidation.

Additionally, in the first half of Fiscal 2010, we liquidated $28.1 million of ARS investments for proceeds of $27.9 million and a total realized loss of $0.2 million.

Net Impairment Loss Recognized in Earnings

Net impairment loss recognized in earnings relating to our investment securities was $1.2 million for Fiscal 2010, compared to $0.9 million for Fiscal 2009.

Provision for Income Taxes

The effective income tax rate from continuing operations increased to approximately 38.3% in Fiscal 2010 from 29.9% in Fiscal 2009. The lower effective income tax rate in Fiscal 2009 was primarily the result of the tax benefit associated with the repatriation of foreign earnings from Canada as well as federal and state income tax settlements and other changes in income tax reserves. Additionally, the Fiscal 2010 effective income tax rate was higher due to losses on the sale of certain ARS investments in which no income tax benefit was recognized. The repatriation of foreign earnings from Canada in Fiscal 2009 was a discrete event and has not changed the Company’s intention to indefinitely reinvest the earnings of our Canadian subsidiaries to the extent not repatriated.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.

Income From Continuing Operations

Income from continuing operations for Fiscal 2010 was $181.9 million, or $0.90 per diluted share, and includes a $0.12 per diluted share loss from the sale of investment securities related to our ARS liquidation as discussed above. Income from continuing operations for Fiscal 2009 was $213.4 million, or $1.02 per diluted share, and includes $0.11 per diluted share of tax benefits and a $0.01 per diluted share realized loss on the sale of investment securities.

Loss from Discontinued Operations

We completed the closure of M+O stores and its relatede-commerce operations during Fiscal 2010. Accordingly, the after-tax operating results and closure charges appear in Loss from Discontinued Operations on the Consolidated Statements of Operations for all periods presented. Loss from Discontinued Operations, net of tax, was $41.3 million and $44.4 million for Fiscal 2010 and Fiscal 2009, respectively. The Loss from Discontinued Operations for Fiscal 2010 includes pre-tax closure charges of $43.4 million. Included in the pre-tax charges were $15.4 million of lease-related items, $7.6 million for severance and other employee-related charges, $2.4 million in inventory charges and a non-cash asset impairment charge of $18.0 million.

Refer to Note 14 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.

Net Income

Net income decreased to $140.6 million in Fiscal 2010 from $169.0 million in Fiscal 2009. As a percent to net sales, net income was 4.7% and 5.8% for Fiscal 2010 and Fiscal 2009, respectively. Net income per diluted share was $0.70 compared to $0.81 last year. The decrease in net income was attributable to the factors noted above.

Comparison of Fiscal 2009 to Fiscal 2008

Net Sales

Fiscal 2009 net sales were $2.940 billion compared to $2.949 billion in Fiscal 2008. Fiscal 2009 results included an increase in our conversion rate driven primarily by strong holiday sales. For Fiscal 2009, comparable store sales declined in the mid-single digits for both the AE Brand women’s and men’s business compared to Fiscal 2008.

Gross Profit

Gross profit decreased 2% to $1.173 billion from $1.197 billion in Fiscal 2008. Gross profit as a percent to net sales decreased by 70 basis points to 39.9% from 40.6% in Fiscal 2008. The percentage decrease was attributed to a 140 basis point increase in buying, occupancy and warehousing costs as a percent to net sales, partially offset by a 70 basis point increase in the merchandise margin rate as a percent to net sales. Merchandise margin increased for Fiscal 2009 due primarily to decreased markdowns.

Buying, occupancy and warehousing expenses increased 140 basis points as a percent to net sales. This was primarily due to a 120 basis point increase in rent as a percent to net sales, driven by new store openings. Share-based payment expense included in gross profit increased to approximately $11.6 million in Fiscal 2009 compared to $5.7 million in Fiscal 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 5% to $725.3 million from $690.8 million. As a percent to net sales, selling, general and administrative expenses increased by 120 basis points to 24.6% from 23.4% in Fiscal 2008.

The higher rate in Fiscal 2009 is primarily due to an increase in incentive compensation of 100 basis points partially offset by improvement in advertising and travel expenses. Share-based payment expense included in selling, general and administrative expenses increased to approximately $23.0 million in Fiscal 2009 compared to $13.0 million in Fiscal 2008.

Depreciation and Amortization Expense

Depreciation and amortization expense increased 11% to $137.8 million from $123.6 million in Fiscal 2008. This increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a percent to net sales, depreciation and amortization expense increased to 4.7% from 4.2% due to the increased expense as well as the impact of the comparable store sales decline.

Other (Expense) Income, Net

Other (expense) income, net decreased to ~~$(5.1)~~$(2.3) million from ~~$17.8~~$18.9 million, due primarily to lower interest income, driven by decreased interest rates and a ~~realized loss on the sale of preferred securities in Fiscal 2009 as well as~~lower investment balance. Additionally, a non-cash, non-operating foreign currency loss related to holding U.S. dollars in our Canadian subsidiary in anticipation of repatriation was recorded ~~this year.~~in Fiscal 2009.

Realized Loss on Sale of Investment Securities

The realized loss on sale of investment securities was $2.7 million for Fiscal 2009. This compares to a loss of $1.1 million for Fiscal 2008.

Net Impairment Loss Recognized in Earnings

Net impairment loss recognized in earnings relating to our investment securities was $0.9 million for Fiscal 2009, compared to $22.9 million for Fiscal 2008.

~~Refer to the Fair Value Measurements caption below for additional information.~~

Provision for Income Taxes

The effective income tax rate from continuing operations decreased to approximately ~~27%~~29.9% in Fiscal 2009 from ~~40%~~39.1% in Fiscal 2008. The decrease in the effective income tax rate was primarily the result of the tax benefit associated with the repatriation of foreign earnings from Canada as well as federal and state income tax settlements and other changes in income tax reserves. Additionally, the effective income tax rate was higher in Fiscal 2008 primarily as a result of the impairment charge recorded in connection with the valuation of certain ARS and auction rate preferred securities (“ARPS”) in which no income tax benefit was recognized. The repatriation of foreign earnings from Canada in Fiscal 2009 was a discrete event and has not changed the Company’s intention to indefinitely reinvest the earnings of our Canadian subsidiaries to the extent not repatriated.

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.

Income from Continuing Operations

Income from continuing operations for Fiscal 2009 was $213.4 million, or $1.02 per diluted share, and includes $0.11 per diluted share of tax benefits partially offset by a $0.01 per diluted share realized loss on the sale of investment securities. Income from continuing operations for Fiscal 2008 was $230.0 million, or $1.11 per diluted share, and includes $0.11 per diluted share net investment impairment loss recognized in earnings.

Loss on Discontinued Operations

We completed the closure of M+O stores and relatede-commerce operations during Fiscal 2010. Accordingly, the after-tax operating results and closure charges appear in Loss from Discontinued Operations on the Consolidated Statements of Operations for all periods presented. Loss from Discontinued Operations, net of tax, was $44.4 million and $50.9 million for Fiscal 2009 and Fiscal 2008, respectively. The Loss from Discontinued Operations included asset impairment charges of $18.0 million and $6.7 million for Fiscal 2009 and Fiscal 2008, respectively.

Refer to Note 14 to the Consolidated Financial Statements for additional information regarding the discontinued operations of M+O.

Net Income

Net income decreased to $169.0 million in Fiscal 2009 from $179.1 million in Fiscal 2008. As a percent to net sales, net income was ~~5.7%~~5.8% and ~~6.0%~~6.1% for Fiscal 2009 and Fiscal ~~2008.~~2008, respectively. Net income per diluted share was $0.81 compared to $0.86 last year. The decrease in net income was attributable to the factors noted above.

~~Comparison of~~ Fiscal ~~2008 to Fiscal 2007~~

~~Net Sales~~

~~Net sales decreased 2% to $2.989 billion from $3.055 billion. The decrease resulted primarily from a 10% decrease in comparable store sales despite an increase in sales from oure-commerce~~ ~~operation and an increase in gross square feet due to new and remodeled stores.~~

During Fiscal 2008, our AE Brand average transaction value was flat compared to Fiscal 2007. This was driven by a mid-single digit increase in units per transaction offset by a mid-single digit decline in average unit retail price. Comparable store sales were essentially flat in the AE Brand men’s business and declined in the high teens in the AE Brand women’s business compared to Fiscal 2007.

~~Gross Profit~~

Gross profit decreased 17% to $1.174 billion from $1.423 billion in Fiscal 2007. Gross margin as a percent to net sales decreased by 730 basis points to 39.3% from 46.6% last year. The percentage decrease was attributed to a 560 basis point decrease in the merchandise margin rate and a 170 basis point increase in buying, occupancy and warehousing costs as a percent to net sales. Merchandise margin decreased for the period due primarily to increased markdowns as well as an increase in merchandise costs.

Buying, occupancy and warehousing expenses increased 170 basis points as a percent to net sales. This was primarily due to a 160 basis point increase in rent as a percent to net sales, driven by new store openings and the negative comparable store sales, as well as higher utilities. These increases were partially offset by lower distribution and warehousing service costs due to bringing our AEO Direct fulfillment and Canadian distribution services in-house. Share-based payment expense included in gross profit decreased to approximately $5.7 million in Fiscal 2008 compared to $6.2 million in Fiscal 2007.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses increased 3% to $734.0 million from $714.6 million. As a percent to net sales, selling, general and administrative expenses increased by 120 basis points to 24.6% in Fiscal 2008 from 23.4% in Fiscal 2007.

The higher rate in Fiscal 2008 is primarily due to the comparable store sales decline, partially offset by an improvement in incentive compensation of 100 basis points. Share-based payment expense included in selling, general and administrative expenses decreased to approximately $14.6 million in Fiscal 2008 compared to $27.5 million Fiscal 2007.

~~Loss on Impairment of Assets~~

~~Loss on impairment of assets in Fiscal 2008 was $6.7 million, or 0.2% as a rate to net sales, and relates primarily to underperforming M+O stores. This compares to $0.6 million in Fiscal 2007.~~

~~Depreciation and Amortization Expense~~

Depreciation and amortization expense increased 20% to $131.2 million in Fiscal 2008 from $109.2 million in Fiscal 2007. This increase is primarily due to a greater property and equipment base driven by our level of capital expenditures. As a percent to net sales, depreciation and amortization expense increased to 4.4% from 3.6% due to the increased expense as well as the impact of the comparable store sales decline during Fiscal 2008.

~~Other Income, Net~~

Other income, net decreased to $17.8 million from $37.6 million, due primarily to interest income decreasing to $18.9 million from $39.3 million. This resulted from decreased interest rates and lower investment balances compared to Fiscal 2007. Additionally, interest expense relating to our borrowings increased. Partially offsetting this decrease was a net $1.1 million foreign currency transaction gain compared to a $1.2 million loss during Fiscal 2007. This was the result of a stronger U.S. dollar.

~~Net Impairment Loss Recognized in Earnings~~

~~Net impairment loss recognized in earnings relating to our investment securities was $22.9 million for Fiscal 2008. There was no net impairment loss recognized in earnings during Fiscal 2007.~~

~~Refer to the Fair Value Measurements caption below for additional information.~~

~~Provision for Income Taxes~~

The effective income tax rate increased to approximately 40% in Fiscal 2008 from 37% in Fiscal 2007. The increase in the effective income tax rate was primarily related to the impairment charges recorded in connection with the valuation of certain ARS and ARPS investments in which no income tax benefit was recognized.

~~Refer to Note 13 to the Consolidated Financial Statements for additional information regarding our accounting for income taxes.~~

~~Net Income~~

Net income in Fiscal 2008 decreased 55% to $179.1 million, or 6.0% as a percent to net sales, from $400.0 million, or 13.1% as a percent to net sales in Fiscal 2007. Net income per diluted share decreased to $0.86 in Fiscal 2008 from $1.82 in Fiscal 2007. The decrease in net income was attributable to the factors noted above. The decrease in net income per diluted share was attributable to the factors noted above partially offset by a lower weighted average share count in Fiscal 2008 compared to Fiscal 2007 as a result of share repurchases during Fiscal 2007, as well as a lower average price of our common stock during Fiscal 2008.

~~MARTIN+OSA Fiscal 2009 Results of Operations~~

On March 5, 2010, our Board approved management’s recommendation to proceed with the closure M+O. We notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment.

In Fiscal 2009, M+O recorded net sales from store and online operations of approximately $50 million and generated an after-tax loss of approximately $44 million, including a non-cash impairment charge of approximately $11 million, net of tax. The results of operations include store, online, corporate and other expenses directly attributable to M+O operations.

~~Fiscal 2010~~2011 Outlook

Looking ahead to Fiscal 2011, we ~~expect consumers to remain cautious~~have numerous opportunities and ~~highly sensitive to pricing. However,~~are enthusiastic about our outlook for Fiscal 2010 is more favorable than for Fiscal 2009, based on improvements across merchandising and design. We believe that on-trend merchandise assortments, more frequent flow of new merchandise and strong value offerings should drive sales and earnings growth.long-term growth plans. We are continuing to ~~control expenses~~strengthen assortments, achieve expense efficiencies and ~~have planned capital spending below Fiscal 2009.~~challenge all areas of the business to produce additional savings. However, we face numerous headwinds, which include rising product costs primarily in the second half of the year. Our strategies to mitigate rising product costs include a targeted reduction in markdowns, selective price increases and on-going expense savings. We believe that our current cash holdings and cash generated from operations in Fiscal ~~2010~~2011 will be sufficient to fund anticipated capital expenditures and working capital requirements.

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. ~~We have adopted the provisions of ASC 820 as of February 3, 2008, for our items measured at fair value on a recurring basis, which include ARS. We have adopted the provisions of ASC820-10-65~~ ~~as of February 1, 2009 for items measured at fair value on a nonrecurring basis, including goodwill and property and equipment. Additionally, we adopted the provisions of ASC320-10-65~~ ~~as of May 3, 2009 for our financial instruments measured at fair value.~~

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes this three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:


	•	Level 1— Quoted prices in active markets for identical assets or ~~liabilities~~liabilities.

	•	Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 —Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of January ~~30, 2010,~~29, 2011, we held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and short and long-term investments, including ARS.

2726

In accordance with ASC 820, the following table represents the fair value hierarchy for our financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of January ~~30, 2010:~~29, 2011:


	Fair Value Measurements at January 30, 2010												Fair Value Measurements at January 29, 2011
				Quoted Market												Quoted Market
				Prices in Active						Significant						Prices in Active						Significant
	Carrying Amount			Markets for			Significant Other			Unobservable						Markets for			Significant Other			Unobservable
	as of January 30,			Identical Assets			Observable Inputs			Inputs						Identical Assets			Observable Inputs			Inputs
	2010			(Level 1)			(Level 2)			(Level 3)			Carrying Amount			(Level 1)			(Level 2)			(Level 3)
	(In thousands)												(In thousands)

Cash and Cash Equivalents
Cash and cash equivalents																							��
Cash	$	144,391		$	144,391		$	—		$	—		$	122,578		$	122,578		$	—		$	—
Commercial paper		25,420			25,420			—			—			40,884			40,884			—			—
Corporate bonds														3,695			3,695			—			—
Treasury bills		119,988			119,988			—			—			102,996			102,996			—			—
Money-market		404,161			404,161			—			—			397,440			397,440			—			—

Total cash and cash equivalents	$	693,960		$	693,960		$	—		$	—		$	667,593		$	667,593		$	—		$	—
Short-term Investments
Student-loan backed ARS	$	400		$	—		$	—		$	400
Short-term investments
Term deposits													$	63,402		$	63,402		$	—		$	—
State and local government ARS		4,275			—			—			4,275			3,700			—			—			3,700

Total Short-term Investments	$	4,675		$	—		$	—		$	4,675
Long-term Investments
Student-loan backed ARS	$	149,031		$	—		$	—		$	149,031
Total short-term investments													$	67,102		$	63,402		$	—		$	3,700
Long-term investments
State and local government ARS		35,969			—			—			35,969		$	5,500		$	—		$	—		$	5,500
Auction rate preferred securities		12,773			—			—			12,773
ARS Call Option														415			—			—			415

Total Long-term Investments	$	197,773		$	—		$	—		$	197,773
Total long-term investments													$	5,915		$	—		$	—		$	5,915

Total	$	896,408		$	693,960		$	—		$	202,448		$	740,610		$	730,995		$	—		$	9,615

Percent to total		100.0	%		77.4	%		0.0	%		22.6	%		100.0	%		98.7	%		—	%		1.3	%

We used a discounted cash flow (“DCF”) model to value our Level 3 investments. ~~The~~For Fiscal 2010, the assumptions in our model included different recovery periods, ranging from ~~0.5 year~~five to ~~11 years,~~17 months, depending on the type of security, and ~~varying~~ discount factors for yield ~~ranging from 0.3% to 6.6%,~~of 0.2% and illiquidity ~~ranging from 0.3% to 4.0%~~of 0.5%. These assumptions are subjective. They are based on our current judgment and our view of current market conditions. The use of different assumptions would result in a different ~~valuation and related charge.~~valuation. For example, an increase in the recovery period by one year would reduce the fair value of our investment in ARS by approximately ~~$1.4~~$0.2 million. An increase to the discount rate and illiquidity premium of 100 basis points would reduce the estimated fair value of our investment in auction rate securities by approximately ~~$5.6~~$0.2 million.

AsThe fair value of the ARS Call Option described in Note 3 to the Consolidated Financial Statements was also estimated using a discounted cash flow model. The model considered potential changes in yields for securities with similar characteristics to the underlying ARS and evaluated possible future refinancing opportunities of the issuers of the ARS. The analysis then assessed the likelihood that the options would be exercisable as a result of the ~~discounted cash flow analysis for Fiscal 2009, we recorded~~underlying ARS being redeemed or traded in a ~~net recovery of $25.0 million ($15.5 million, net of tax) which reduced~~secondary market at an amount greater than the ~~total cumulative impairment recognized in other comprehensive income (“OCI”) as of January 30, 2010~~exercise price prior 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~~option term. Future changes in the fair values of the ~~settlements,~~ARS Call Option will be recorded within 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 millionConsolidated Statements of ~~net impairment loss recognized in earnings during Fiscal 2009 as a result of credit rating downgrades.~~

~~The following table presents a rollforward of the amount of net impairment loss recognized in earnings related to credit losses:~~

For the Year Ended

January 30, 2010
(In thousands)

Beginning balance of credit losses previously recognized in earnings $ —
Year-to-date OTTI credit losses recognized in earnings
940

Ending balance of cumulative credit losses recognized in earnings $ 940

~~The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:~~

Level 3 (Unobservable Inputs)
Student

Loan-

Auction-
Backed

Rate
Auction-
Auction-Rate

Municipal
Rate
Preferred

Total Securities Securities Securities
(In thousands)

Carrying value at January 31, 2009 $ 251,007 $ 69,970 $ 169,254 $ 11,783
Settlements (72,600 ) (29,900 ) (42,700 ) —
Gains and (losses):
Reported in earnings (940 ) — — (940 )
Reported in OCI 24,981 174 22,877 1,930

Balance at January 30, 2010 $ 202,448 $ 40,244 $ 149,431 $ 12,773

Operations.

Refer to Notes 3 and 4 to the Consolidated Financial Statements for additional information on our investment securities, including a description of the securities and a discussion of the uncertainties relating to their liquidity.

~~Non-Financial Assets~~

Our non-financial assets, which include goodwill and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and we are required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. Resulting from our annual goodwill impairment test performed as of January 30, 2010, we concluded that our goodwill was not impaired.

Additionally, certain long-lived assets were measured at estimated fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. Based on our review of the operating performance and projections of underperforming stores, we determined that certain underperforming stores would not be able to generate sufficient cash flow over the life of the related leases to recover our initial investment in them. The estimated fair value of those stores was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. We estimate future cash flows based on our experience and knowledge of the market in which the store is located. During Fiscal 2009, certain long-lived assets with a carrying value of $18.0 million, primarily related to 10 M+O stores, were determined to be unable to recover their respective carrying values and, therefore, were written down to their estimated fair value, resulting in a loss on impairment of assets of $18.0 million.

Liquidity and Capital Resources

Our uses of cash are generally for working capital, the construction of new stores and remodeling of existing stores, information technology upgrades, distribution center improvements and expansion, the purchase of both short and long-term investments, the repurchase of common stock and the payment of dividends. Historically, these

uses of cash have been funded with cash flow from operations and existing cash on hand. Additionally, our uses of cash include the ~~completion of our new corporate headquarters, the~~ development of aerie by American Eagle and

~~the development of~~ 77kids by american eagle. We expect to be able to fund our future cash requirements through current cash holdings as well as cash generated from operations. In the future, we expect that our uses of cash will also include further development of aerie by American Eagle and 77kids by american eagle.

