UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August 4, 2007~~

May 3, 2008

¨
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-33338

American Eagle Outfitters, Inc.

(Exact name of registrant as specified in its charter)


~~Delaware~~		~~No. 13-2721761~~
Delaware		No. 13-2721761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



77 Hot Metal Street, Pittsburgh, PA		15203-2329
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (412) 432-3300

Former name, former address and former fiscal year, if changed since last report:

~~150 Thorn Hill Drive, Warrendale, PA 15086-7528~~

~~(724) 776-4857~~

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YESxþ NOo¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated ~~filer~~filer” and ~~large accelerated filer”~~“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ ~~Accelerated filer~~ ¨ ~~Non-accelerated filer~~

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 in Rule 12b-2 of the Exchange Act). YESo NO¨þ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~214,907,297~~205,823,268 Common Shares were outstanding at ~~August 31, 2007.~~

May 30, 2008.

AMERICAN EAGLE OUTFITTERS, INC.

TABLE OF CONTENTS


		Page ~~Number~~
~~PART I - FINANCIAL INFORMATION~~

~~Item 1.~~		Number

	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	~~Consolidated Balance Sheets August 4, 2007, February 3, 2007 and July 29, 2006~~	3


	Consolidated Balance Sheets May 3, 2008, February 2, 2008 and May 5, 2007	3

	Consolidated Statements of Operations and Retained Earnings 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007 ~~and July 29, 2006~~	4


	Consolidated Statements of Cash Flows 2613 weeks ended ~~August 4,~~May 3, 2008 and May 5, 2007 ~~and July 29, 2006~~	5


	Notes to Consolidated Financial Statements	6


	Report of Independent Registered Public Accounting Firm	1617

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718

~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	24

~~Item 4.~~	~~Controls and Procedures~~	24
	PART II — OTHER INFORMATION
~~PART II - OTHER INFORMATION~~

Item 1.	Legal Proceedings	N/A

~~Item 1A.~~
Item 1A.	Risk Factors	25

~~Item 2.~~
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2625

Item 3.	Defaults Upon Senior Securities	N/A

~~Item 4.~~
Item 4.	Submission of Matters to a Vote of Security Holders	26N/A

Item 5.	Other Information	N/A

~~Item 6.~~	~~Exhibits~~	27
Item 6.	Exhibits	26
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

~~ITEM 1.~~

~~FINANCIAL STATEMENTS.~~

ITEM 1. FINANCIAL STATEMENTS.

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)
August 4,
2007

February 3,
2007

July 29,
2006

   (Unaudited) (Unaudited)
Assets

Current assets:

Cash and cash equivalents
   $ 123,717 $ 59,737 $ 331,358
Short-term investments
   510,888 767,376 482,732
Merchandise inventory
   321,263 263,644 267,392
Accounts and note receivable
   29,783 26,045 13,290
Prepaid expenses and other
   61,353 33,720 33,953
Deferred income taxes
   44,194 51,886 40,507

Total current assets
   1,091,198 1,202,408 1,169,232

Property and equipment, at cost, net of accumulated depreciation and amortization
   552,218 481,645 404,390
Goodwill
   9,950 9,950 9,950
Long-term investments
   125,120 251,644 117,291
Non-current deferred income taxes
   48,806 30,340 27,382
Other assets, net
   20,223 15,651 11,858

Total assets
   $ 1,847,515 $ 1,991,638 $ 1,740,103

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable
   $ 146,431 $ 171,150 $ 175,934
Accrued compensation and payroll taxes
   35,099 58,371 26,542
Accrued rent
   56,259 57,543 49,954
Accrued income and other taxes
   13,290 91,934 38,934
Unredeemed gift cards and gift certificates
   30,093 54,554 25,371
Current portion of deferred lease credits
   12,787 12,803 10,402
Other liabilities and accrued expenses
   19,307 18,263 15,026

Total current liabilities
   313,266 464,618 342,163

Non-current liabilities:

Deferred lease credits
   64,472 65,114 60,036
Non-current accrued income taxes
   52,514 —   —
Other non-current liabilities
   42,425 44,594 44,516