Our growth strategy includes internally developing new brands and the possibility of further ~~franchising arrangements~~international expansion or acquisitions. We periodically consider and evaluate these options to support future growth. In the event we do pursue such options, we could require additional equity or debt financing. There can be no assurance that we would be successful in closing any potential transaction, or that any endeavor we undertake would increase our profitability.

The following sets forth certain measures of our liquidity:


	January 30,		January 31,		January 29,		January 30,
	2010		2009		2011		2010

Working Capital (in 000’s)	$	758,075	$	523,596	$	786,573	$	758,075
Current Ratio		2.85		2.30		3.03		2.85

The increase ofin our working capital and current ratio as of January ~~30, 2010~~29, 2011, compared to January ~~31, 2009,~~30, 2010, is primarily related to anthe combined increase in cash and cash equivalents and short-term investments as a result of cash generated from operations as well as the liquidation of long-term ~~investments.~~investments, partially offset by share repurchases, cash dividends paid and capital expenditures. Additionally, current liabilities are lower due to the repayment of our outstanding notes payable balance in Fiscal 2010 and a lower accrued compensation balance this year.

Cash Flows from Operating Activities of Continuing Operations

Net cash provided by operating activities totaled ~~$386.5~~$402.6 million during Fiscal 2010 compared to $400.3 million during Fiscal 2009 ~~compared to $303.3~~and $345.1 million during Fiscal ~~2008 and $464.7 million during Fiscal 2007.~~2008. Our major source of cash from operations was merchandise sales. Our primary outflows of cash from operations were for ~~the purchase of inventory and~~ operational costs.

The increase in net cash provided by operating activities of ~~$83.2~~$2.3 million ~~from the prior year~~in Fiscal 2010 was driven ~~primarily~~ by an increase in income from continuing operations adjusted for non-cash items and a reduction in inventory levels. This was partially offset by a decrease in accrued compensation due to the payment of incentive compensation ~~accruals~~accrued during Fiscal 2009, as well as an increase in prepaid ~~taxes~~expenses due to the timing of payments.

Cash Flows from Investing Activities of Continuing Operations

Investing activities for Fiscal 2010 included $177.5 million of proceeds from the sale of investments classified as available for sale, partially offset by $84.3 million used for capital expenditures and $62.8 million for the purchase of short-term investments. Investing activities for Fiscal 2009 included ~~$127.4~~$127.1 million for capital expenditures, partially offset by $80.4 million from the sale of investments classified asavailable-for-sale. Investing activities for Fiscal 2008 primarily included ~~$344.9~~$393.6 million from the net sale of investments classified asavailable-for-sale, partially offset by ~~$265.3~~$243.6 million for capital expenditures. ~~Investing activities for Fiscal 2007 primarily included $354.2 million for the net sale of investments classified asavailable-for-sale~~ ~~as well as $250.4 million for capital expenditures.~~

We invest our cash primarily in liquid money market funds. We also have investments, made under our prior investment policy, in auction rate and auction rate preferred securities, with an original contractual maturity of up to 39 years and an expected rate of return of approximately a 0.8% taxable equivalent yield. All investments made under our new investment policy must have a highly liquid secondary market at the time of purchase and an effective maturity not exceeding two years.

Cash Flows from Financing Activities of Continuing Operations

During Fiscal 2010, cash used for financing activities resulted primarily from $216.1 million for the repurchase of 15.5 million shares as part of our publicly announced repurchase program, $183.2 million for the payment of dividends, $30.0 million for the full repayment of our demand line borrowings and $18.0 million for the repurchase of common stock from employees for the payment of taxes in connection with the vesting of share-based payments. During Fiscal 2009, cash used for financing activities resulted primarily from $83.0 million used for the payment of dividends and the partial repayment of $45.0 million in borrowings against our demand line of credit. During Fiscal 2008, cash used for financing activities resulted primarily from $82.4 million used for the payment of dividends partially offset by $75.0 million in borrowings against our demand line of credit. During Fiscal 2007, cash used for financing activities resulted primarily from $438.3 million used for the repurchase of our common stock as part of our publicly announced repurchase program and $80.8 million used for the payment of dividends.

ASC 718 requires that cash flows resulting from the benefits of tax deductions in excess of recognized compensation cost for share-based payments be classified as financing cash flows. Accordingly, for Fiscal ~~2009,~~2010,

3028

~~2008~~Fiscal 2009 and ~~2007,~~2008, the excess tax benefit from share-based payments of $12.5 million, $2.8 million ~~$0.7 million~~ and ~~$6.2~~$0.7 million, respectively, are classified as financing cash flows.

Capital Expenditures

Fiscal ~~2009~~2010 capital expenditures were ~~$127.4~~$84.3 million, ~~which reflected a significant reduction~~ compared to $127.1 million in Fiscal ~~2008 capital expenditures of $265.3 million.~~2009. Fiscal ~~2009~~2010 expenditures included ~~$80.7~~$56.2 million related to investments in our AE stores, including 2934 new AE, aerie and ~~aerie~~77kids stores in the United States and Canada, 2218 remodeled stores, ~~in the United States~~ and fixtures and visual investments. Additionally, we continued to support our infrastructure growth by investing in home office projects including the construction of our corporate headquarters in Pittsburgh, Pennsylvania ($~~23.5~~2.9 million), the expansion and improvement of our distribution centers ($~~12.0~~14.0 million) and information technology ($11.2 million).

For Fiscal ~~2010,~~2011, we will continue with our reduced spending plan. We expect capital expenditures to be in the range of ~~$100.0~~$90.0 million to ~~$120.0~~$100.0 million with approximately half of the amount relating to store growth and renovation.

Credit Facilities

~~We have~~The Company has borrowing agreements with four separate financial institutions under which weit may borrow an aggregate of ~~$325.0~~$310.0 million United States dollars (“USD”) and $25.0 million Canadian dollars (“CAD”). Of this amount, $200.0 million USD can be used for ~~demand letter~~letters of credit ~~facilities, $100.0~~issuances, $50.0 million USD and $25.0 million CAD can be used for demand line borrowings and the remaining ~~$25.0~~$60.0 million USD can be used for either letters of credit or demand line borrowings at ~~our~~the Company’s discretion.

The ~~$100.0~~letters of credit facilities of $150.0 million USD ~~of demand line credit is comprised of two facilities each with~~and $50.0 million USD ~~of borrowing capacity. The expiration dates of the two demand line facilities are April 21, 2010~~expire November 1, 2011 and May ~~22, 2010.~~27, 2011, respectively. The $50.0 million USD and $25.0 million CAD of demand ~~line credit was established during Fiscal 2009,~~lines expire on April 20, 2011 and ~~is provided at the discretion of the lender.~~

~~During Fiscal 2009, we reduced the amount of credit available that could be used for either letters of credit or as a demand line from $100.0~~December 13, 2011, respectively. The remaining $60.0 million USD ~~to $25.0 million USD. This request was made by the lender due to our low utilization of this credit facility. The reduction was effective July 3, 2009 and had no material impact~~facility expires on our consolidated financial statements or on our ability to fund our operations. Additionally, during Fiscal 2009, we increased our borrowing capacity for demand letters of credit from $150.0 million USD to $200.0 million USD.May 22, 2011.

As of January ~~30, 2010~~29, 2011, we had outstanding ~~trade and standby~~ letters of credit of ~~$51.5~~$30.0 million USD and no demand line ~~borrowings of $30.0 million USD, which reflects a $45.0 million USD reduction in outstanding borrowings, as a result of a voluntary partial repayment made during Fiscal 2009.~~ borrowings.

The ~~outstanding amounts on the demand line borrowings can be called for repayment by the financial institutions at any time. Additionally, the~~ availability of any ~~remaining~~future borrowings is subject to acceptance by the respective financial institutions. The average borrowing rate on the demand ~~lines~~line for outstanding borrowings during Fiscal ~~2009~~2010 was ~~2.5% and we have incorporated the outstanding demand line borrowings into working capital.~~2.1%.

Stock Repurchases

During Fiscal 2007, our Board authorized a total of 60.0 million shares of our common stock for repurchase under our share repurchase program with expiration dates extending into Fiscal 2010. We repurchased 18.7 million shares during Fiscal 2007 and the authorization related to 11.3 million shares expired in Fiscal 2009. At the beginning of Fiscal 2010, the Company had 30.0 million shares remaining authorized for repurchase.

During Fiscal ~~2007,~~2010, we repurchased ~~18.7~~15.5 million shares as part of our publicly announced repurchase ~~program~~programs for approximately ~~$438.3~~$216.1 million, at a weighted average price of ~~$23.38~~$13.94 per share. As of January 29, 2011, we had 14.5 million shares remaining authorized for repurchase. These shares may be repurchased at our discretion. Our Board extended the current remaining share repurchase authorization through February 2, 2013. We did not repurchase any common stock as part of our publicly announced repurchase program during Fiscal ~~2008~~2009 or Fiscal 2009. At January 30, 2010, the authorization to repurchase 11.3 million shares of our common stock under our share repurchase program expired. As of March 26, 2010, we had 30.0 million shares remaining authorized for repurchase. These shares will be repurchased at our discretion. The authorization relating to the remaining 30.0 million shares expires at the end of Fiscal 2010.2008.

During Fiscal ~~2009~~2010 and Fiscal ~~2008,~~2009, we repurchased approximately ~~18,000~~1.0 million and ~~0.2 million~~18,000 shares, respectively, from certain employees at market prices totaling ~~$0.2~~$18.0 million and ~~$3.4~~$0.2 million, respectively. These shares

were repurchased for the payment of taxes, not in excess of the minimum statutory withholding requirements, in connection with the vesting of share-based payments, as permitted under the 2005 Stock Award and Incentive ~~Plan.~~Plan, as amended.

The aforementioned share repurchases have been recorded as treasury stock.

Dividends

During the fourth quarter of Fiscal 2010, our Board declared and paid a $0.50 per share special cash dividend along with a regular quarterly cash dividend of $0.11 per share. An $0.11 per share dividend was paid during both

the second and third quarters of Fiscal 2010. A $0.10 per share dividend was paid during the first quarter of Fiscal 2010 and each quarter of Fiscal ~~2009 and Fiscal 2008.~~2009. Subsequent to the fourth quarter of Fiscal ~~2009,~~2010, our Board declared a quarterly cash dividend of ~~$0.10~~$0.11 per share, payable on April ~~9, 2010,~~8, 2011, to stockholders of record at the close of business on March ~~29, 2010.~~28, 2011. The payment of future dividends is at the discretion of our Board and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis.

Obligations and Commitments

Disclosure about Contractual Obligations

The following table summarizes our significant contractual obligations as of January ~~30, 2010:~~29, 2011:

Payments Due by Period
Less than
1-3
3-5
More than

Total 1 Year Years Years 5 Years
(In thousands)

Operating leases(1) $ 1,744,507 $ 242,859 $ 437,375 $ 371,225 $ 693,048
Unrecognized tax benefits(2) 38,618 — — — 38,618
Purchase obligations(3) 376,900 369,527 3,078 3,514 781

Total contractual obligations $ 2,160,025 $ 612,386 $ 440,453 $ 374,739 $ 732,447


	Payments Due by Period
			Less than		1-3		3-5		More than
	Total		1 Year		Years		Years		5 Years
	(In thousands)

Operating Leases(1)	$	1,773,240	$	243,798	$	453,360	$	388,995	$	687,087
Unrecognized tax benefits(2)		38,671		—		—		—		38,671
Purchase Obligations(3)		457,398		436,103		12,340		3,547		5,408

Total Contractual Obligations	$	2,269,309	$	679,901	$	465,700	$	392,542	$	731,166


(1)		Operating lease obligations consist primarily of future minimum lease commitments related to store operating leases (Refer to Note 9 to the Consolidated Financial Statements). Operating lease obligations do not include common area maintenance, insurance or tax payments for which we are also obligated.

(2)		The amount of unrecognized tax benefits as of January ~~30, 2010~~29, 2011 was ~~$38.6~~$38.7 million, including approximately ~~$7.0~~$7.6 million of accrued interest and penalties. Unrecognized tax benefits are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. The Company does not anticipate that any significant unrecognized tax benefits will be realized within one year. Accordingly, the balance of the unrecognized tax benefits are included in the “More than 5 Years” column as we are not able to reasonably estimate the timing of the potential future payments.

(3)		Purchase obligations primarily include binding commitments to purchase merchandise inventory, as well as other legally binding commitments, made in the normal course of ~~business.~~business that are enforceable and specify all significant terms. Included in the above purchase obligations are inventory commitments guaranteed by outstanding letters of credit, as shown in the table below.

Disclosure about Commercial Commitments

The following table summarizes our significant commercial commitments as of January ~~30, 2010:~~29, 2011:

Amount of Commitment Expiration per Period
Total Amount
Less than
1-3
3-5
More than

Committed 1 Year Years Years 5 Years
(In thousands)

Letters of credit(1) $ 51,468 $ 51,468 — — —

Total commercial commitments $ 51,468 $ 51,468 — — —


	Amount of Commitment Expiration Per Period
	Total								More
	Amount		Less than		1-3		3-5		than
	Committed		1 Year		Years		Years		5 Years
	(In thousands)

Letters of Credit(1)	$	29,981	$	29,981		—		—		—

Total Commercial Commitments	$	29,981	$	29,981		—		—		—


(1)		Letters of credit represent commitments, guaranteed by a bank, to pay vendors for merchandise, as well as other commitments, upon presentation of documents demonstrating that the merchandise has shipped.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 2 of the Consolidated Financial Statements.

Certain Relationships and Related Party Transactions

Refer to Part III, Item 13 of thisForm 10-K for information regarding related party transactions.

Impact of Inflation/Deflation

We do not believe that inflation has had a significant effect on our net sales or our profitability. ~~Substantial~~However, substantial increases in ~~cost, however,~~costs, including the price of raw materials, labor, energy and other inputs to the manufacture of our merchandise, could have a significant impact on our business and the industry in the future. Additionally, while deflation could positively impact our merchandise costs, it could have an adverse effect on our average unit retail price, resulting in lower sales and profitability.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

We have market risk exposure related to interest rates and foreign currency exchange rates. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year.

Interest Rate Risk

Our earnings are affected by changes in market interest rates as a result of our ~~investments in money market funds~~short and ~~auction rate securities, which have~~ long-term ~~contractual maturities but feature variable interest rates that reset at short-term intervals.~~investments. If our Fiscal ~~2009~~2010 average yield rate decreases by 10% in Fiscal ~~2010,~~2011, our income before taxes will decrease by approximately $0.2 million. Comparatively, if our Fiscal ~~2008 portfolio~~2009 average yield rate had decreased by 10% in Fiscal ~~2009,~~2010, our income before taxes would have decreased by approximately ~~$0.8~~$0.2 million. These amounts are determined by considering the impact of the hypothetical yield rates on our cash, short-term and long-term investment ~~balances.~~

~~Additionally, borrowings under our demand lines, which expire on April 21, 2010~~balances and May 22, 2010, bear interest at variable rates based on the prime rate or LIBOR. At January 30, 2010, the weighted average interest rate on our borrowings was 2.1%. Based upon a sensitivity analysis as of January 30, 2010, assuming average outstanding borrowing during Fiscal 2009 of $62.7 million, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $313,000.

These analyses do not consider the effects of the reduced level of overall investments that could happen in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no ~~changes~~change in our ~~investments~~investment structure.

Foreign Exchange Rate Risk

We are exposed to the impact of foreign exchange rate risk primarily through our Canadian operations where the functional currency is the Canadian dollar. We do not utilize hedging instruments to mitigate foreign currency exchange risks. We believe our foreign currency translation risk is minimal as a hypothetical 10% change in the Canadian foreign exchange rate would not materially affect our results of operations or cash flows.

3331

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

American Eagle Outfitters, Inc.

We have audited the accompanying consolidated balance sheets of American Eagle Outfitters, Inc. (the Company) as of January ~~30, 2010~~29, 2011 and January ~~31, 2009,~~30, 2010, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended January ~~30, 2010.~~29, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Eagle Outfitters, Inc. at January ~~30, 2010~~29, 2011 and January ~~31, 2009,~~30, 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January ~~30, 2010,~~29, 2011, in conformity with U.S. generally accepted accounting principles.

~~As discussed in Note 13 to the consolidated financial statements, the Company changed its accounting for income tax uncertainties effective February 4, 2007.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), American Eagle Outfitters, Inc.’s internal control over financial reporting as of January ~~30, 2010,~~29, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March ~~26, 2010~~11, 2011 expressed an unqualified opinion.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

March ~~26, 2010~~11, 2011

3533

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS


		January 30,			January 31,				January 29,			January 30,
		2010			2009				2011			2010
		(In thousands, except per share amounts)							(In thousands, except per share amounts)

ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	693,960		$	473,342			$	667,593		$	693,960
Short-term investments			4,675			10,511				67,102			4,675
Merchandise inventory			326,454			294,928				301,208			326,454
Accounts receivable			34,746			41,471				36,721			34,746
Prepaid expenses and other			47,039			59,660				53,727			47,039
Deferred income taxes			60,156			45,447				48,059			60,156

Total current assets			1,167,030			925,359				1,174,410			1,167,030

Property and equipment, at cost, net of accumulated depreciation and amortization			713,142			740,240				643,120			713,142
Goodwill			11,210			10,706				11,472			11,210
Long-term investments			197,773			251,007				5,915			197,773
Non-current deferred income taxes			27,305			15,001				19,616			27,305
Other assets, net			21,688			21,363				25,465			21,688

Total assets		$	2,138,148		$	1,963,676			$	1,879,998		$	2,138,148


LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	158,526		$	152,068			$	167,723		$	158,526
Note payable			30,000			75,000				—			30,000
Accrued compensation and payroll taxes			55,144			29,417				34,954			55,144
Accrued rent			68,866			64,695				70,390			68,866
Accrued income and other taxes			20,585			6,259				32,468			20,585
Unredeemed gift cards and gift certificates			39,389			42,299				41,001			39,389
Current portion of deferred lease credits			17,388			13,726				16,203			17,388
Other liabilities and accrued expenses			19,057			18,299				25,098			19,057

Total current liabilities			408,955			401,763				387,837			408,955

Non-current liabilities:
Deferred lease credits			89,591			88,314				78,606			89,591
Non-current accrued income taxes			38,618			39,898				38,671			38,618
Other non-current liabilities			22,467			24,670				23,813			22,467

Total non-current liabilities			150,676			152,882				141,090			150,676

Commitments and contingencies			—			—				—			—
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding			—			—				—			—
Common stock, $0.01 par value; 600,000 shares authorized; 249,561 and 249,328 shares issued; 206,832 and 205,281 shares outstanding, respectively			2,486			2,485
Common stock, $0.01 par value; 600,000 shares authorized; 249,566 and 249,561 shares issued; 194,366 and 206,832 shares outstanding, respectively										2,496			2,486
Contributed capital			554,399			513,574				546,597			554,399
Accumulated other comprehensive income (loss)			16,838			(14,389	)
Accumulated other comprehensive income										28,072			16,838
Retained earnings			1,764,049			1,694,161				1,711,929			1,764,049
Treasury stock, 41,737 and 43,248 shares, respectively, at cost			(759,255	)		(786,800	)
Treasury stock, 55,200 and 41,737 shares, respectively, at cost										(938,023	)		(759,255	)

Total stockholders’ equity			1,578,517			1,409,031				1,351,071			1,578,517

Total liabilities and stockholders’ equity		$	2,138,148		$	1,963,676			$	1,879,998		$	2,138,148

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Years Ended
	January 29,			January 30,			January 31,
	2011			2010			2009
	(In thousands, except per share amounts)

Net sales	$	2,967,559		$	2,940,269		$	2,948,679
Cost of sales, including certain buying, occupancy and warehousing expenses		1,796,600			1,766,839			1,751,493

Gross profit		1,170,959			1,173,430			1,197,186
Selling, general and administrative expenses		713,197			725,278			690,787
Depreciation and amortization expense		140,501			137,760			123,602

Operating income		317,261			310,392			382,797
Realized loss on sale of investment securities		(24,426	)		(2,749	)		(1,117	)
Other income (expense), net		3,497			(2,328	)		18,908

Totalother-than-temporary impairment losses		(5,089	)		(4,413	)		(22,889	)
Portion of loss recognized in other comprehensive income, before tax		3,841			3,473			—

Net impairment loss recognized in earnings		(1,248	)		(940	)		(22,889	)

Income before income taxes		295,084			304,375			377,699
Provision for income taxes		113,150			90,977			147,715

Income from continuing operations		181,934			213,398			229,984
Loss from discontinued operations, net of tax		(41,287	)		(44,376	)		(50,923	)

Net income	$	140,647		$	169,022		$	179,061

Basic income per common share:
Income from continuing operations	$	0.91		$	1.04		$	1.12
Loss from discontinued operations	$	(0.21	)	$	(0.22	)	$	(0.25	)

Basic income per common share	$	0.70		$	0.82		$	0.87

Diluted income per common share:
Income from continuing operations	$	0.90		$	1.02		$	1.11
Loss from discontinued operations		(0.20	)		(0.21	)		(0.25	)

Diluted income per common share	$	0.70		$	0.81		$	0.86

Weighted average common shares outstanding — basic		199,979			206,171			205,169
Weighted average common shares outstanding — diluted		201,818			209,512			207,582

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Years Ended
	January 29,			January 30,		January 31,
	2011			2010		2009
	(In thousands)

Net income	$	140,647		$	169,022	$	179,061
Other comprehensive income (loss):
Temporary (impairment) recovery related to investment securities, net of tax		(1,140	)		14,506		(23,173	)
Reclassification adjustment for realized losses in net income related to investment securities, net of tax		7,541			940		948
Foreign currency translation gain (loss)		4,833			15,781		(27,649	)

Other comprehensive income (loss)		11,234			31,227		(49,874	)

Comprehensive income	$	151,881		$	200,249	$	129,187

Refer to Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~

For the Years Ended
January 30,
January 31,
February 2,

2010 2009 2008
(In thousands, except per share amounts)

Net sales $ 2,990,520 $ 2,988,866 $ 3,055,419
Cost of sales, including certain buying, occupancy and warehousing expenses 1,832,471 1,814,765 1,632,281

Gross profit 1,158,049 1,174,101 1,423,138
Selling, general and administrative expenses 756,256 734,029 714,588
Loss on impairment of assets 17,992 6,713 592
Depreciation and amortization expense 145,408 131,219 109,203

Operating income 238,393 302,140 598,755
Other (expense) income, net (5,062 ) 17,790 37,626

Totalother-than-temporary impairment losses
(4,413 ) (22,889 ) —
Portion of loss recognized in other comprehensive income, before tax 3,473 — —

Net impairment loss recognized in earnings (940 ) (22,889 ) —

Income before income taxes 232,391 297,041 636,381
Provision for income taxes 63,369 117,980 236,362

Net income $ 169,022 $ 179,061 $ 400,019

Basic income per common share $ 0.82 $ 0.87 $ 1.85
Diluted income per common share $ 0.81 $ 0.86 $ 1.82
Weighted average common shares outstanding — basic 206,171 205,169 216,119
Weighted average common shares outstanding — diluted 209,512 207,582 220,280

~~Refer to Notes to Consolidated Financial Statements~~

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

For the Years Ended
January 30,
January 31,
February 2,

2010 2009 2008
(In thousands)

Net income $ 169,022 $ 179,061 $ 400,019
Other comprehensive income (loss):
Temporary recovery (impairment) related to investment securities, net of tax 14,506 (22,795 ) —
Reclassification adjustment for OTTI charges realized in net income related to ARS 940 751 —
Reclassification adjustment for losses realized in net income due to the sale ofavailable-for-sale securities, net of tax
— 197 242
Unrealized (loss) gain on investments, net of tax — (378 ) 947
Foreign currency translation adjustment 15,781 (27,649 ) 12,582

Other comprehensive income (loss) 31,227 (49,874 ) 13,771

Comprehensive income $ 200,249 $ 129,187 $ 413,790

~~Refer to Notes to Consolidated Financial Statements~~

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~CONSOLIDATED STATEMENTS OF~~ STOCKHOLDERS’ EQUITY


														Accumulated																				Accumulated
														Other																				Other
	Shares													Comprehensive						Shares														Comprehensive
	Outstanding			Common		Contributed		Retained			Treasury			Income			Stockholders’			Outstanding			Common		Contributed			Retained			Treasury			Income			Stockholders’
	(1)			Stock		Capital		Earnings			Stock(2)			(Loss)			Equity			(1)			Stock		Capital			Earnings			Stock(2)			(Loss)			Equity
	(In thousands, except per share amounts)																			(In thousands, except per share amounts)

Balance at February 3, 2007		221,284			2,461		453,418		1,302,345			(362,626	)		21,714			1,417,312

Adoption of ASC 740 regarding accounting for unrecognized tax benefits		—			—		—		(13,304	)		—			—			(13,304	)

Balance at February 4, 2007		221,284			2,461		453,418		1,289,041			(362,626	)		21,714			1,404,008

Stock awards		1,092			20		39,977		—			—			—			39,997
Repurchase of common stock as part of publicly announced programs		(18,750	)		—		—		—			(438,291	)		—			(438,291	)
Repurchase of common stock from employees		(415	)		—		—		—			(12,310	)		—			(12,310	)
Reissuance of treasury stock		1,269			—		—		(6,480	)		20,546			—			14,066
Net income		—			—		—		400,019			—						400,019
Other comprehensive income, net of tax		—			—		—		—			—			13,771			13,771
Cash dividends ($0.38 per share)		—			—		—		(80,796	)		—			—			(80,796	)

Balance at February 2, 2008		204,480		$	2,481	$	493,395	$	1,601,784		$	(792,681	)	$	35,485		$	1,340,464			204,480		$	2,481	$	493,395		$	1,601,784		$	(792,681	)	$	35,485		$	1,340,464

Stock awards		453			4		20,179		420			—			—			20,603			453			4		20,179			420			—			—			20,603
Repurchase of common stock from employees		(164	)		—		—		—			(3,432	)		—			(3,432	)		(164	)		—		—			—			(3,432	)		—			(3,432	)
Reissuance of treasury stock		512			—		—		(4,710	)		9,313			—			4,603			512			—		—			(4,710	)		9,313			—			4,603
Net income		—			—		—		179,061			—			—			179,061			—			—		—			179,061			—			—			179,061
Other comprehensive loss, net of tax		—			—		—		—			—			(49,874	)		(49,874	)		—			—		—			—			—			(49,874	)		(49,874	)
Cash dividends ($0.40 per share)		—			—		—		(82,394	)		—			—			(82,394	)		—			—		—			(82,394	)		—			—			(82,394	)

Balance at January 31, 2009		205,281		$	2,485	$	513,574	$	1,694,161		$	(786,800	)	$	(14,389	)	$	1,409,031			205,281		$	2,485	$	513,574		$	1,694,161		$	(786,800	)	$	(14,389	)	$	1,409,031

Stock awards		41			1		40,825		—			—			—			40,826			41			1		39,903			—			—			—			39,904
Repurchase of common stock from employees		(18	)		—		—		—			(247	)		—			(247	)		(18	)		—		—			—			(247	)		—			(247	)
Reissuance of treasury stock		1,528			—		—		(15,228	)		27,792			—			12,564			1,528			—		—			(15,228	)		27,792			—			12,564
Net income		—			—		—		169,022			—			—			169,022			—			—		—			169,022			—			—			169,022
Other comprehensive income, net of tax		—			—		—		—			—			31,227			31,227			—			—		—			—			—			31,227			31,227
Cash dividends and dividend equivalents ($0.40 per share)		—			—		—		(83,906	)		—			—			(83,906	)		—			—		922			(83,906	)		—			—			(82,984	)

Balance at January 30, 2010		206,832		$	2,486	$	554,399	$	1,764,049		$	(759,255	)	$	16,838		$	1,578,517			206,832		$	2,486	$	554,399		$	1,764,049		$	(759,255	)	$	16,838		$	1,578,517

Stock awards																					997			10		36,229			—			—			—			36,239
Repurchase of common stock as part of publicly announced programs																					(15,500	)		—		—			—			(216,070	)		—			(216,070	)
Repurchase of common stock from employees																					(1,035	)		—		—			—			(18,041	)		—			(18,041	)
Reissuance of treasury stock																					3,072			—		(45,841	)		(7,791	)		55,343			—			1,711
Net income																					—			—		—			140,647			—			—			140,647
Other comprehensive income, net of tax																					—			—		—			—			—			11,234			11,234
Cash dividends and dividend equivalents ($0.93 per share)																					—			—		1,810			(184,976	)		—			—			(183,166	)

Balance at January 29, 2011																					194,366		$	2,496	$	546,597		$	1,711,929		$	(938,023	)	$	28,072		$	1,351,071


(1)		600,000 authorized, 249,566 issued and 194,366 outstanding, $0.01 par value common stock at January 29, 2011; 600,000 authorized, 249,561 issued and 206,832 outstanding (excluding 992 shares of non-vested restricted stock), $0.01 par value common stock at January 30, 2010; 600,000 authorized, 249,328 issued and 205,281 outstanding (excluding 799 shares of non-vested restricted stock), $0.01 par value common stock at January 31, 2009; ~~600,000 authorized, 248,763 issued and 204,480 outstanding (excluding 687 shares of non-vested restricted stock), $0.01 par value common stock at February 2, 2008;~~ The Company has 5,000 authorized, with none issued or outstanding, $0.01 par value preferred stock at January 29, 2011, January 30, 2010 and January 31, ~~2009 and February 2, 2008.~~2009.

(2)		55,200 shares, 41,737 shares, ~~43,248 shares~~ and ~~43,596~~43,248 shares at January 29, 2011, January 30, 2010, and January 31, 2009, ~~and February 2, 2008,~~ respectively. During Fiscal 2010, Fiscal 2009, and Fiscal 2008, ~~and Fiscal 2007,~~3,072 shares, 1,528 shares ~~512 shares~~ and ~~1,269~~512 shares, respectively, were reissued from treasury stock for the issuance of share-based payments.

Refer to Notes to Consolidated Financial Statements

3937

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009
	(In thousands)									(In thousands)

Operating activities:
Net income	$	169,022		$	179,061		$	400,019		$	140,647		$	169,022		$	179,061
Loss from discontinued operations											41,287			44,376			50,923

Income from continuing operations										$	181,934		$	213,398		$	229,984
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		147,483			133,141			110,753			145,548			139,832			126,362
Share-based compensation		36,900			20,296			33,670			25,457			34,615			18,731
Provision for deferred income taxes		(36,027	)		24,469			(8,147	)		11,885			(36,027	)		24,473
Tax benefit from share-based payments		7,995			1,121			7,260			15,648			7,995			1,121
Excess tax benefit from share-based payments		(2,812	)		(693	)		(6,156	)		(12,499	)		(2,812	)		(693	)
Foreign currency transaction loss (gain)		6,477			(1,141	)		1,221			117			6,477			(1,141	)
Loss on impairment of assets		17,992			6,713			592
Net impairment loss recognized in earnings		940			22,889			—			1,248			940			22,889
Realized loss on sale of investment securities		2,749			1,117			393			24,426			2,749			1,117
Changes in assets and liabilities:
Merchandise inventory		(27,994	)		(13,735	)		(19,074	)		18,713			(33,699	)		(5,634	)
Accounts receivable		7,052			(10,094	)		(5,660	)		(3,790	)		6,656			(10,019	)
Prepaid expenses and other		13,063			(24,781	)		(1,334	)		(9,045	)		12,916			(23,184	)
Other assets, net		1,146			390			(3,242	)		(1,380	)		1,146			390
Accounts payable		4,992			(3,053	)		(15,559	)		5,232			8,358			(3,467	)
Unredeemed gift cards and gift certificates		(3,430	)		(11,392	)		(699	)		1,713			(3,591	)		(11,495	)
Deferred lease credits		4,173			18,887			4,640			(7,451	)		4,667			16,622
Accrued compensation and payroll taxes		25,528			(19,799	)		(9,144	)		(19,618	)		25,841			(18,223	)
Accrued income and other taxes		12,862			(20,697	)		(31,416	)		11,999			12,858			(20,791	)
Accrued liabilities		(1,649	)		611			6,546			12,457			(1,993	)		(1,930	)

Total adjustments		217,440			124,249			64,644			220,660			186,928			115,128

Net cash provided by operating activities		386,462			303,310			464,663
Net cash provided by operating activities from continuing operations											402,594			400,326			345,112

Investing activities:
Capital expenditures		(127,419	)		(265,335	)		(250,407	)		(84,259	)		(127,080	)		(243,564	)
Purchase ofavailable-for-sale securities		—			(48,655	)		(1,772,653	)		(62,797	)		—			(48,655	)
Sale ofavailable-for-sale securities		80,353			393,559			2,126,891			177,472			80,353			393,559
Other investing activities		(2,003	)		(2,297	)		(1,563	)		(2,801	)		(2,003	)		(2,297	)

Net cash (used for) provided by investing activities		(49,069	)		77,272			102,268
Net cash provided by (used for) investing activities from continuing operations											27,615			(48,730	)		99,043

Financing activities:
Payments on capital leases		(2,015	)		(2,177	)		(1,912	)		(2,590	)		(2,015	)		(2,177	)
Proceeds from issuance of note payable		—			75,000			—			—			—			75,000
Partial repayment of note payable		(45,000	)		—			—
Repayment of note payable											(30,000	)		(45,000	)		—
Repurchase of common stock as part of publicly announced programs		—			—			(438,291	)		(216,070	)		—			—
Repurchase of common stock from employees		(247	)		(3,432	)		(12,310	)		(18,041	)		(247	)		(3,432	)
Net proceeds from stock options exercised		7,630			3,799			13,183			7,272			9,044			3,799
Excess tax benefit from share-based payments		2,812			693			6,156			12,499			2,812			693
Cash used to net settle equity awards											(6,434	)		(1,414	)		—
Cash dividends paid		(82,985	)		(82,394	)		(80,796	)		(183,166	)		(82,985	)		(82,394	)

Net cash used for financing activities		(119,805	)		(8,511	)		(513,970	)
Net cash used for financing activities from continuing operations											(436,530	)		(119,805	)		(8,511	)

Effect of exchange rates on cash		3,030			(14,790	)		3,363			1,394			3,030			(14,790	)

Net increase in cash and cash equivalents		220,618			357,281			56,324
Cash flows of discontinued operations
Net cash used for operating activities											(21,434	)		(13,864	)		(41,802	)
Net cash used for investing activities											(6	)		(339	)		(21,771	)
Net cash used for financing activities											—			—			—
Effect of exchange rates on cash											—			—			—

Net cash used for discontinued operations											(21,440	)		(14,203	)		(63,573	)

Net (decrease) increase in cash and cash equivalents											(26,367	)		220,618			357,281
Cash and cash equivalents — beginning of period		473,342			116,061			59,737			693,960			473,342			116,061

Cash and cash equivalents — end of period	$	693,960		$	473,342		$	116,061		$	667,593		$	693,960		$	473,342

Refer to Notes to Consolidated Financial Statements

4038

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JANUARY ~~30, 2010~~29, 2011


1.	Business Operations

American Eagle Outfitters, Inc. (the “Company”), a Delaware corporation, ~~(the “Company”),~~ operates under the American Eagle^® (“AE”), aerie^® by American Eagle^®, and 77kids by american eagle^® ~~and~~brands. The Company operated the MARTIN+OSA^® ~~brands.~~brand (“M+O”) until its closure during Fiscal 2010.

Founded in 1977, American Eagle Outfitters is a leading apparel and accessories retailer that operates more than 1,000 retail stores in the U.S. and Canada, and online at ae.com^®. Through its family of brands, ~~AEO, Inc.~~the Company offers high quality, on-trend clothing, accessories and personal care products at affordable prices. The Company’s online business, AEO Direct, ships to 7576 countries worldwide.

~~AE Brand~~

~~The American Eagle Outfitters~~^® ~~brand targets 15- to25-year~~ ~~old girls and guys, achieving the perfect combination of American prep and current fashion. Denim is the cornerstone of the American Eagle~~^® ~~product assortment, which is completed by other key categories including sweaters, graphic t-shirts, fleece, outerwear and accessories. The American Eagle~~^® ~~attitude is honest, real, individual and fun. American Eagle~~^® ~~is priced to be worn by everyone, everyday, delivering value through quality and style.~~

~~aerie by American Eagle~~

~~In the fall of 2006, the Company launched aerie~~^® ~~by American Eagle (“aerie”), a collection of Dormwear~~^®~~, intimates, and personal care products for the 15- to25-year-old~~ AE^® ~~girl. The collection is available in 137 standalone aerie stores throughout the country, online at aerie.com, and at select American Eagle~~^® ~~stores. aerie~~^® ~~features a complete fitness line called aerie f.i.t.~~^tm~~, as well as a personal care collection that includes fragrance, body care and cosmetics to complement the aerie lifestyle. Designed to be sexy, comfortable and cozy, aerie~~^® ~~offers AE~~^® ~~customers a new way to express their personal style everyday.~~

~~77kids by american eagle~~

~~Introduced in October of 2008 as an online-only brand, 77kids~~^® ~~by american eagle~~^® ~~(“77kids”) offers on-trend, high-quality clothing and accessories for kids ages two to 10. The Company plans to open five 77kids~~^®~~brick-and-mortar~~ ~~stores in Fiscal 2010. The brand draws from the strong heritage of American Eagle Outfitters~~^®~~, with apoint-of-view~~ ~~that’s thoughtful, playful and real. Like American Eagle~~^® ~~clothing, 77kids focuses on great fit, value and style.~~

~~MARTIN+OSA~~

~~MARTIN+OSA~~^® ~~(“M+O”) provides clothing and accessories for 28- to40-year~~ ~~old men and women at its 28 stores and online at www.martinandosa.com.~~

~~Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.~~

~~AEO Direct~~

~~We sell merchandise via oure-commerce~~ ~~operations, ae.com, aerie.com, 77kids.com and martinandosa.com, which are extensions of the lifestyle that we convey in our stores. We currently ship to 75 countries.~~

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Merchandise Mix

The following table sets forth the approximate consolidated percentage of net sales attributable to each merchandise group for each of the periods indicated:


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009

Men’s apparel and accessories		40	%		42	%		38	%		40	%		40	%		42	%
Women’s apparel and accessories (excluding aerie)		51	%		50	%		55	%		51	%		51	%		50	%
aerie		9	%		8	%		7	%		9	%		9	%		8	%

Total		100	%		100	%		100	%		100	%		100	%		100	%


2.	Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At January ~~30, 2010,~~29, 2011, the Company operated in one reportable segment.

Fiscal Year

~~The Company’s~~Our financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal ~~2010”~~2011” refers to the 52 week ~~periods~~period ending January ~~29, 2011.~~28, 2012. “Fiscal ~~2009”,“Fiscal~~2010,” “Fiscal 2009,” “Fiscal 2008” and “Fiscal 2007” refer to the 52 week periods ended January 29, 2011, January 30, 2010, January 31, 2009 and February 2, 2008, respectively. “Fiscal 2006” refers to the 53 week period ended February 3, 2007. ~~“Fiscal 2005” refers~~

Discontinued Operations

On March 5, 2010, the Company’s Board of Directors (the “Board”) approved management’s recommendation to proceed with the ~~52 week~~closure of the M+O brand. The Company notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. The Company completed the closure of the M+O stores ande-commerce operation during the second quarter of Fiscal 2010 and these Consolidated Financial Statements reflect the results of M+O as a discontinued operation for all periods ~~ended January 28, 2006.~~presented.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company’s 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, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In ~~July~~September 2009, the Financial Accounting Standards Board (“FASB”) ~~issued Statement of Financial Accounting Standards (“SFAS”) 168,~~~~The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles~~~~, a replacement of FASB Statement No. 162~~~~The Hierarchy of Generally Accepted Accounting Principles~~. SFAS 168 establishes the FASB Accounting Standard Codification (“ASC”) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Effective July 2009, the FASB ASC is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the Securities and Exchange Commission (“SEC”). The Company adopted SFAS 168, as codified in ASC 105,~~Generally Accepted Accounting Principles,~~~~as of October 31, 2009. All accounting references within this Annual Report onForm 10-K~~ ~~have been updated and, therefore, previous references to GAAP have been replaced with references to GAAP as codified in the ASC.~~

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~In September 2009, the FASB~~ approved the consensus on Emerging Issues Task Force (“EITF”)08-1,Revenue Arrangements with Multiple Deliverables,primarily codified under ~~ASC~~Accounting Standards Codification (“ASC”) 605,Revenue Recognition,as Accounting Standards Update (“ASU”)2009-13,Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements(“ASU2009-13”). ASU2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated among the various deliverables in a multi-element transaction using the relative selling price method. This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. The Company ~~is currently evaluating the impact that the adoption of~~will adopt ASU2009-13 ~~will have on~~in Fiscal 2011 and does not expect an impact to its Consolidated Financial Statements.

In January 2010, the FASB issued ASU2010-06,Fair Value Measurements and Disclosures Topic 820: Improving Disclosures about Fair Value Measurements(“ASU2010-06”). ASU2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim reporting periods within those years. The Company ~~is currently evaluating~~adopted the ~~impact that~~new disclosures effective January 31, 2010, except for the disclosure of activity within Level 3 fair value measurements. The Level 3 disclosures are effective for the Company at the beginning of Fiscal 2011. The adoption of ASU2010-06 ~~will~~did not have a material impact on ~~its~~the disclosures within the Company’s Consolidated Financial ~~Statements~~Statements.

In December 2010, the FASB issued ASU2010-28,Intangibles — Goodwill and ~~disclosures.~~Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(“ASU2010-28”). ASU2010-28 provides amendments to Topic 350 to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts to clarify that, for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of ASU2010-28 will not have an impact on the Company’s Fiscal 2011 Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with ASC 830,Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations,

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220,Comprehensive Income(refer to Note 10 to the Consolidated Financial Statements).

Cash and Cash Equivalents, Short-term Investments and Long-term Investments

Cash includes cash equivalents. The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

As of January ~~30, 2010,~~29, 2011, short-term investments included short-term deposits purchased with a maturity of greater than three months but less than one year and auction rate securities (“ARS”) classified as available for sale that the Company expects to be redeemed at par within 12 months, based on notice from the issuer.

As of January ~~30, 2010,~~29, 2011, long-term investments included investments with remaining maturities of greater than 12 months and consisted of ARS classified as~~available-for-sale~~available-for-sale. ~~that have experienced failed auctions or have long-term auction resets.~~It also includes the Company’s ARS Call Option related to investment sales during Fiscal 2010. The remaining contractual maturities of our long-term ARS investments are approximately 17 months ~~to 38 years. The weighted average contractual maturity for our long-term investments is approximately 25 years.~~and the ARS Call Option expires on October 29, 2013.

Unrealized gains and losses on the Company’savailable-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. The components ofother-than-temporary impairment (“OTTI”) losses related to credit losses, as defined by ASC 320Investments — Debt and Equity Securities(“ASC 320”), are considered by the Company to be ~~realized losses.~~a net impairment loss recognized in earnings. Whenavailable-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss. Realized gains or losses are recognized separately on the Company’s Consolidated Statements of Operations as a realized gain or loss on sale of investment securities.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC ~~320.~~320,Investments — Debt and Equity Securities(“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment isother-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to beother-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. As of May 3, 2009, the Company adoptedASC320-10-65,Transition Related to FSPFAS 115-2 andFAS 124-2, Recognition and Presentation ofOther-Than-Temporary-Impairments(“ASC320-10-65”), which modifies the requirements for recognizing OTTI and changes the impairment model for debt securities. In addition,ASC320-10-65 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total OTTI in the Consolidated Statements of Operations, with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”). During Fiscal 2010, the Company recorded a net impairment loss recognized in earnings related to credit losses on its investment securities of $1.2 million. During Fiscal 2009, the Company recorded a net impairment loss recognized in earnings related to credit losses on its investment securities of $0.9 million. During Fiscal 2008, the Company recorded a net impairment loss ~~recognized in earnings~~ of $22.9 million in earnings related to certain investment securities.

Refer to Notes 3 and 4 to the Consolidated Financial Statements for additional information regarding net impairment ~~loss~~losses recognized in earnings.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:


Buildings		25 years
Leasehold improvements		Lesser of 10 years or the term of the lease
Fixtures and equipment		5 years

In accordance with ASC 360,Property, Plant, and Equipment, the Company’s management evaluates the value of leasehold improvements and store fixtures associated with retail stores, which have been open for a period of time sufficient to reach maturity. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment 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 the assets.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded ~~separately~~ as a component of operating income ~~under loss on~~within selling, general and administrative expense.

During Fiscal 2010, the Company recorded asset impairment charges of $18.0 million related to the impairment of ~~assets.~~

M+O stores. Based on the Company’s decision to close all M+O stores in Fiscal 2010, the Company determined that stores not previously impaired would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them. During Fiscal 2009, the Company recorded asset impairment charges of $18.0 million related primarily to the impairment of 10 M+O stores. During Fiscal 2008, the Company recorded asset impairment charges of $6.7 million related primarily to the impairment of five M+O stores. ~~Based on~~

Refer to Note 14 to the ~~Company’s review of~~Consolidated Financial Statements for additional information regarding the operating performance and projections of future performance of these stores, the Company determined that these stores would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them. During Fiscal 2007, the Company recognized impairment losses of $0.6 million related to AE stores.discontinued operations for M+O.

When the Company closes, remodels or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets. During Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ the Company recorded $2.7 million, $2.3 million ~~$4.9 million~~ and ~~$6.7~~$4.9 million related to asset write-offs within depreciation and amortization expense.

AMERICAN EAGLE OUTFITTERS, INC.

~~Refer to Note 15 to the Consolidated Financial Statements for additional information regarding the planned closure of MARTIN+OSA.~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goodwill

As of January ~~30, 2010,~~29, 2011, the Company had approximately ~~$11.2~~$11.5 million of goodwill compared to ~~$10.7~~$11.2 million as of January ~~31, 2009.~~30, 2010. The Company’s goodwill is primarily related to the acquisition of its importing operations on January 31, 2000, as well as the acquisition of its Canadian business on November 29, 2000. The increase in goodwill is due to the fluctuation in the foreign exchange spot rate at which the Canadian goodwill is translated. In accordance with ASC 350,~~Intangibles-Goodwill~~Intangibles- Goodwill and Other, the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January ~~30, 2010.~~29, 2011. Resulting from the Company’s annual goodwill impairment test performed as of January ~~30, 2010,~~29, 2011, the Company concluded that its goodwill was not impaired.

Other Assets, Net

Other assets, net consist primarily of assets related to our deferred compensation plans and trademark costs, net of accumulated amortization. Trademark costs are amortized over five to 15 years.

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 on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Self-Insurance Liability

The Company is self-insured for certain losses related to employee medical benefits and worker’s compensation. 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.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Co-branded Credit Card and Customer Loyalty Program

The Company offers a co-branded credit card (the ~~“AE~~“AEO Visa Card”) and a private label credit card (the ~~“AE~~“AEO Credit Card”) under ~~both~~ the American Eagle, aerie, and ~~aerie~~77kids brands. ~~Both of these~~These credit cards are issued by a third-party bank (the “Bank”), and the Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEAEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in ~~the Company’s~~our credit card rewards program. Under the rewards program that expired on December 31, 2009, points were earned on purchases made with the AEAEO Visa Card at AE and aerie, and at other retailers where the card is accepted. Points earned under this credit card reward program resulted in the issuance of an AE gift card when a certain point threshold was reached. The AE gift card does not ~~expire; however, points earned that have not been used towards the issuance of an AE gift card expire after 36 months of no purchase activity.~~expire. On January 1, 2010, the Company modified the benefits on the AEAEO Visa and AEAEO Credit Card programs to make both credit cards a part of the rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEAEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases at AE, aerie and ~~aerie~~77kids are accounted for by analogy toASC605-25,Revenue Recognition, Multiple Element Arrangements(“ASC605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE, aerie or ~~aerie~~77kids purchases are accounted for in accordance withASC605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

Through December 31, 2009, the Company offered its customers the AE All-Access Pass^®, a customer loyalty program. On January 1, 2010, the Company replaced the AE All-Access Pass^® with the AEREWARD$^sm ~~Loyalty Program~~loyalty program (the “Program”). Under either loyalty program, 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. These rewards can be redeemed for a discount on a purchase of merchandise. Rewards not redeemed during the one-month redemption period are forfeited. The Company determined that rewards earned using the AE All-Access Pass^® and the Program should be accounted for in accordance withASC605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Stock Repurchases

During Fiscal 2007, the Company’s Board ~~of Directors (“the Board”)~~ authorized a total of 60.0 million shares of ~~its~~our common stock for repurchase under its share repurchase program with expiration dates extending into Fiscal 2010. The Company repurchased 18.7 million shares during Fiscal 2007 and the authorization related to 11.3 million shares expired in Fiscal 2009. At the beginning of Fiscal 2010, the Company had 30.0 million shares remaining authorized for repurchase.

During Fiscal ~~2007,~~2010, the Company repurchased ~~18.7~~15.5 million shares as part of its publicly announced repurchase programs for approximately ~~$438.3~~$216.1 million, at a weighted average price of ~~$23.38~~$13.94 per share. As of January 29, 2011, the Company had 14.5 million shares remaining authorized for repurchase. These shares may be repurchased at the Company’s discretion. The Company’s Board extended the current remaining share repurchase authorization through February 2, 2013. The Company did not repurchase any common stock as part of its publicly announced repurchase program during Fiscal 2009 or Fiscal 2008. At January 30, 2010, the authorization to repurchase 11.3 million shares of the Company’s common stock under its share repurchase program expired. As of March 26, 2010, the Company had 30.0 million shares remaining authorized for repurchase. These shares will be repurchased at the Company’s discretion. The authorization relating to the remaining 30.0 million shares expires at the end of Fiscal 2010.

During Fiscal ~~2009~~2010 and Fiscal ~~2008,~~2009, the Company repurchased approximately ~~18,000~~1.0 million and ~~0.2 million~~18,000 shares, respectively, from certain employees at market prices totaling ~~$0.2~~$18.0 million and ~~$3.4~~$0.2 million, respectively. These shares were repurchased for the payment of taxes, not in excess of the minimum statutory withholding requirements, in connection with the vesting of share-based payments, as permitted under the 2005 Stock Award and Incentive Plan, as amended (the “2005 Plan”).

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The aforementioned share repurchases have been recorded as treasury stock.

Income Taxes

The Company calculates income taxes in accordance with ASC 740,Income Taxes(“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits, may materially impact the Company’s effective income tax rate.

AMERICAN EAGLE OUTFITTERS, INC.

~~Effective February 4, 2007, the~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company ~~adopted the accounting pronouncement now codified~~evaluates its income tax positions in accordance with ASC 740 ~~regarding accounting for unrecognized tax benefits. This pronouncement~~which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’se-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in net sales. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within net sales and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.


	For the Years Ended						For the Years Ended
	January 30,			January 31,			January 29,			January 30,
	2010			2009			2011			2010
	(In thousands)						(In thousands)

Beginning balance	$	4,092		$	4,683		$	4,690		$	3,981
Returns		(74,540	)		(81,704	)		(70,789	)		(71,705	)
Provisions		75,293			81,113			69,790			72,414

Ending balance	$	4,845		$	4,092		$	3,691		$	4,690

Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

proportion to actual gift card redemptions as a component of net sales. For further information on the Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes royalty revenue generated from its franchise agreements based upon royalty percentages on sales of merchandise by the franchisee. Royalty revenue is recorded as a component of net sales when earned.

The Company sells offend-of-season, overstock, and irregular merchandise to a third-party. The proceeds from these sales are presented on a gross basis, with proceeds and cost of sell-offs recorded in net sales and cost of sales, respectively.

For the Years Ended
January 30,
January 31,
February 2,
2010 2009 2008
(In thousands)

Proceeds from sell-offs $ 31,889 $ 38,240 $ 23,775
Marked-down cost of merchandise disposed of via sell-offs $ 31,345 $ 38,012 $ 25,805

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	For the Years Ended
	January 29,		January 30,		January 31,
	2011		2010		2009
	(In thousands)

Proceeds from sell-offs	$	25,593	$	29,347	$	36,086
Marked-down cost of merchandise disposed of via sell-offs	$	24,728	$	29,023	$	35,336

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively “merchandise costs”) and buying, occupancy and warehousing costs. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to oure-commerce operation. Merchandise margin is the difference between net sales and merchandise costs. Gross profit is the difference between net sales and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Advertising Costs

Certain advertising costs, including direct mail, in-store photographs and other promotional costs are expensed when the marketing campaign commences. As of January ~~30, 2010~~29, 2011 and January ~~31, 2009,~~30, 2010, the Company had prepaid advertising expense of $5.4 ~~million and $2.9 million, respectively.~~million. All other advertising costs are expensed as incurred. The Company recognized ~~$68.9~~$64.9 million, ~~$79.7~~$60.9 million, and ~~$74.9~~$70.9 million in advertising expense during Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ respectively.

Design Costs

The Company has certain design costs, including compensation, rent, depreciation, travel, supplies and samples, which are included in cost of sales as the respective inventory is sold.

Store Pre-Opening Costs

Store pre-opening costs consist primarily of rent, advertising, supplies and payroll expenses. These costs are expensed as incurred.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income/expense and foreign currency transaction gain/loss.

4846

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Other (Expense) Income, Net~~

~~Other (expense) income, net consists primarily of a realized investment loss, interest income/expense and foreign currency transaction gain/loss.~~

Gift Cards

The value of a gift card is recorded as a current liability upon purchase and revenue is recognized when the gift card is redeemed for merchandise. Prior to July 8, 2007, if a gift card remained inactive for greater than 24 months, the Company assessed the recipient a one-dollar per month service fee, where allowed by law, which was automatically deducted from the remaining value of the card. For those jurisdictions where assessing a service fee was not allowable by law, the estimated breakage was recorded in a manner consistent with that described above, starting after 24 months of inactivity. Both gift card service fees and breakage estimates were recorded within other (expense) income, net.

~~On July 8, 2007, the Company discontinued assessing a service fee on active gift cards. As a result, the~~The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of net sales. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. The company recorded gift card breakage of $5.5 million, $6.8 million and $12.2 million during Fiscal 2010, Fiscal 2009 and Fiscal 2008, respectively.

Legal Proceedings and Claims

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450,Contingencies(“ASC 450”), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company.

Supplemental Disclosures of Cash Flow Information

The table below shows supplemental cash flow information for cash amounts paid during the respective periods:


	For the Years Ended						For the Years Ended
	January 30,		January 31,		February 2,		January 29,		January 30,		January 31,
	2010		2009		2008		2011		2010		2009
	(In thousands)						(In thousands)

Cash paid during the periods for:
Income taxes	$	61,869	$	132,234	$	260,615	$	45,737	$	61,869	$	132,234
Interest	$	1,879	$	1,947	$	—	$	191	$	1,879	$	1,947

Segment Information

In accordance with ASC 280,Segment Reporting(“ASC 280”), the Company has identified four operating segments (American Eagle Brand US and Canadian stores, aerie by American Eagle retail stores, ~~MARTIN+OSA~~77kids by american eagle retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following tables present summarized geographical information:


							For the Years Ended
	For the Years Ended						January 29,		January 30,		January 31,
	January 30,		January 31,		February 2,		2011		2010		2009
	2010		2009		2008		(In thousands)
	(In thousands)
Net sales:
United States	$	2,715,583	$	2,707,261	$	2,770,119	$	2,675,992	$	2,665,655	$	2,667,074
Foreign(1)		274,937		281,605		285,300		291,567		274,614		281,605

Total net sales	$	2,990,520	$	2,988,866	$	3,055,419	$	2,967,559	$	2,940,269	$	2,948,679


(1)		Amounts represent sales from American Eagle and aerie Canadian retail stores, as well as AEO Direct sales, that are billed to and/or shipped to foreign countries.

January 30,
January 31,

2010 2009
(In thousands)
Long-lived assets, net:
United States $ 678,385 $ 708,180
Foreign 45,967 42,766

Total long-lived assets, net $ 724,352 $ 750,946

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	January 29,		January 30,
	2011		2010
	(In thousands)

Long-lived assets, net:
United States	$	607,564	$	678,385
Foreign		47,028		45,967

Total long-lived assets, net	$	654,592	$	724,352

Reclassifications

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.


3.	Cash and Cash Equivalents, Short-term Investments and Long-term Investments

The following table summarizes the fair market value of our cash and marketable securities, which are recorded as cash and cash equivalents, short-term investments and long-term investments on the Consolidated Balance ~~Sheets, our short-term investments and our long-term investments:~~Sheets:


								January 29, 2011
	January 30, 2010									Unrealized		Unrealized
			Unrealized		Unrealized			Balance		Holding Gains		Holding Losses
	Balance		Holding Gains		Holding Losses			(In thousands)
	(In thousands)
Cash and cash equivalents:
Cash	$	144,391	$	—	$	—		$	122,578	$	—	$	—
Commercial paper		25,420							40,884		—		—
Corporate bonds									3,695		—		—
Treasury bills		119,988							102,996		—		—
Money-market		404,161		—		—			397,440		—		—

Total cash and cash equivalents	$	693,960	$	—	$	—		$	667,593	$	—	$	—
Short-term investments:
Student-loan backed ARS	$	400	$	—	$	—
Term-deposits								$	63,402	$	—	$	—
State and local government ARS		4,275		—		—			3,700		—		—

Total short-term investments	$	4,675	$	—	$	—		$	67,102	$	—	$	—
Long-term investments:
Student-loan backed ARS	$	149,031	$	—	$	(8,569	)
State and local government ARS		35,969		—		(456	)	$	5,500	$	—	$	—
Auction rate preferred securities		12,773		—		(1,287	)
ARS Call Option									415		—		—

Total long-term investments	$	197,773	$	—	$	(10,312	)	$	5,915	$	—	$	—

Total	$	896,408	$	—	$	(10,312	)	$	740,610	$	—	$	—

5048

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	January 31, 2009							January 30, 2010
			Unrealized		Unrealized					Unrealized		Unrealized
	Balance		Holding Gains		Holding Losses			Balance		Holding Gains		Holding Losses
	(In thousands)							(In thousands)}

Cash and cash equivalents:
Cash	$	61,355	$	—	$	—		$	144,391	$	—	$	—
Commercial paper									25,420		—		—
Treasury bills									119,988		—		—
Money-market		411,987		—		—			404,161		—		—

Total cash and cash equivalents	$	473,342	$	—	$	—		$	693,960	$	—	$	—
Short-term investments:
Preferred stock	$	6,219	$	—	$	—
Auction rate preferred securities		4,292		—		—
Student-loan backed ARS								$	400	$	—	$	—
State and local government ARS									4,275		—		—

Total short-term investments	$	10,511	$	—	$	—		$	4,675	$	—	$	—
Long-term investments:
Student-loan backed ARS	$	169,254	$	—	$	(31,446	)	$	149,031	$	—	$	(8,569	)
State and local government ARS		69,970		—		(630	)		35,969		—		(456	)
Auction rate preferred securities		11,783		—		(3,217	)		12,773		—		(1,287	)

Total long-term investments	$	251,007	$	—	$	(35,293	)	$	197,773	$	—	$	(10,312	)

Total	$	734,860	$	—	$	(35,293	)	$	896,408	$	—	$	(10,312	)

Proceeds from the sale ofavailable-for-sale securities were $177.5 million, $80.4 million and $393.6 million ~~and $2.127 billion~~ for Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ respectively. ~~There were no purchases of investments during Fiscal 2009.~~ The proceeds from the sale ofavailable-for-sale securities for Fiscal ~~2008~~2010 and Fiscal ~~2007~~2008 are offset against purchases of $62.8 million and $48.7 million, ~~and $1.773 billion,~~ respectively. ~~In addition to the net impairment loss recognized in earnings discussed below for Fiscal 2009 and Fiscal 2008, the Company recorded net realized losses related to the sale~~There were no purchases ofavailable-for-sale securities ~~of $2.7 million, $1.1 million and $0.4 million for~~during Fiscal ~~2009, Fiscal 2008 and Fiscal 2007, respectively, in other (expense) income, net.~~2009.

The following ~~tables present~~table presents the length of timeavailable-for-sale securities were in continuous unrealized loss positions but were not deemed to beother-than-temporarily ~~impaired:~~impaired. At January 29, 2011, the fair value of allavailable-for-sale securities approximated par, with no gross unrealized holding losses.


						Greater than
	Less than					or Equal
	12 Months					to 12 Months					Less Than 12 Months					Greater Than or Equal to 12 Months
	Gross Unrealized					Gross Unrealized					Gross Unrealized					Gross Unrealized
	Holding Losses			Fair Value		Holding Losses			Fair Value		Holding Losses			Fair Value		Holding Losses			Fair Value
	(In thousands)										(In thousands)

January 30, 2010
Student-loan backed ARS	$	(1,643	)	$	9,203	$	(6,926	)	$	50,228	$	(1,643	)	$	9,203	$	(6,926	)	$	50,228
State and local government ARS		(273	)		8,096		(183	)		20,922		(273	)		8,096		(183	)		20,922
Auction rate preferred securities		—			—		(1,287	)		12,773		—			—		(1,287	)		12,773

Total(1)	$	(1,916	)	$	17,299	$	(8,396	)	$	83,923	$	(1,916	)	$	17,299	$	(8,396	)	$	83,923

January 31, 2009
Student-loan backed ARS	$	(31,446	)	$	169,254	$	—		$	—
State and local government ARS		(630	)		61,570		—			—
Auction rate preferred securities		(3,217	)		11,783		—			—

Total(1)	$	(35,293	)	$	242,607	$	—		$	—

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


(1)		Fair value excludes $101.2 million as of January 30, 2010 ~~and $8.4 million as of January 31, 2009~~ of investments whose fair value approximates par. ~~Additionally, as of January 31, 2009, fair value excludes $10.5 million of securities on which net impairment loss recognized in earnings has been recorded.~~

As of January ~~30, 2010,~~29, 2011, we had a total of ~~$896.4~~$740.6 million in cash and cash equivalents, short-term and long-term investments, which included ~~$189.6~~$9.2 million of investments in ARS. The carrying value of the investments in ARS ~~and $12.8~~equals their par value with no impairment in OCI or previously recognized in earnings.

In the first half of Fiscal 2010, the Company sold $28.1 million of ~~auction rate preferred securities (“ARPS”), net~~ARS investments for proceeds of ~~$10.3~~$27.9 million ~~($6.4 million net~~and a realized loss of ~~tax)~~$0.2 million. During the third quarter of ~~temporary impairment and $0.9 million in net impairment loss recognized in earnings. Our short-term and long-term investments consist of~~Fiscal 2010, the ~~following:~~Company liquidated

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Have Significantly Decreased and Identifying Transactions That Are Not Orderly~~~~as of May 3, 2009 for its financial instruments measured at fair value. The impact of adopting these was not significant on the Company’s accompanying financial statements.~~

Financial Instruments


	•	Level 1— Quoted prices in active markets for identical assets or liabilities.

	•	Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 —Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of January ~~30, 2010~~29, 2011 and January ~~31, 2009,~~30, 2010, the Company held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and short and long-term investments, including ARS and ARPS.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In accordance with ASC 820, the following tables represent the fair value hierarchy for the Company’s financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of January ~~30, 2010~~29, 2011 and January ~~31, 2009:~~30, 2010:

Fair Value Measurements at January 30, 2010
Quoted Market

Carrying
Prices in Active
Significant

Amount as
Markets for
Significant Other
Unobservable

of January 30,
Identical Assets
Observable Inputs
Inputs

2010 (Level 1) (Level 2) (Level 3)
(In thousands)

Cash and Cash Equivalents
Cash $ 144,391 $ 144,391 $ — $ —
Commercial paper 25,420 25,420 — —
Treasury bills 119,988 119,988 — —
Money-market 404,161 404,161 — —

Total cash and cash equivalents $ 693,960 $ 693,960 $ — $ —
Short-term Investments
Student-loan backed ARS $ 400 $ — $ — $ 400
State and local government ARS 4,275 — — 4,275

Total Short-term Investments $ 4,675 $ — $ — $ 4,675
Long-term Investments
Student-loan backed ARS $ 149,031 $ — $ — $ 149,031
State and local government ARS 35,969 — — 35,969
Auction rate preferred securities 12,773 — — 12,773

Total Long-term Investments $ 197,773 $ — $ — $ 197,773

Total $ 896,408 $ 693,960 $ — $ 202,448

Percent to total 100.0 % 77.4 % 0.0 % 22.6 %


	Fair Value Measurements at January 29, 2011
			Quoted Market
			Prices in Active				Significant
			Markets for		Significant Other		Unobservable
	Carrying		Identical Assets		Observable		Inputs
	Amount		(Level 1)		Inputs (Level 2)		(Level 3)
	(In thousands)

Cash and cash equivalents
Cash	$	122,578	$	122,578	$	—	$	—
Commercial paper		40,884		40,884		—		—
Corporate bonds		3,695		3,695		—		—
Treasury bills		102,996		102,996		—		—
Money-market		397,440		397,440		—		—

Total cash and cash equivalents	$	667,593	$	667,593	$	—	$	—
Short-term investments
Term deposits	$	63,402	$	63,402	$	—	$	—
State and local government ARS		3,700		—		—		3,700

Total short-term investments	$	67,102	$	63,402	$	—	$	3,700
Long-term investments
State and local government ARS	$	5,500	$	—	$	—	$	5,500
ARS Call Option		415		—		—		415

Total long-term investments	$	5,915	$	—	$	—	$	5,915

Total	$	740,610	$	730,995	$	—	$	9,615

5351

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Fair Value Measurements at January 31, 2009												Fair Value Measurements at January 30, 2010
				Quoted Market											Quoted Market
				Prices in Active			Significant Other			Significant					Prices in Active				Significant
	Carrying Amount			Markets for			Observable			Unobservable					Markets for		Significant Other		Unobservable
	as of January 31,			Identical Assets			Inputs			Inputs			Carrying		Identical Assets		Observable		Inputs
	2009			(Level 1)			(Level 2)			(Level 3)			Amount		(Level 1)		Inputs (Level 2)		(Level 3)
	(In thousands)												(In thousands)

Cash and Cash Equivalents
Cash and cash equivalents
Cash	$	61,355		$	61,355		$	—		$	—		$	144,391	$	144,391	$	—	$	—
Commercial paper														25,420		25,420		—		—
Treasury bills														119,988		119,988		—		—
Money-market		411,987			411,987			—			—			404,161		404,161		—		—

Total cash and cash equivalents	$	473,342		$	473,342		$	—		$	—		$	693,960	$	693,960	$	—	$	—
Short-term Investments
Preferred Stock	$	6,219		$	6,219		$	—		$	—
Auction rate preferred securities		4,292			—			4,292			—
Short-term investments
Student-loan backed ARS													$	400	$	—	$	—	$	400
State and local government ARS														4,275		—		—		4,275

Total Short-term Investments	$	10,511		$	6,219		$	4,292		$	—
Long-term Investments
Total short-term investments													$	4,675	$	—	$	—	$	4,675
Long-term investments
Student-loan backed ARS	$	169,254		$	—		$	—		$	169,254		$	149,031	$	—	$	—	$	149,031
State and local government ARS		69,970			—			—			69,970			35,969		—		—		35,969
Auction rate preferred securities		11,783			—			—			11,783			12,773		—		—		12,773

Total Long-term Investments	$	251,007		$	—		$	—		$	251,007
Total long-term investments													$	197,773	$	—	$	—	$	197,773

Total	$	734,860		$	479,561		$	4,292		$	251,007		$	896,408	$	693,960	$	—	$	202,448

Percent to total		100.0	%		65.3	%		0.6	%		34.1	%

The Company used a discounted cash flow (“DCF”) model to value ~~our~~its Level 3 investments. For Fiscal 2010, the assumptions in the Company’s model included different recovery periods, ranging from five to 17 months depending on the type of security, and discount factors for yield of 0.2% and illiquidity of 0.5%. 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,~~2010, the Company ~~recorded a~~recognized net ~~recovery~~impairment of ~~$25.0~~$0.6 million ~~($15.5 million, net of tax) which reduced the~~in OCI. The total cumulative impairment recognized in ~~other comprehensive income (“OCI”)~~OCI prior to the Company’s liquidation of $176.4 million par value ($163.3 million carrying value)available-for-sale securities during the third quarter of Fiscal 2010 was $10.9 million ($6.8 million, net of tax). Total cumulative impairment recognized in OCI as of January 30, 2010 towas $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~~increase in temporary impairment was primarily driven by ~~calls at par for~~unfavorable changes in the ~~Company’s private-insured student loan ARS. As a result of the calls, the securities which were previously impaired were revalued at par.~~discount rate. These amounts were previously recorded in OCI and resulted in ~~an increase~~a decrease in the investments’ ~~estimated~~ fair values. ~~The net increase in fair value was partially offset by $0.9 million~~As a result of a credit rating downgrade on student-loan backed ARS, the Company also recorded a net impairment loss ~~recognized~~ in earnings of $1.2 million during Fiscal ~~2009 as~~2010.

As previously described in Note 3 to the Consolidated Financial Statements, the Company liquidated $176.4 million par value ($163.3 million carrying value) of itsavailable-for-sale securities in the third quarter of Fiscal 2010. Through the liquidation, the Company received proceeds of $149.6 million plus accrued interest and recognized a ~~result~~loss in its Consolidated Statements of ~~credit rating downgrades.~~Operation of $24.2 million, net of the ARS Call Option gain of $0.4 million. The recognized loss included all $10.9 million of cumulative impairment which was previously included in OCI on the Consolidated Balance Sheet.

5452

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of the ARS Call Option described in Note 3 to the Consolidated Financial Statements was also estimated using a discounted cash flow model. The model considered potential changes in yields for securities with similar characteristics to the underlying ARS and evaluated possible future refinancing opportunities for the issuers of the ARS. The analysis then assessed the likelihood that the options would be exercisable as a result of the underlying ARS being redeemed or traded in a secondary market at an amount greater than the exercise price prior to the end of the option term. Future changes in the fair values of the ARS Call Option will be recorded within the Consolidated Statements of Operations.

The following table presents a rollforward of the amount of net impairment loss recognized in earnings related to credit losses:


	For the Year Ended		For the Year Ended
	January 30, 2010		January 29, 2011
	(In thousands)		(In thousands)

Beginning balance of credit losses previously recognized in earnings	$	—	$	940
Year-to-date OTTI credit losses recognized in earnings		940		1,248

Ending balance of cumulative credit losses recognized in earnings	$	940	$	2,188

The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

Level 3 (Unobservable Inputs)
Student

Loan-

Auction-
Backed

Rate
Auction-
Auction-Rate

Municipal
Rate
Preferred

Total Securities Securities Securities

Carrying value at February 2, 2008 $ — $ — $ — $ —
Additions to Level 3 upon adoption of ASC 820(1) 340,475 84,575 212,000 43,900
Settlements (29,875 ) (18,575 ) (11,300 ) —
Additions to Level 3(2) 4,600 4,600 — —
Transfers out of Level 3(3) (28,900 ) — — (28,900 )
Losses:
Losses reported in OCI (35,293 ) (630 ) (31,446 ) (3,217 )

Balance at January 31, 2009 $ 251,007 $ 69,970 $ 169,254 $ 11,783

Settlements (72,600 ) (29,900 ) (42,700 ) —
Gains and (losses):
Reported in earnings (940 ) — — (940 )
Reported in OCI 24,981 174 22,877 1,930

Balance at January 30, 2010 $ 202,448 $ 40,244 $ 149,431 $ 12,773


	Level 3 (Unobservable inputs)
							Student
							Loan-
				Auction-			Backed
				Rate			Auction-			Auction-Rate
				Municipal			Rate			Preferred			ARS Call
	Total			Securities			Securities			Securities			Option
	(In thousands)

Carrying value at January 31, 2009	$	251,007		$	69,970		$	169,254		$	11,783		$	—
Settlements		(72,600	)		(29,900	)		(42,700	)		—			—
Gains and (losses):
Reported in earnings		(940	)		—			—			(940	)		—
Reported in OCI		24,981			174			22,877			1,930			—

Balance at January 30, 2010	$	202,448		$	40,244		$	149,431		$	12,773		$	—

Settlements		(177,472	)		(29,101	)		(141,246	)		(7,125	)		—
Gains and (losses):
Reported in earnings		(25,674	)		(2,399	)		(16,755	)		(6,935	)		415
Reported in OCI		10,313			456			8,570			1,287			—

Balance at January 29, 2011	$	9,615		$	9,200		$	—		$	—		$	415


~~(1)~~		~~Represents amounts transferred upon the adoption of ASC 820 during the first quarter of Fiscal 2008.~~

~~(2)~~		Additions to Level 3 include securities previously classified as Level 2, which were securities that had experienced partial calls prior to the fourth quarter of 2008 and were previously valued at par.

~~(3)~~		Transfers out of Level 3 include preferred securities (into Level 1) and ARPS (into Level 2). The transfers to Level 1 occurred due to the Company acquiring exchange traded preferred shares as a result of the ARPS trusts liquidating. The transfers to Level 2 occurred as a result of the Company determining that it was more appropriate to value these investments using observable market prices of the underlying securities. The OTTI charge of $22.9 million that was reported in earnings was taken on Level 1 and Level 2 securities transferred from Level 3.

Non-Financial Assets

The Company’s non-financial assets, which include goodwill and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. Resulting from the Company’s annual goodwill impairment test performed as of January 29, 2011, the Company concluded that its goodwill was not impaired.

5553

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Resulting from the Company’s annual goodwill impairment test performed as of January 30, 2010, the Company concluded that its goodwill was not impaired.~~

Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. Based on the Company’s ~~review of the operating performance and projections of underperforming~~decision to close all M+O stores in Fiscal 2010, the Company determined that ~~certain underperforming~~the M+O stores not previously impaired would not be able to generate sufficient cash flow over the life of the related leases to recover the Company’s initial investment in them. Therefore, during Fiscal 2010, the M+O stores not previously impaired were written down to their fair value, resulting in a loss on impairment of assets of $18.0 million. Additionally, during Fiscal 2009 and Fiscal 2008, certain long-lived assets primarily related to M+O stores were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in a loss on impairment of assets of $18.0 million and $6.7 million, respectively. The loss on impairment of M+O assets for all periods presented is included within Loss from Discontinued Operations. The fair value of those stores were determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. ~~During Fiscal 2009, certain long-lived assets with a carrying value of $18.0 million, primarily related~~

Refer to 10Note 14 to the Consolidated Financial Statements for additional information regarding the discontinued operations for M+~~O stores, were determined to be unable to recover their respective carrying values and, therefore, were written down to their fair value, resulting in a loss on impairment of assets of $18.0 million.~~O.


5.	Earnings per Share

ASC260-10-45,Participating Securities and the Two-Class Method(“ASC260-10-45”), addresses whether awards granted in unvested share-based payment transactions that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and therefore are included in computing earnings per share under the two-class method, as described in ASC 260,Earnings Per Share. Participating securities are securities that may participate in dividends with common stock and the two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that would otherwise have been available to common shareholders. Under the two-class method, earnings for the period are allocated between common shareholders and other shareholders, based on their respective rights to receive dividends. Restricted stock awards granted to certain employees under the Company’s 2005 Plan are considered participating securities as these employees receive non-forfeitable dividends at the same rate as common stock.ASC260-10-45 was adopted and retrospectively applied at the beginning of Fiscal 2009. For Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ the application ofASC260-10-45 resulted in no material change to basic ~~EPS~~ or diluted ~~EPS.~~

~~The following is a reconciliation between basic and diluted weighted average shares outstanding:~~

For the Years Ended
January 30,
January 31,
February 2,

2010 2009 2008
(In thousands, except per share amounts)

Weighted average common shares outstanding:
Basic number of common shares outstanding 206,171 205,169 216,119
Dilutive effect of stock options and non-vested restricted stock 3,341 2,413 4,161

Dilutive number of common shares outstanding 209,512 207,582 220,280

Basic net income per common share
Net income $ 169,022 $ 179,061 $ 400,019
Less: Income allocated to participating securities 365 364 215

Net income available to common shareholders $ 168,657 $ 178,697 $ 399,804

Basic net income per common share $ 0.82 $ 0.87 $ 1.85

Dilutive net income per common share
Net income $ 169,022 $ 179,061 $ 400,019
Less: Income allocated to participating securities 360 360 210

Net income available to common shareholders $ 168,662 $ 178,701 $ 399,809

Dilutive net income per common share $ 0.81 $ 0.86 $ 1.82

income from continuing operations per common share.

5654

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a reconciliation between basic and diluted weighted average shares outstanding:


	For the Years Ended
	January 29,		January 30,		January 31,
	2011		2010		2009
	(In thousands, except per share amounts)

Weighted average common shares outstanding:
Basic number of common shares outstanding		199,979		206,171		205,169
Dilutive effect of stock options and non-vested restricted stock		1,839		3,341		2,413

Dilutive number of common shares outstanding		201,818		209,512		207,582

Basic income from continuing operations per common share
Income from continuing operations	$	181,934	$	213,398	$	229,984
Less: Income allocated to participating securities		74		365		364

Income from continuing operations available to common shareholders	$	181,860	$	213,033	$	229,620

Basic income from continuing operations per common share	$	0.91	$	1.03	$	1.12

Dilutive income from continuing operations per common share
Income from continuing operations	$	181,934	$	213,398	$	229,984
Less: Income allocated to participating securities		74		360		360

Income from continuing operations available to common shareholders	$	181,860	$	213,038	$	229,624

Dilutive income from continuing operations per common share	$	0.90	$	1.02	$	1.11

Equity awards to purchase approximately 7.9 million, 6.6 million ~~7.6 million,~~ and ~~2.5~~7.6 million shares of common stock during the Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive.

Additionally, for Fiscal 2010, Fiscal 2009 and Fiscal 2008, approximately 0.7 million, 0.4 million and 0.8 million shares, respectively, of performance-based restricted stock awards were not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on the Company’s performance compared to pre-established ~~annual~~ performance goals.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Accounts Receivable

Accounts receivable are comprised of the following:


	January 30,		January 31,		January 29,		January 30,
	2010		2009		2011		2010
	(In thousands)				(In thousands)

Construction allowances	$	11,132	$	11,139
Landlord construction allowances					$	11,739	$	11,132
Merchandise sell-offs		8,063		17,057		4,539		8,063
Interest income		217		1,355
Marketing cost reimbursements		2,556		2,363		3,553		2,556
Credit card receivable		7,832		5,175		—		7,832
Merchandise vendor receivables		375		2,899
Gift card receivable		1,413		115		3,567		1,413
Franchise receivable		1,419		—		5,183		1,419
Insurance claims receivable						4,374		—
Other		1,739		1,368		3,766		2,331

Total	$	34,746	$	41,471	$	36,721	$	34,746


7.	Property and Equipment

Property and equipment consists of the following:


	January 30,			January 31,			January 29,			January 30,
	2010			2009			2011			2010
	(In thousands)						(In thousands)

Land	$	6,364		$	6,364		$	6,364		$	6,364
Buildings		151,484			122,414			152,984			151,484
Leasehold improvements		645,794			605,299			624,479			645,794
Fixtures and equipment		590,610			536,009			647,346			590,610
Construction in progress		554			28,543			1,629			554

	$	1,394,806		$	1,298,629
Property and equipment at cost							$	1,432,802		$	1,394,806
Less: Accumulated depreciation and amortization		(681,664	)		(558,389	)		(789,682	)		(681,664	)

Net property and equipment	$	713,142		$	740,240		$	643,120		$	713,142

Depreciation expense is summarized as follows:

For the Years Ended
January 30,
January 31,
February 2,

2010 2009 2008
(In thousands)

Depreciation expense $ 144,883 $ 130,802 $ 108,919


	For the Years Ended
	January 29,		January 30,		January 31,
	2011		2010		2009
	(In thousands)

Depreciation expense	$	139,169	$	137,045	$	123,218

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


8.	Note Payable and Other Credit Arrangements

The Company has borrowing agreements with four separate financial institutions under which it may borrow an aggregate of ~~$325.0~~$310.0 million United States dollars (“USD”) and $25.0 million Canadian dollars (“CAD”). Of this amount, $200.0 million USD can be used for ~~demand letter~~letters of credit ~~facilities, $100.0~~issuances, $50.0 million USD and $25.0 million CAD can be used for demand line borrowings and the remaining ~~$25.0~~$60.0 million USD can be used for either letters of credit or demand line borrowings at the Company’s discretion.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~During Fiscal 2009, the Company reduced the amount of credit available that could be used for either letters of credit or as a demand line from $100.0~~December 13, 2011, respectively. The remaining $60.0 million USD ~~to $25.0 million USD. This request was made by the lender due to the Company’s low utilization of this credit facility. The reduction was effective July 3, 2009 and had no material impact~~facility expires on the Company’s Consolidated Financial Statements or on the Company’s ability to fund its operations. Additionally, during Fiscal 2009, the Company increased its borrowing capacity for demand letters of credit from $150.0 million USD to $200.0 million USD.May 22, 2011.

As of January ~~30, 2010,~~29, 2011, the Company had outstanding ~~trade and standby~~demand letters of credit of ~~$51.5~~$30.0 million USD and no demand line ~~borrowings of $30.0 million USD, which reflects a $45.0 million USD reduction from January 31, 2009, as a result of a voluntary partial repayment made during Fiscal 2009.~~ borrowings.

The ~~outstanding amounts on the demand line borrowings can be called for repayment by the financial institutions at any time. Additionally, the~~ availability of any ~~remaining~~future borrowings is subject to acceptance by the respective financial institutions. The average borrowing rate on the demand ~~lines~~line for outstanding borrowings during Fiscal ~~2009~~2010 was ~~2.5% and the Company has incorporated the outstanding demand line borrowings into working capital.~~2.1%.


9.	Leases

The Company leases all store premises, some of its office space and certain information technology and office equipment. The store leases generally have initial terms of 10 years. Most of these store leases provide for base rentals and the payment of a percentage of sales as additional contingent rent when sales exceed specified levels. Additionally, most leases contain construction allowancesand/or rent holidays. In recognizing landlord incentives and minimum rent expense, the Company amortizes the charges on a straight-line basis over the lease term (including the pre-opening build-out period). These leases are classified as operating leases.

A summary of fixed minimum and contingent rent expense for all operating leases follows:


	For the Years Ended						For the Years Ended
	January 30,		January 31,		February 2,		January 29,		January 30,		January 31,
	2010		2009		2008		2011		2010		2009
	(In thousands)						(In thousands)

Store rent:
Fixed minimum	$	229,428	$	197,820	$	167,051	$	230,277	$	218,785	$	188,112
Contingent		7,873		11,767		17,626		8,182		7,873		11,765

Total store rent, excluding common area maintenance charges, real estate taxes and certain other expenses	$	237,301	$	209,587	$	184,677	$	238,459	$	226,658	$	199,877
Offices, distribution facilities, equipment and other		18,664		18,260		17,250		16,722		17,391		16,902

Total rent expense	$	255,965	$	227,847	$	201,927	$	255,181	$	244,049	$	216,779

In addition, the Company is typically responsible under its store, office and distribution center leases for tenant occupancy costs, including maintenance costs, common area charges, real estate taxes and certain other expenses.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The table below summarizes future minimum lease obligations, consisting of fixed minimum rent, under operating leases in effect at January ~~30, 2010:~~29, 2011:


	Future Minimum		Future Minimum
Fiscal years:	Lease Obligations		Lease Obligations
	(In thousands)		(In thousands)

2010	$	242,859
2011		226,699	$	243,798
2012		210,676		233,279
2013		194,613		220,081
2014		176,612		201,761
2015				187,234
Thereafter		693,048		687,087

Total	$	1,744,507	$	1,773,240

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


10.	Other Comprehensive Income (Loss)

The accumulated balances of other comprehensive income (loss) included as part of the Consolidated Statements of Stockholders’ Equity follow:

Before
Tax
Accumulated Other

Tax
(Expense)
Comprehensive Income

Amount Benefit (Loss)
(In thousands)

Balance at February 3, 2007
$ 21,201 $ 513 $ 21,714
Unrealized gain on investments 1,538 (591 ) 947
Reclassification adjustment for net losses realized in net income related to sale ofavailable-for-sale securities
393 (151 ) 242
Foreign currency translation adjustment 12,582 — 12,582

Balance at February 2, 2008
$ 35,714 $ (229 ) $ 35,485

Temporary impairment related to ARS (36,825 ) 14,030 (22,795 )
Reclassification adjustment for losses realized in net income related to sale of ARS 318 (121 ) 197
Reclassification adjustment for OTTI charges realized in net income related to ARS 1,214 (463 ) 751
Unrealized loss on investments (607 ) 229 (378 )
Foreign currency translation adjustment (27,649 ) — (27,649 )

Balance at January 31, 2009
$ (27,835 ) $ 13,446 $ (14,389 )

Temporary reversal of impairment related to ARS 24,041 (9,535 ) 14,506
Reclassification adjustment for OTTI charges realized in net income related to ARS 940 — 940
Foreign currency translation adjustment 15,781 — 15,781

Balance at January 30, 2010
$ 12,927 $ 3,911 $ 16,838


							Accumulated
	Before			Tax			Other
	Tax			(Expense)			Comprehensive
	Amount			Benefit			Income (Loss)
	(In thousands)

Balance at February 2, 2008	$	35,714		$	(229	)	$	35,485

Temporary impairment related to ARS		(37,432	)		14,259			(23,173	)
Reclassification adjustment for realized losses in net income related to investment securities		1,532			(584	)		948
Foreign currency translation loss		(27,649	)		—			(27,649	)

Balance at January 31, 2009	$	(27,835	)	$	13,446		$	(14,389	)

Temporary reversal of impairment related to ARS		24,041			(9,535	)		14,506
Reclassification adjustment for realized losses in net income related to investment securities		940			—			940
Foreign currency translation gain		15,781			—			15,781

Balance at January 30, 2010	$	12,927		$	3,911		$	16,838

Temporary impairment related to ARS		(1,830	)		690			(1,140	)
Reclassification adjustment for realized losses in net income related to investment securities		12,142			(4,601	)		7,541
Foreign currency translation gain		4,833			—			4,833

Balance at January 29, 2011	$	28,072		$	—		$	28,072

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The components of accumulated other comprehensive income (loss) were as follows:

For the Years Ended
January 30,
January 31,

2010 2009
(In thousands)

Net unrealized (loss) gain onavailable-for-sale securities, net of tax(1)
$ (6,401 ) $ (21,847 )
Foreign currency translation adjustment 23,239 7,458

Accumulated other comprehensive (loss) income $ 16,838 $ (14,389 )


	For the Years Ended
	January 29,		January 30,
	2011		2010
	(In thousands)

Net unrealized loss onavailable-for-sale securities, net of tax(1)	$	—	$	(6,401	)
Foreign currency translation adjustment		28,072		23,239

Accumulated other comprehensive income	$	28,072	$	16,838


(1)		~~Amounts are~~Amount is shown net of tax of $3.9 million ~~and $13.4 million~~ for Fiscal ~~2009 and Fiscal 2008, respectively.~~2009.


11.	Share-Based Payments

~~At January 30, 2010, the Company had awards outstanding under three share-based compensation plans, which are described below.~~

The Company accounts for share-based compensation under the provisions of ASC 718,Compensation — Stock Compensation(“ASC 718”), which requires the Company to measure and recognize compensation expense for all share-based payments at fair value. Total share-based compensation expense included in the Consolidated Statements of Operations for Fiscal 2010, Fiscal 2009 and Fiscal 2008 ~~and Fiscal 2007~~ was ~~$36.9~~$25.5 million ($~~22.8~~15.7 million, net of tax), ~~$20.3~~$34.6 million ($~~12.5~~21.4 million, net of tax) and ~~$33.7~~$18.7 million ($~~20.7~~11.5 million, net of tax), respectively.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ASC 718 requires recognition of compensation cost under a non-substantive vesting period ~~approach.~~approach for awards containing provisions that accelerate or continue vesting upon retirement. Accordingly, for awards with such provisions, the Company recognizes compensation expense over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. Additionally, for awards granted to retirement eligible employees, the full compensation cost of an award must be recognized immediately upon grant.

At January 29, 2011, the Company had awards outstanding under three share-based compensation plans, which are described below.

Share-based compensation plans

1994 Stock Option Plan

On February 10, 1994, the Company’s Board adopted the American Eagle Outfitters, Inc. 1994 Stock Option Plan (the “1994 Plan”). The 1994 Plan provided for the grant of 12.2 million incentive or non-qualified options to purchase common stock. The 1994 Plan was subsequently amended to increase the shares available for grant to 24.3 million shares. Additionally, the amendment provided that the maximum number of options that may be granted to any individual may not exceed 8.1 million shares. The options granted under the 1994 Plan were approved by the Compensation Committee of the Board, primarily vest over five years, and expire 10 years from the date of grant. The 1994 Plan terminated on January 2, 2004 with all rights of the optionees and all unexpired options continuing in force and operation after the termination.

1999 Stock Incentive Plan

The 1999 Stock Option Plan (the “1999 Plan”) was approved by the stockholders on June 8, 1999. The 1999 Plan authorized 18.0 million shares for issuance in the form of stock options, stock appreciation rights (“SAR”), restricted stock awards, performance units or performance shares. The 1999 Plan was subsequently amended to increase the shares available for grant to 33.0 million. Additionally, the 1999 Plan provided that the maximum number of shares awarded to any individual may not exceed 9.0 million shares. The 1999 Plan allowed the Compensation Committee to determine which employees and consultants received awards and the terms and conditions of these awards. The 1999 Plan provided for a grant of 1,875 stock options quarterly (not to be adjusted for stock splits) to each director who is not an officer or employee of the Company starting in August 2003. The Company ceased making these quarterly stock option grants in June 2005. Under this plan, 33.2 million ~~non-~~

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~qualified~~non-qualified stock options and 6.7 million shares of restricted stock were granted to employees and certain non-employees (without considering cancellations to date of awards for 7.9 million shares). Approximately 33% of the options granted were to vest over eight years after the date of grant but were accelerated as the Company met annual performance goals. Approximately 34% of the options granted under the 1999 Plan vest over three years, 23% vest over five years and the remaining grants vest over one year. All options expire after 10 years. Performance-based restricted stock was earned if the Company met established performance goals. The 1999 Plan terminated on June 15, 2005 with all rights of the awardees and all unexpired awards continuing in force and operation after the termination.

2005 Stock Award and Incentive Plan

The 2005 Plan was approved by the stockholders on June 15, 2005. The 2005 Plan authorized 18.4 million shares for issuance, of which 6.4 million shares are available for full value awards in the form of restricted stock awards, restricted stock units or other full value stock awards and 12.0 million shares are available for stock options, SAR, dividend equivalents, performance awards or other non-full value stock awards. The 2005 Plan was subsequently amended ~~and restated on June 16,~~in Fiscal 2009 to ~~among other things,~~ increase the shares available for grant to 31.9 million ~~effective as of January 31, 2009~~ without taking into consideration of 9.1 million non-qualified stock options, 2.9 million shares of restricted stock and 0.2 million shares of common stock that had been previously granted under the 2005 plan to employees and

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

directors (without considering cancellations as of January 31, 2009 of awards for 2.9 million shares). The 2005 Plan provides that the maximum number of shares awarded to any individual may not exceed 6.0 million shares per year for options and SAR and no more than 4.0 million shares may be granted with respect to each of restricted shares of stock and restricted stock units plus any unused carryover limit from the previous year. The 2005 Plan allows the Compensation Committee of the Board to determine which employees receive awards and the terms and conditions of the awards that are mandatory under the 2005 Plan. The 2005 Plan provides for grants to directors who are not officers or employees of the Company, which are not to exceed 20,000 shares per year (not to be adjusted for stock splits). Through January ~~30, 2010, 12.6~~29, 2011, 14.4 million non-qualified stock options, ~~4.6~~7.2 million shares of restricted stock and ~~0.2~~0.4 million shares of common stock had been granted under the 2005 Plan to employees and directors (without considering cancellations to date of awards for ~~4.6~~7.0 million shares). Approximately 99% of the options granted under the 2005 Plan vest over three years and 1% vest over five years. Options were granted for ten and seven year terms. Approximately ~~97%~~65% of the restricted stock awards are performance-based and are earned if the Company meets established performance goals. The remaining 3%35% of the restricted stock awards are time-based and vest over three years.

Stock Option Grants

The Company grants both time-based and performance-based stock options under the 2005 Plan. Time-based stock option awards vest over the requisite service period of the award or to an employee’s eligible retirement date, if earlier. Performance-based stock option awards vest over three years and are earned if the Company meets pre-established performance goals during each year.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

A summary of the Company’s stock option activity under all plans for Fiscal ~~2009~~2010 follows:

For the Year Ended January 30, 2010
Weighted-

Weighted-
Average

Average
Remaining
Aggregate

Exercise
Contractual
Intrinsic

Options Price Life Value
(In Years) (In thousands)

Outstanding — January 31, 2009 14,496,734 $ 15.25
Granted 3,402,609 $ 11.34
Exercised(1) 1,463,897 $ 7.08
Cancelled 1,530,504 $ 16.70

Outstanding — January 30, 2010 14,904,942 $ 15.01 3.8 $ 60,091

Vested and expected to vest — January 30, 2010 14,546,241 $ 14.99 3.8 $ 58,809

Exercisable — January 30, 2010 5,031,264 $ 7.13 2.1 $ 44,063


	For the Year Ended January 29, 2011
					Weighted-
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Life		Value
					(In Years)		(In thousands)

Outstanding — January 30, 2010		14,904,942	$	15.01
Granted		1,763,562	$	17.04
Exercised(1)		1,307,881	$	8.60
Cancelled/Forfeited		3,236,167	$	15.80

Outstanding — January 29, 2011		12,124,456	$	15.25		3.5	$	34,921

Vested and expected to vest — January 29, 2011		11,877,942	$	15.27		3.5	$	34,336

Exercisable — January 29, 2011		3,612,641	$	6.92		2.0	$	27,607


(1)		Options exercised during Fiscal ~~2009~~2010 ranged in price from ~~$4.68~~$4.54 to ~~$13.46.~~$17.51.

The weighted-average grant date fair value of stock options granted during Fiscal 2010, Fiscal 2009 and Fiscal 2008 was $5.19, $3.86 and ~~Fiscal 2007 was $3.86,~~ $7.16, ~~and $10.64,~~ respectively. The aggregate intrinsic value of options exercised during Fiscal 2010, Fiscal 2009 and Fiscal 2008 ~~and Fiscal 2007~~ was $11.7 million, ~~$3.9~~$11.7 million and ~~$22.5~~$3.9 million, respectively. Cash received from the exercise of stock options and the actual tax benefit realized from share-based payments was $7.3 million and $15.6 million, respectively, for Fiscal 2010. Cash received from the exercise of stock ~~option exercises were $7.6~~options and the actual tax benefit realized from share-based payments was $9.0 million and $8.0 million, respectively, for Fiscal 2009. Cash received from the exercise of stock options and the actual tax benefit realized from ~~stock option exercises were~~share-based payments was $3.8 million and $1.1 million, respectively, for Fiscal 2008. ~~Cash received from the exercise of stock options and the actual tax benefit realized from stock option exercises were $13.2 million and $7.3 million, respectively, for Fiscal 2007.~~

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
Black-Scholes Option Valuation Assumptions	2010			2009			2008			2011			2010			2009

Risk-free interest rates(1)		1.7	%		2.5	%		4.5	%		2.3	%		1.7	%		2.5	%
Dividend yield		3.4	%		1.7	%		0.9	%		2.1	%		3.4	%		1.7	%
Volatility factors of the expected market price of the Company’s common stock(2)		56.9	%		44.4	%		39.2	%		40.2	%		56.9	%		44.4	%
Weighted-average expected term(3)		4.1	years		4.3	years		4.4	years		4.5	years		4.1	years		4.3	years
Expected forfeiture rate(4)											8.0	%		8.0	%		8.0	%


(1)		Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.

(2)		Based on a combination of historical volatility of the Company’s common stock and implied volatility.

(3)		Represents the period of time options are expected to be outstanding. The weighted average expected option term for the years ended January 29, 2011, January 30, 2010 and January 31, 2009 were determined based on historical experience. The weighted average expected option terms for the year ended February 2, 2008 was determined using a combination of the “simplified method” for plain vanilla options as allowed by ASC 718, and past behavior. The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.

(4)		Based on historical experience.

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

As of January ~~30, 2010,~~29, 2011, there was ~~$8.5~~$4.1 million of unrecognized compensation expense related to nonvested stock option awards that is expected to be recognized over a weighted average period of ~~1.4~~1.5 years.

Restricted Stock Grants

Time-based restricted stock awards include two types of awards; time-based restricted stock and time-based restricted stock units. Time-based restricted stock awards vest over three years and participate in nonforfeitable dividends. Time-based restricted stock units vest over three years, however, they may be accelerated to vest over one year if the Company meets pre-established performance goals in the year of grant. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

Performance-based restricted stock awards include two types of awards; performance-based restricted stock and performance-based restricted stock units. Performance-based restricted stock awards vest over one year based upon the Company’s achievement of pre-established goals and participate in nonforfeitable dividends. Performance-based restricted stock units cliff vest at the end of a three year period based upon the Company’s achievement of pre-established goals. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions as the original award.

The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant. Historically, the Company has granted only restricted stock awards that entitled the holders to receive nonforfeitable dividends prior to vesting. Beginning with ~~the~~ Fiscal 2009 restricted stock awards, the Company began to also grant restricted stock unit awards to its employees. The restricted stock unit awards differ from the restricted stock awards in that they do not contain nonforfeitable rights to dividends and are therefore not considered participating securities in accordance withASC260-10-45.

~~A summary of the activity of the Company’s restricted stock is presented in the following tables.~~

Time-Based Restricted Stock Performance-Based Restricted Stock
For the Year Ended
For the Year Ended

January 30, 2010 January 30, 2010
Weighted-Average
Weighted-Average

Grant Date
Grant Date

Shares Fair Value Shares Fair Value

Nonvested — January 31, 2009 41,000 $ 19.97 757,812 $ 21.26
Granted 1,883 13.28 989,664 9.66
Vested (41,000 ) 19.97 — —
Cancelled — — (757,812 ) 21.26

Nonvested — January 30, 2010 1,883 $ 13.28 989,664 $ 9.66

Performance-Based Restricted

Time-Based Restricted Stock Units Stock Units
For the Year Ended
For the Year Ended

January 30, 2010 January 30, 2010
Weighted-Average
Weighted-Average

Grant Date
Grant Date

Shares Fair Value Shares Fair Value

Nonvested — January 31, 2009 — $ — — $ —
Granted 1,855,618 9.79 417,101 9.82
Vested — — — —
Cancelled (187,526 ) 9.66 (10,870 ) 9.66

Nonvested — January 30, 2010 1,668,092 $ 9.79 406,231 $ 9.82

6361

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the activity of the Company’s restricted stock is presented in the following tables:


	Time-Based Restricted Stock				Performance-Based Restricted Stock
	For the Year Ended				For the Year Ended
	January 29, 2011				January 29, 2011
			Weighted-Average					Weighted-Average
			Grant Date					Grant Date
	Shares		Fair Value		Shares			Fair Value

Nonvested — January 30, 2010		1,883	$	13.28		989,664		$	9.66
Granted		—		—		—			—
Vested		—		—		(989,664	)		9.66
Cancelled/Forfeited		1,883		13.28		—			—

Nonvested — January 29, 2011		—	$	—		—		$	—


						Performance-Based Restricted
	Time-Based Restricted Stock Units					Stock Units
	For the Year Ended					For the Year Ended
	January 29, 2011					January 29, 2011
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value

Nonvested — January 30, 2010		1,668,092		$	9.79		406,231		$	9.82
Granted		1,098,844			17.39		312,363			17.24
Vested		(1,650,077	)		9.79		—			—
Cancelled/Forfeited		(239,839	)		16.60		(88,977	)		16.26

Nonvested — January 29, 2011		877,020		$	17.45		629,617		$	12.59

As of January ~~30, 2010,~~29, 2011, there was ~~$2.1~~$10.6 million of unrecognized compensation expense related to nonvested restricted stock awards that is expected to be recognized over a weighted average period of ~~one month.~~two years. The total fair value of restricted stock awards vested during Fiscal 2010, Fiscal 2009 and Fiscal 2008 ~~and Fiscal 2007~~ was $9.6 million, $0.6 million ~~$9.6 million~~ and ~~$32.6~~$9.6 million, respectively.

As of January ~~30, 2010,~~29, 2011, the Company had ~~28.4~~25.7 million shares available for all equity grants.


12.	Retirement Plan and Employee Stock Purchase Plan

The Company maintains a profit sharing and 401(k) plan (the “Retirement Plan”). Under the provisions of the Retirement Plan, full-time employees and part-time employees are automatically enrolled to contribute 3% of their salary if they have attained 201/2 years of age. In addition, full-time ~~employee~~employees need to have completed 60 days of service and part-time employees must complete 1,000 hours worked to be eligible. Individuals can decline enrollment or can contribute up to 50% of their salary to the 401(k) plan on a pretax basis, subject to IRS limitations. After one year of service, the Company will match 100% of the first 3% of pay plus an additional 50% of the next 3% of pay that is contributed to the plan. Contributions to the profit sharing plan, as determined by the Board, are discretionary. The Company recognized ~~$7.2~~$11.7 million, ~~$6.3~~$5.9 million and ~~$6.1~~$5.1 million in expense during Fiscal 2010, Fiscal 2009 and Fiscal 2008, ~~and Fiscal 2007,~~ respectively, in connection with the Retirement Plan.

The Employee Stock Purchase Plan is a non-qualified plan that covers all full-time employees and part-time employees who are at least 18 years old and have completed 60 days of service. Contributions are determined by the employee, with the Company matching 15% of the investment up to a maximum investment of $100 per pay period. These contributions are used to purchase shares of Company stock in the open market.

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	Income Taxes

The components of income before income taxes from continuing operations were:


	For the Years Ended						For the Years Ended
	January 30,		January 31,		February 2,		January 29,		January 30,		January 31,
	2010		2009		2008		2011		2010		2009
	(In thousands)						(In thousands)

U.S.	$	197,948	$	244,629	$	568,519	$	258,408	$	269,932	$	325,287
Foreign		34,443		52,412		67,862		36,676		34,443		52,412

Total	$	232,391	$	297,041	$	636,381	$	295,084	$	304,375	$	377,699

~~AMERICAN EAGLE OUTFITTERS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The significant components of the Company’s deferred tax assets and liabilities were as follows:


	January 30,			January 31,			January 29,			January 30,
	2010			2009			2011			2010
	(In thousands)						(In thousands)

Deferred tax assets:
Deferred compensation	$	36,018		$	21,492		$	30,801		$	36,018
Tax credits		31,756			4,217
Foreign tax credits								25,498			26,745
Rent		24,498			22,207			25,145			24,498
Investment securities								20,381			10,677
Inventories		11,422			14,828			10,432			11,422
Investment securities		10,677			8,721
Foreign and state income taxes								7,575			7,484
State tax credits								5,866			5,011
Employee compensation and benefits		10,669			3,677			4,942			10,669
Foreign and state income taxes		7,484			12,984
Temporary impairment of investment securities		3,911			13,446
Other		8,384			10,158			8,547			12,295

Gross deferred tax assets		144,819			111,730			139,187			144,819
Valuation allowance		(15,688	)		(12,933	)		(20,381	)		(15,688	)

Total deferred tax assets	$	129,131		$	98,797		$	118,806		$	129,131

Deferred tax liabilities:
Property and equipment	$	(37,896	)	$	(36,641	)	$	(47,852	)	$	(37,896	)
Prepaid expenses		(3,774	)		(1,708	)		(3,279	)		(3,774	)

Total deferred tax liabilities	$	(41,670	)	$	(38,349	)	$	(51,131	)	$	(41,670	)

Total deferred tax assets, net	$	87,461		$	60,448		$	67,675		$	87,461

Classification in the Consolidated Balance Sheet
Classification in the Consolidated Balance Sheet:
Current deferred tax assets	$	60,156		$	45,447		$	48,059		$	60,156
Noncurrent deferred tax assets		27,305			15,001			19,616			27,305

Total deferred tax assets	$	87,461		$	60,448		$	67,675		$	87,461

The net ~~increase~~decrease in deferred tax assets and liabilities was primarily due to an increase in the deferred tax ~~asset~~liability for ~~tax credit carryovers associated with the repatriation of earnings from Canada~~property and ~~an increase in the deferred tax asset for deferred compensation.~~equipment basis differences.

6563

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant components of the provision for income taxes from continuing operations were as follows:


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009
	(In thousands)									(In thousands)

Current:
Federal	$	73,095		$	69,592		$	172,604		$	89,110		$	92,074		$	94,328
Foreign taxes		14,526			16,341			24,030			13,429			14,526			16,341
State		11,948			7,578			27,987			9,610			13,575			9,698

Total current		99,569			93,511			224,621			112,149			120,175			120,367

Deferred:
Federal		(38,810	)		21,927			10,306		$	(310	)	$	(32,361	)	$	24,579
Foreign taxes		6,513			(340	)		(2,077	)		(991	)		6,513			(340	)
State		(3,903	)		2,882			3,512			2,302			(3,350	)		3,109

Total deferred		(36,200	)		24,469			11,741			1,001			(29,198	)		27,348

Provision for income taxes	$	63,369			117,980		$	236,362		$	113,150		$	90,977		$	147,715

As a result of additional tax deductions related to share-based payments, tax benefits have been recognized as contributed capital for Fiscal 2010, Fiscal 2009 and Fiscal 2008 ~~and Fiscal 2007~~ in the amounts of $15.6 million, $8.0 million ~~$1.1 million~~ and ~~$7.3~~$1.1 million, respectively.

During Fiscal 2009, the Company approved and repatriated $91.7 million from its Canadian subsidiaries. The proceeds from the repatriation were used for general corporate purposes. ~~We plan~~The Company plans to indefinitely reinvest accumulated earnings of our Canadian subsidiaries outside of the United States to the extent not repatriated in Fiscal 2009. Accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, wethe Company would be subject to income and withholding taxes offset by foreign tax credits. As of January 29, 2011 and January 30, 2010, the unremitted earnings of our Canadian subsidiaries were $57.1 million (USD) and $28.0 ~~million.~~million (USD), respectively.

As of January ~~30, 2010,~~29, 2011, the gross amount of unrecognized tax benefits was ~~$31.6~~$31.1 million, of which ~~$23.4~~$22.7 million would affect the effective income tax rate if recognized. The gross amount of unrecognized tax benefits as of January ~~31, 2009~~30, 2010 was ~~$41.1~~$31.6 million, of which ~~$23.1~~$23.4 million would affect the effective income tax rate if recognized.

The following table summarizes the activity related to our unrecognized tax benefits:


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009
	(In thousands)									(In thousands)

Unrecognized tax benefits, beginning of the year balance	$	41,080		$	42,953		$	39,311		$	31,649		$	41,080		$	42,953
Increases in tax positions of prior periods		1,679			205			2,562			1,069			1,679			205
Decreases in tax positions of prior periods		(13,471	)		(1,705	)		(5,026	)		(3,801	)		(13,471	)		(1,705	)
Increases in current period tax positions		14,842			4,221			8,057			2,707			14,842			4,221
Settlements		(6,204	)		(4,529	)		(1,764	)		(6	)		(6,204	)		(4,529	)
Lapse of statute of limitations		(6,291	)		(30	)		(187	)		(510	)		(6,291	)		(30	)
Translation adjustment		14			(35	)		—			—			14			(35	)

Unrecognized tax benefits, end of the year balance	$	31,649		$	41,080		$	42,953		$	31,108		$	31,649		$	41,080

6664

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unrecognized tax benefits decreased by ~~$9.5~~$0.5 million and ~~$1.9~~$9.5 million during Fiscal ~~2009~~2010 and ~~2008,~~2009, respectively. The ~~decreases were~~decrease in Fiscal 2009 was primarily due to federal and state income tax settlements and statute of limitation lapses. The Company does not anticipate any significant changes to the unrecognized tax benefits recorded at the balance sheet date over the next twelve months.

The Company records accrued interest and penalties related to unrecognized tax benefits in ~~the provision for~~ income ~~taxes.~~tax expense. Accrued interest and penalties related to unrecognized tax benefits included in the Consolidated Balance Sheet were ~~$7.0~~$7.6 million and ~~$11.4~~$7.0 million as of January ~~30, 2010~~29, 2011 and January ~~31, 2009,~~30, 2010, respectively. During Fiscal 2009, the Company recognized a net benefit of $3.3 million in the provision for income taxes related to the reversal of accrued interest and penalties primarily due to federal and state income tax settlements. An immaterial amount of interest and penalties were recognized in the provision for income taxes during Fiscal ~~2008~~2010 and ~~2007.~~Fiscal 2008.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal Revenue Service (“IRS”) examination of the Company’s U.S. federal income tax returns for the tax years ended July 2006 and July 2007 were completed in November of 2009. ~~Additionally, the previously unagreed item for the tax years ended July 2003 to July 2005 was resolved through a review and agreement with IRS Appeals during Fiscal 2009.~~ Accordingly, all years prior to July 2008 are no longer subject to U.S. federal income tax examinations by tax authorities. During Fiscal ~~2009,~~2008, the Company changed its tax year end to a 52/53 week year that ends on the Saturday nearest January 31 from the Saturday nearest July 31 to conform to its financial statement year end. This change was effective for the tax year ended January 31, 2009. An IRS examination of the July 2008 and January 2009 federal income tax returns is scheduled to ~~begin~~be completed in ~~the first quarter of~~ Fiscal ~~2010.~~2011. The Company does not anticipate that any adjustments will result in a material change to its financial position, results of operations or cash flow. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for tax years before ~~2003.~~2004. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result from these years.

The Company has foreign tax credit carryovers ~~associated with the repatriation of earnings from Canada~~ in the amount of ~~$26.8~~$25.5 million and $26.7 million as of January 29, 2011 and January 30, ~~2010.~~2010, respectively. The foreign tax credit carryovers expire in Fiscal 2019 to the extent not utilized. No valuation allowance has been recorded on the foreign tax credit carryovers because we believe it is more likely than not the foreign tax credits will be utilized prior to expiration.

The Company has been certified to qualify for nonrefundable incentive tax credits in Kansas for additional expenditures related to the Ottawa, Kansas distribution center. As a result, the Company has a deferred tax asset related to Kansas tax credit carryforwards of ~~$5.0~~$5.9 million (net of federal income taxes). as of January 29, 2011. These tax credits can be utilized to offset future Kansas income taxes and will generally expire in ~~eight~~seven years. ~~The use~~Due to a favorable incentive agreement with the Kansas Department of ~~these tax credits is dependent upon the level of income tax due to Kansas and~~Commerce in Fiscal 2010, the Company ~~meeting certain requirements in future periods. Due to~~released the ~~contingencies~~valuation allowance that had been previously recorded related to the ~~future use of these~~Company’s Kansas tax ~~credits, we believe it is more likely than not that the full benefit of this~~credit carryforward. A deferred tax asset ~~will not be realized within the carryforward period. Thus, a valuation allowance~~ of $5.0 million ~~(net of federal income taxes) has been~~with an offsetting full valuation allowance was recorded as of January 30, ~~2010. The valuation allowance recorded as of January 31, 2009 was $3.8 million. The Company may earn additional~~2010 related to the Kansas tax ~~credits or change its assessment of the valuation allowance if certain employment and training requirements are met.~~credit carryforward.

During Fiscal ~~2009~~2010 and ~~2008,~~2009, the Company recorded a valuation allowance against deferred tax assets arising from the disposition or other than temporary impairment ~~or disposition~~ of certain investment securities. The disposition of the investment securities results in a capital loss that can only be utilized to the extent of capital gains. These capital losses are subject to a three year carryback period and a five year carryforward period for tax purposes. The capital losses generally will expire in Fiscal ~~2014.~~2013 through Fiscal 2015. Due to the contingencies related to the future use of these capital losses, we believe it is more likely than not that the full benefit of this asset will not be realized within the carryforward period. Thus, the Company has recorded a valuation allowance against the deferred tax assets arising from the other than temporary impairment or disposition of these investment securities. The valuation allowance related to these investment securities was ~~$10.7~~$20.4 million and ~~$9.1~~$10.7 million as of January 29, 2011 and January 30, 2010, ~~and January 31, 2009,~~ respectively.

6765

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~The~~During Fiscal 2009, the Company ~~has~~did not ~~recorded~~record a valuation allowance on the temporary impairment of the investment securities recorded in other comprehensive income. ~~The Company believes this~~This treatment iswas consistent with the Company’s intent and ability to hold ~~the~~ debt securities to recovery.

A reconciliation between the statutory federal income tax rate and the effective income tax rate from continuing operations follows:


	For the Years Ended									For the Years Ended
	January 30,			January 31,			February 2,			January 29,			January 30,			January 31,
	2010			2009			2008			2011			2010			2009

Federal income tax rate		35	%		35	%		35	%		35	%		35	%		35	%
State income taxes, net of federal income tax effect		3			3			3			3			3			3
Valuation allowance increase, net											1			1			2
Tax settlements											(1	)		(4	)		—
Canadian earnings repatriation		(7	)		—			—			—			(5	)		—
Tax settlements		(5	)		—			—
Valuation allowance on ARS and ARPS impairment		1			3
Tax impact of tax exempt interest		—			(1	)		(1	)		—			—			(1	)

		27	%		40	%		37	%		38	%		30	%		39	%


14.	~~Quarterly Financial Information — Unaudited~~

~~The sum of the quarterly EPS amounts may not equal the full year amount as the computations of the weighted average shares outstanding for each quarter and the full year are calculated independently.~~

Fiscal 2009
Quarters Ended
May 2,
August 1,
October 31,
January 30,
2009 2009 2009 2010
(In thousands, except per share amounts)

Net sales $ 611,986 $ 657,596 $ 748,962 $ 971,976
Gross profit 220,925 248,833 300,128 388,163
Net income 21,967 28,572 59,159 59,324
Income per common share — basic 0.11 0.14 0.29 0.29
Income per common share — diluted 0.11 0.14 0.28 0.28

Fiscal 2008
Quarters Ended
May 3,
August 2,
November 1,
January 31,
2008 2008 2008 2009
(In thousands, except per share amounts)

Net sales $ 640,302 $ 688,815 $ 754,036 $ 905,713
Gross profit 263,667 289,384 309,412 311,638
Net income 43,895 59,831 42,604 32,731
Income per common share — basic 0.21 0.29 0.21 0.16
Income per common share — diluted 0.21 0.29 0.21 0.16


~~15.~~	~~Subsequent Event~~Discontinued Operations

On March 5, 2010, the Company’s Board approved management’s recommendation to proceed with the closure of the M+O brand. The Company notified employees and issued a press release announcing this decision on March 9, 2010. The decision to take this action resulted from an extensive evaluation of the brand and review of strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment. The Company completed the closure of the M+O stores ande-commerce operation during the second quarter of Fiscal 2010 and the Consolidated Financial Statements reflect the results of M+O as discontinued operations for all periods presented.

Costs associated with exit or disposal activities are recorded when incurred. A summary of the exit and disposal costs recognized within Loss from Discontinued Operations on the Consolidated Income Statement for Fiscal 2010 are included in the table as follows. There were no exit or disposal costs recognized in Fiscal 2009 or Fiscal 2008. The Loss from Discontinued Operations for Fiscal 2009 and Fiscal 2008 includes pre-tax asset impairment charges of $18.0 million and $6.7 million, respectively.


	For the Year Ended
	January 29,
	2011
	(In thousands)

Non-cash charges
Asset impairments	$	17,980
Cash charges
Lease-related charges(1)		15,377
Inventory charges		2,422
Severence charges		7,660

Total charges	$	43,439


(1)		Presented net of the reversal of non-cash lease credits.

6866

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~strategic alternatives, which revealed that it was not achieving performance levels that warranted further investment.~~

A rollforward of the liabilities recognized in the Consolidated Balance Sheet is as follows:


	January 29,
	2011
	(In thousands)

Accrued liability as of January 30, 2010	$	—
Add: Costs incurred, excluding non-cash charges		30,879
Less: Cash payments		(30,879	)

Accrued liability as of Janaury 29, 2011	$	—

As a result of this decision, the Company plans to close all 28 stores and cease all online and corporate operations of M+O in Fiscal 2010. The timing of the store closures is dependent on a number of factors that include negotiating third-party agreements, adherence to notification requirements and local laws.

In conjunction with the closing of M+O, the Company expects the Fiscal 2010 cash outflow, net of associated tax benefits, to be approximately $10 million to $40 million. This is comprised of estimated pre-tax charges of approximately $32 million to $77 million, which includes lease-related items of approximately $18 million to $63 million, severance of approximately $10 million and other charges of approximately $4 million. Additionally, the Company estimates approximately $29 million of non-cash, pre-tax impairment charges and inventory write downs. These charges are expected to be recognized primarily over the first half of Fiscal 2010.

The ~~above estimates are preliminary~~table below presents the significant components of M+O’s results included in Loss from Discontinued Operations on the Consolidated Statements of Operations for the years ended January 29, 2011 and ~~based on a number of significant assumptions~~January 30, 2010 and ~~could change materially.~~January 31, 2009, respectively.


	For the Years Ended
	January 29,			January 30,			January 31,
	2011			2010			2009
	(In thousands)

Net sales	$	21,881		$	50,251		$	40,187

Loss from discontinued operations, before income taxes	$	(66,959	)	$	(71,984	)	$	(80,658	)
Income tax benefit		25,672			27,608			29,735

Loss from discontinued operations, net of tax	$	(41,287	)	$	(44,376	)	$	(50,923	)

Loss per common share from discontinued operations:
Basic	$	(0.21	)	$	(0.22	)	$	(0.25	)
Diluted	$	(0.20	)	$	(0.21	)	$	(0.25	)

~~Refer to Note 2 to~~The major classes of assets and liabilities included in the Consolidated ~~Financial Statements~~Balance Sheets for ~~additional information regarding~~ M+O ~~store impairments previously recorded.~~as of January 29, 2011 and January 30, 2010 is as follows:


	January 29,		January 30,
	2011		2010
	(In thousands)

Current assets	$	—	$	13,378
Non-current assets		—		21,227

Total assets	$	—	$	34,605

Total current liabilities	$	—	$	6,110
Total non-current liabilities		—		4,604

Total liabilities	$	—	$	10,714

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


15.	Quarterly Financial Information — Unaudited

The sum of the quarterly EPS amounts may not equal the full year amount as the computations of the weighted average shares outstanding for each quarter and the full year are calculated independently.


	Fiscal 2010
	Quarters Ended
	May 1,			July 31,			October 30,			January 29,
	2010			2010			2010			2011
	(In thousands, except per share amounts)

Net sales	$	648,462		$	651,502		$	751,507		$	916,088

Gross profit	$	257,696		$	239,708		$	312,309		$	361,246

Income from continuing operations		35,862			25,843			33,191			87,038
Loss from discontinued operations		(24,940	)		(16,180	)		(167	)		—

Net income	$	10,922		$	9,663		$	33,024		$	87,038

Basic per common share amounts:
Income from continuing operations	$	0.17		$	0.13		$	0.17		$	0.45
Loss from discontinued operations		(0.12	)		(0.08	)		—			—

Basic income per common share	$	0.05		$	0.05		$	0.17		$	0.45

Diluted per common share amounts:
Income from continuing operations	$	0.17		$	0.13		$	0.17		$	0.44
Loss from discontinued operations		(0.12	)		(0.08	)		—			—

Diluted income per common share	$	0.05		$	0.05		$	0.17		$	0.44


	Fiscal 2009
	Quarters Ended
	May 2,			August 1,			October 31,			January 30,
	2009			2009			2009			2010
	(In thousands, except per share amounts)

Net sales	$	601,679		$	646,798		$	736,011		$	955,781

Gross profit	$	223,603		$	253,898		$	304,175		$	391,754

Income from continuing operations		29,076			36,757			67,948			79,617
Loss from discontinued operations		(7,109	)		(8,185	)		(8,789	)		(20,293	)

Net income	$	21,967		$	28,572		$	59,159		$	59,324

Basic per common share amounts:
Income from continuing operations	$	0.14		$	0.18		$	0.33		$	0.39
Loss from discontinued operations		(0.03	)		(0.04	)		(0.04	)		(0.10	)

Basic income per common share	$	0.11		$	0.14		$	0.29		$	0.29

Diluted per common share amounts:
Income from continuing operations	$	0.14		$	0.18		$	0.32		$	0.38
Loss from discontinued operations		(0.03	)		(0.04	)		(0.04	)		(0.10	)

Diluted income per common share	$	0.11		$	0.14		$	0.28		$	0.28


16.	Subsequent Event

The Company has evaluated the existence of subsequent events through the filing date of this Annual Report onForm 10-K.

6968


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.*

None.


ITEM 9A.	*CONTROLS AND PROCEDURES.*

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of American Eagle Outfitters, Inc. (the “Management”), including our Principal Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Annual Report onForm 10-K as of January ~~30, 2010,~~29, 2011, an evaluation was performed under the supervision and with the participation of our Management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined inRule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report onForm 10-K.

Management’s Annual Report on Internal Control Over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide a reasonable assurance to our Management and our Board regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our Management assessed the effectiveness of our internal control over financial reporting as of January ~~30, 2010.~~29, 2011. In making this assessment, our Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this assessment, our Management concluded that we maintained effective internal control over financial reporting as of January ~~30, 2010.~~29, 2011.

The Company’s independent registered public accounting firm that audited the financial statements included in this Annual Report issued an attestation report on the Company’s internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended January ~~30, 2010~~29, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

7069

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

American Eagle Outfitters, Inc.

We have audited American Eagle Outfitters, Inc.’s internal control over financial reporting as of January ~~30, 2010,~~29, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). American Eagle Outfitters, Inc.’s ~~(the Company)~~ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, American Eagle Outfitters, Inc. maintained, in all material respects, effective internal control over financial reporting as of January ~~30, 2010,~~29, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of American Eagle Outfitters, Inc. as of January ~~30, 2010~~29, 2011 and January ~~31, 2009~~30, 2010 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended January ~~30, 2010~~29, 2011 of American Eagle Outfitters, Inc. and our report dated March ~~26, 2010~~11, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

March ~~26, 2010~~11, 2011

7170


ITEM 9B.	*OTHER INFORMATION.*

Not applicable.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.*

The information appearing under the captions “Proposal One: Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Information,” and ~~“Information Concerning the Board of Directors”~~“Board Committees” in our Proxy Statement relating to our ~~2010~~2011 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 11.	*EXECUTIVE COMPENSATION.*

The information appearing under the caption “Compensation Discussion and Analysis,” “Executive Officer Compensation,” “Director Compensation,” and ~~“Information Concerning the Board of Directors”~~“Compensation Committee Interlocks and Insider Participation” in our Proxy Statement relating to our ~~2010~~2011 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.*

The information appearing under the captions “Security Ownership of Principal Stockholders and Management” in our Proxy Statement relating to our ~~2010~~2011 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.*

The information appearing under the caption “Certain Relationships and Related Transactions” and ~~“Information Concerning the Board of Directors”~~“Board Committees” in our Proxy Statement relating to our ~~2010~~2011 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES.*

The information appearing under the caption “Independent Registered Public Accounting Firm Fees and Services” in our Proxy Statement relating to our ~~2010~~2011 Annual Meeting of Stockholders is incorporated herein by reference.

PART IV


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.*

(a)(1) The following consolidated financial statements are included in Item 8:

Consolidated Balance Sheets as of January ~~30, 2010~~29, 2011 and January ~~31, 2009~~30, 2010

Consolidated Statements of Operations for the fiscal years ended January 29, 2011, January 30, 2010, and January 31, 2009 ~~and February 2, 2008~~

Consolidated Statements of Comprehensive Income for the fiscal years ended January 29, 2011, January 30, 2010, and January 31, 2009 ~~and February 2, 2008~~

Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 29, 2011, January 30, 2010, and January 31, 2009 ~~and February 2, 2008~~

Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2011, January 30, 2010, and January 31, 2009 ~~and February 2, 2008~~

Notes to Consolidated Financial Statements

(a)(2) Financial statement schedules have been omitted because either they are not required or are not applicable or because the information required to be set forth therein is not material.


(1)		Previously filed as Exhibit 3.1 to theForm 10-Q dated August 4, 2007, filed September 6, 2007 and incorporated herein by reference.

(2)		Previously filed as Exhibit 3.1 to theForm 8-K dated November 20, 2007, filed November 26, 2007 and incorporated herein by reference.

(3)		Previously filed as Exhibit 4(a) to Registration Statement on FormS-8 (fileno. 33-79358), filed May 25, 1994, as amended onForm S-8 (fileno. 333-12643), filed September 25, 1996 andForm S-8 (file no.~~no.~~ 333-44759), filed January 22, 1998 and incorporated herein by reference.

(4)		Previously filed as Exhibit 4(a) to Registration Statement on FormS-8 (fileno. 33-79358), filed May 25, 1994 and incorporated herein by reference.

(5)		Previously filed as Exhibit 10.7 to Registration Statement on FormS-1 (fileno. 33-75294), filed February 14, 1994, as amended, and incorporated herein by reference.

(6)		Previously filed as Exhibit 4(a) to Registration Statement on FormS-8 (fileno. 33-33278), filed April 5, 1996 and incorporated herein by reference.

(7)		Previously files as Exhibit 10.5 to theForm 10-K dated February 3, 2007, filed April 4, 2007 and incorporated herein by reference.

(8)		Previously filed as Appendix A to the Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders held on May 27, 2003, filed April 14, 2003 and incorporated herein by reference.

(9)		Previously filed as Exhibit 10.12 to theForm 10-Q ~~(file no. 000-23760)~~ for the period ended July 31, 2004, filed September 3, 2004 and incorporated herein by reference.

(10)		Previously filed as Exhibit 4(a) to Registration Statement on FormS-8 (fileno. 333-121641), filed December 23, 2004, as amended and incorporated herein by reference.

(11)		Previously filed as Exhibit ~~10.1 to theForm 8-K~~ ~~dated March 21, 2007, filed March 26, 2007 and incorporated herein by reference.~~

~~(12)~~		~~Previously filed as Exhibit~~ 10.2 to theForm 8-K dated December 17, 2008, filed December 23, 2008 and incorporated herein by reference.

~~(13)~~(12)		Previously filed as Exhibit 10.1 to theForm 10-Q for the period ended October 29, 2005, filed December 5, 2005 and incorporated herein by reference.

~~(14)~~(13)		Previously filed as Exhibit 10.1 to theForm 8-K dated December 30, 2005, filed January 5, 2006 and incorporated herein by reference.

~~(15)~~(14)		Previously filed as Exhibit 10.1 to theForm 8-K dated July 12, 2006, filed July 18, 2006 and incorporated herein by reference.

~~(16)~~(15)		Previously filed as Exhibit 10.3 to theForm 8-K dated December 17, 2008, filed December 23, 2008 and incorporated herein by reference.

~~(17)~~(16)		Previously filed as Exhibit 10.1 to theForm 8-K dated May 20, 2008, filed May 23, 2008 and incorporated herein by reference.

~~(18)~~(17)		Previously filed as Exhibit 10.1 to theForm 8-K dated February 28, 2006, filed March 7, 2006 and incorporated herein by reference.

~~(19)~~(18)		Previously filed as Exhibit 10.2 to theForm 8-K dated February 28, 2006, filed March 7, 2006 and incorporated herein by reference.

~~(20)~~(19)		Previously filed as Exhibit 10.1 to theForm 8-K dated April 18, 2006, filed April 24, 2006 and incorporated herein by reference.


~~(21)~~(20)		Previously filed as Exhibit 10.1 to theForm 8-K dated August 27, 2008, filed August 29, 2008 and incorporated herein by reference.

~~(22)~~(21)		Previously filed as Exhibit 10.1 to theForm 8-K dated January 13, 2009, filed January 15, 2009 and incorporated herein by reference.

~~(23)~~(22)		Previously filed as Exhibit 10.1 to theForm 8-K dated January 20, 2009, filed January 23, 2009 and incorporated herein by reference.


~~(24)~~(23)		Previously filed as Appendix A to the Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders held on June 16, 2009 held on June 16, 2009, filed May 4, 2009 and incorporated herein by reference.

~~(25)~~(24)		Previously filed as Exhibit 10.1 to theForm 8-K dated January 11, 2010, filed January 12, 2010 and incorporated herein by reference.

(25)		Previously filed as Exhibit 10.1 to the Form 8-K dated April 21, 2010, filed April 26, 2010 and incorporated herein by reference.


ˆ		Management contract ofor compensatory plan ofor arrangement.

*		Filed herewith.

**		Furnished herewith.

(b) Exhibits

The exhibits to this report have been filed herewith.

None.

7574

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

AMERICAN EAGLE OUTFITTERS, INC.


	By:	/s/ James V. O’Donnell

James V. O’Donnell

Chief Executive Officer

Dated March ~~26, 2010~~11, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March ~~26, 2010.~~11, 2011.


Signature		Title


/s/ James V. O’Donnell James V. O’Donnell		Chief Executive Officer and Director (Principal Executive Officer)

/s/ Joan Holstein Hilson Joan Holstein Hilson		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

* Jay L. Schottenstein		Chairman of the Board and Director

* ~~Jon P. Diamond~~		~~Director~~

* Michael G. Jesselson		Director

* ~~Alan Kane~~Thomas R. Ketteler		Director

* Roger S. Markfield		Director

* Cary D. McMillan		Director

* Janice E. Page		Director

* ~~J. Thomas Presby~~		~~Director~~

* Gerald E. Wedren		Director

*By:	/s/ Joan Holstein Hilson Joan Holstein Hilson, Attorney-in-Fact

7675


		Page
		Number

PART I
	Item 1.	Business	2
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	12
	Item 2.	Properties	1312
	Item 3.	Legal Proceedings	13
	Item 4.	Reserved	13

PART II
	Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1413
	Item 6.	Selected Consolidated Financial Data	1716
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3331
	Item 8.	Financial Statements and Supplementary Data	3432
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7069
	Item 9A.	Controls and Procedures	7069
	Item 9B.	Other Information	7271

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	7271
	Item 11.	Executive Compensation	7271
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7271
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	7271
	Item 14.	Principal Accounting Fees and Services	7271

PART IV
	Item 15.	Exhibits, Financial Statement Schedules	7271
EX-10.24
EX-10.25
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


(1)		Except for the fiscal year ended February 3, 2007, which includes 53 weeks, all fiscal years presented include 52 weeks.

(2)		~~Amount~~All amounts presented are from continuing operations and exclude MARTIN+OSA’s results of operations for ~~the fiscal years ended January 30, 2010, January 31, 2009, February 2, 2008 and February 3, 2007 include proceeds from merchandise sell-offs.~~all periods. Refer to Note 214 to the accompanying Consolidated Financial Statements for additional information regarding the ~~components~~discontinued operations of ~~net sales.~~MARTIN+OSA.

(3)		The comparable store sales increase for the period ended February 2, 2008 is compared to the corresponding 52 week period in Fiscal 2006. The comparable store sales increase for the period ended February 3, 2007 is compared to the corresponding 53 week period in ~~Fiscal 2005.~~the preceding fiscal year.

(4)		All amounts presented exclude gift card service fee income, which was reclassified to other income, net during Fiscal 2006. Refer to Note 2 to the accompanying Consolidated Financial Statements for additional information regarding gift cards.

(5)		Per share results for all periods presented reflect thethree-for-two stock split distributed on December 18, 2006.

(6)		~~Amounts for the year ended January 28, 2006 reflect certain assets of NLS asheld-for-sale.~~

~~(7)~~		Net sales per average square foot is calculated using retail store sales for the year divided by the straight average of the beginning and ending square footage for the year.


	Amount of Commitment Expiration per Period
	Total Amount		Less than		1-3		3-5		More than
	Committed		1 Year		Years		Years		5 Years
	(In thousands)

Letters of credit(1)	$	51,468	$	51,468		—		—		—

Total commercial commitments	$	51,468	$	51,468		—		—		—


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.*


Report of Independent Registered Public Accounting Firm			3533
Consolidated Balance Sheets			3634
Consolidated Statements of Operations			3735
Consolidated Statements of Comprehensive Income			3836
Consolidated Statements of Stockholders’ Equity			3937
Consolidated Statements of Cash Flows			4038
Notes to Consolidated Financial Statements			4139


					Cumulative
					Unrealized			Cumulative Losses
	No. of				Losses Recognized			Recognized in			Carrying Value as of
	Issues		Par Value		in OCI			Earnings			January 30, 2010
	(In thousands, except no. of issues amount)

Auction rate securities (“ARS”):
Closed-end municipal fund ARS		5	$	17,025	$	(9	)	$	—		$	17,016
Municipal Bond ARS		5		23,675		(447	)		—			23,228
Auction rate preferred securities		2		15,000		(1,287	)		(940	)		12,773
Federally-insured student loan ARS		16		148,000		(6,012	)		—			141,988
Private-insured student loan ARS		1		10,000		(2,557	)		—			7,443

Total Auction rate securities		29	$	213,700	$	(10,312	)	$	(940	)	$	202,448


	Before			Tax			Accumulated Other
	Tax			(Expense)			Comprehensive Income
	Amount			Benefit			(Loss)
	(In thousands)

Balance at February 3, 2007	$	21,201		$	513		$	21,714
Unrealized gain on investments		1,538			(591	)		947
Reclassification adjustment for net losses realized in net income related to sale ofavailable-for-sale securities		393			(151	)		242
Foreign currency translation adjustment		12,582			—			12,582

Balance at February 2, 2008	$	35,714		$	(229	)	$	35,485

Temporary impairment related to ARS		(36,825	)		14,030			(22,795	)
Reclassification adjustment for losses realized in net income related to sale of ARS		318			(121	)		197
Reclassification adjustment for OTTI charges realized in net income related to ARS		1,214			(463	)		751
Unrealized loss on investments		(607	)		229			(378	)
Foreign currency translation adjustment		(27,649	)		—			(27,649	)

Balance at January 31, 2009	$	(27,835	)	$	13,446		$	(14,389	)

Temporary reversal of impairment related to ARS		24,041			(9,535	)		14,506
Reclassification adjustment for OTTI charges realized in net income related to ARS		940			—			940
Foreign currency translation adjustment		15,781			—			15,781

Balance at January 30, 2010	$	12,927		$	3,911		$	16,838


	For the Year Ended January 30, 2010
					Weighted-
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Life		Value
					(In Years)		(In thousands)

Outstanding — January 31, 2009		14,496,734	$	15.25
Granted		3,402,609	$	11.34
Exercised(1)		1,463,897	$	7.08
Cancelled		1,530,504	$	16.70

Outstanding — January 30, 2010		14,904,942	$	15.01		3.8	$	60,091

Vested and expected to vest — January 30, 2010		14,546,241	$	14.99		3.8	$	58,809

Exercisable — January 30, 2010		5,031,264	$	7.13		2.1	$	44,063


	Fiscal 2008
	Quarters Ended
	May 3,		August 2,		November 1,		January 31,
	2008		2008		2008		2009
	(In thousands, except per share amounts)

Net sales	$	640,302	$	688,815	$	754,036	$	905,713
Gross profit		263,667		289,384		309,412		311,638
Net income		43,895		59,831		42,604		32,731
Income per common share — basic		0.21		0.29		0.21		0.16
Income per common share — diluted		0.21		0.29		0.21		0.16


Exhibit
Number			Description

	3	.1	Amended and Restated Certificate of Incorporation, as amended(1)
	3	.2	Amended and Restated Bylaws(2)
	4	.1	See Amended and Restated Articles of Incorporation, as amended, in Exhibit 3.1 hereof
	4	.2	See Amended and Restated Bylaws in Exhibit 3.2 hereof
	10	.1ˆ	Form of the Registrant’s 1994 Stock Option Plan(3)
	10	.2ˆ	Form of Restricted Stock Agreement(4)
	10	.3	Form of Indemnification Agreement(5)
	10	.4ˆ	Employee Stock Purchase Plan(6)
	10	.5ˆ	Form of the Registrant’s 1999 Stock Incentive Plan, as amended(7)
	10	.6ˆ	Management Incentive Plan(8)
	10	.7ˆ	Employment Agreement between the Registrant and LeAnn Nealz dated March 31, 2004(9)
	10	.8ˆ	Profit Sharing and 401(k) Plan(10)
	10	.9ˆ	Employment Agreement between the Registrant and Roger S. Markfield, dated March 21, 2007(11)
	10	.10ˆ	Deferred Compensation Plan, as amended(12)
	10	.11ˆ	Employment Agreement between the Registrant and Thomas DiDonato, dated June 29, 2005(13)
	10	.12ˆ	Form of Director Deferred Compensation Agreement(14)
	10	.13ˆ	Restricted Stock Exchange and Deferral Agreement, dated July 12, 2006(15)
	10	.14ˆ	Form of 409A Addendum(16)
	10	.15ˆ	Form of Long Term Incentive Compensation Plan Confidentiality, non-solicitation, non-competition and Intellectual Property Agreement(17)
	10	.16ˆ	Employment Agreement between the Registrant and Dennis Parodi, dated February 18, 2003(18)
	10	.17ˆ	Amendment to the Employment Agreement between the Registrant and Dennis Parodi, dated February 6, 2006(19)
	10	.18ˆ	Employment Agreement between the Registrant and Joan Hilson, dated July 18, 2005(20)
	10	.19ˆ	Separation Agreement Release — Susan P. McGalla, dated August 27, 2008(21)
	10	.20ˆ	Employment Agreement between the Registrant and Roger S. Markfield, dated January 13, 2009(22)
	10	.21ˆ	Separation Agreement and Release between the Registrant and Kathy J. Savitt, dated January 20, 2009(23)
	10	.22ˆ	2005 Stock Award and Incentive Plan, as amended(24)
	10	.23ˆ	Employment Agreement between the Registrant and James V. O’Donnell, as amended, dated January 11, 2010(25)
	21*		Subsidiaries
	23*		Consent of Independent Registered Public Accounting Firm
	24*		Power of Attorney
	31	.1*	Certification by James V. O’Donnell pursuant toRule 13a-14(a) orRule 15d-14(a)
	31	.2*	Certification by Joan Holstein Hilson pursuant toRule 13a-14(a) orRule 15d-14(a)
	32	.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibit
Number		Description

	3.1	Amended and Restated Certificate of Incorporation, as amended(1)
	3.2	Amended and Restated Bylaws(2)
	4.1	See Amended and Restated Articles of Incorporation, as amended, in Exhibit 3.1 hereof
	4.2	See Amended and Restated Bylaws in Exhibit 3.2 hereof
	10.1ˆ	Form of the Registrant’s 1994 Stock Option Plan(3)
	10.2ˆ	Form of Restricted Stock Agreement(4)
	10.3	Form of Indemnification Agreement(5)
	10.4ˆ	Employee Stock Purchase Plan(6)
	10.5ˆ	Form of the Registrant’s 1999 Stock Incentive Plan, as amended(7)
	10.6ˆ	Management Incentive Plan(8)
	10.7ˆ	Employment Agreement between the Registrant and LeAnn Nealz dated March 31, 2004(9)
	10.8ˆ	Profit Sharing and 401(k) Plan(10)
	10.9ˆ	Deferred Compensation Plan, as amended(11)
	10.10ˆ	Employment Agreement between the Registrant and Thomas DiDonato, dated June 29, 2005(12)
��	10.11ˆ	Form of Director Deferred Compensation Agreement(13)
	10.12ˆ	Restricted Stock Exchange and Deferral Agreement, dated July 12, 2006(14)
	10.13ˆ	Form of 409A Addendum(15)
	10.14ˆ	Form of Long Term Incentive Compensation Plan Confidentiality, non-solicitation, non-competition and Intellectual Property Agreement(16)
	10.15ˆ	Employment Agreement between the Registrant and Dennis Parodi, dated February 18, 2003(17)
	10.16ˆ	Amendment to the Employment Agreement between the Registrant and Dennis Parodi, dated February 6, 2006(18)
	10.17ˆ	Employment Agreement between the Registrant and Joan Hilson, dated July 18, 2005(19)
	10.18ˆ	Separation Agreement Release — Susan P. McGalla, dated August 27, 2008(20)
	10.19ˆ	Employment Agreement between the Registrant and Roger S. Markfield, dated January 13, 2009(21)
	10.20ˆ	Separation Agreement and Release between the Registrant and Kathy J. Savitt, dated January 20, 2009(22)
	10.21ˆ	2005 Stock Award and Incentive Plan, as amended(23)
	10.22ˆ	Employment Agreement between the Registrant and James V. O’Donnell, as amended, dated January 11, 2010(24)
	10.23ˆ	Form of Change in Control Agreement between the Registrant and the Officers dated April 21, 2010(25)
	10.24ˆ*	Retirement Agreement between the Registrant and Joseph Kerin, dated November 24, 2010
	10.25ˆ*	Form of RSU Confidentiality, Non-Solicitation, Non-Competition and Intellectual Property Agreement
	21*	Subsidiaries
	23*	Consent of Independent Registered Public Accounting Firm
	24*	Power of Attorney
	31.1*	Certification by James V. O’Donnell pursuant toRule 13a-14(a) orRule 15d-14(a)
	31.2*	Certification by Joan Holstein Hilson pursuant toRule 13a-14(a) orRule 15d-14(a)
	32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101**	Interactive Data File


ITEM 1B.	*UNRESOLVED STAFF COMMENTS.*


ITEM 3.	*LEGAL PROCEEDINGS.*


ITEM 4.	*RESERVED.*