Total non-current liabilities
   159,411 109,708 104,552

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; 248,777, 248,155 and 246,275 shares issued, respectively; 216,573, 221,284 and 224,092 shares outstanding, respectively
   2,481 2,461 2,445
Contributed capital
   479,450 453,418 403,007
Accumulated other comprehensive income
   29,381 21,714 25,054
Retained earnings
�� 1,405,414 1,302,345 1,087,012
Treasury stock, 31,499, 25,699 and 20,977 shares, respectively
   (541,888 ) (362,626 ) (224,130 )

Total stockholders’ equity
   1,374,838 1,417,312 1,293,388

Total liabilities and stockholders’ equity
   $ 1,847,515 $ 1,991,638 $ 1,740,103


	May 3,			February 2,			May 5,
(In thousands, except per share amounts)	2008			2008			2007
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	338,238		$	116,061		$	69,791
Short-term investments		31,195			503,878			571,316
Merchandise inventory		262,201			286,485			274,846
Accounts and note receivable		41,651			31,920			39,553
Prepaid expenses and other		92,403			35,486			57,287
Deferred income taxes		41,091			47,004			39,971

Total current assets		806,779			1,020,834			1,052,764


Property and equipment, at cost, net of accumulated depreciation and amortization		667,691			625,568			523,487
Goodwill		11,402			11,479			9,950
Long-term investments		335,390			165,810			192,681
Non-current deferred income taxes		27,038			24,238			32,219
Other assets, net		20,195			19,751			18,557

Total assets	$	1,868,495		$	1,867,680		$	1,829,658


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	116,268		$	157,928		$	138,545
Notes payable		75,000			—			—
Accrued compensation and payroll taxes		19,461			49,494			21,573
Accrued rent		59,467			62,161			54,030
Accrued income and other taxes		13,297			22,803			11,193
Unredeemed gift cards and gift certificates		36,512			54,554			40,287
Current portion of deferred lease credits		13,995			12,953			12,757
Other liabilities and accrued expenses		16,333			16,285			16,874

Total current liabilities		350,333			376,178			295,259

Non-current liabilities:
Deferred lease credits		74,632			70,355			62,512
Non-current accrued income taxes		47,922			44,837			46,929
Other non-current liabilities		31,138			35,846			28,858

Total non-current liabilities		153,692			151,038			138,299

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, 600,000 and 250,000 shares authorized; 249,462, 248,763 and 248,724 shares issued; 204,856, 204,480 and 219,663 shares outstanding, respectively		2,485			2,481			2,473
Contributed capital		502,243			493,395			468,240
Accumulated other comprehensive income		29,353			35,485			26,531
Retained earnings		1,624,800			1,601,784			1,350,400
Treasury stock, 43,665, 43,596 and 28,365 shares, respectively		(794,411	)		(792,681	)		(451,544	)

Total stockholders’ equity		1,364,470			1,340,464			1,396,100

Total liabilities and stockholders’ equity	$	1,868,495		$	1,867,680		$	1,829,658

See Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(Unaudited)

   13 Weeks Ended 26 Weeks Ended
(In thousands, except per share amounts)
August 4,
2007

July 29,
2006

August 4,
2007

July 29,
2006

Net sales
   $ 703,189 $ 602,326 $ 1,315,575 $ 1,124,754
Cost of sales, including certain buying, occupancy and warehousing expenses (exclusive of depreciation shown separately below)
   386,742 327,065 700,669 595,124

Gross profit
   316,447 275,261 614,906 529,630
Selling, general and administrative expenses
   166,386 142,772 323,375 277,441
Depreciation and amortization expense
   27,375 23,237 52,857 44,671

Operating income
   122,686 109,252 238,674 207,518
Other income, net
   8,766 8,969 20,067 17,065

Income before income taxes
   131,452 118,221 258,741 224,583
Provision for income taxes
   50,108 46,122 98,627 88,328

Net income
   $ 81,344 $ 72,099 $ 160,114 $ 136,255

Basic income per common share
   $ 0.37 $ 0.32 $ 0.73 $ 0.61
Diluted income per common share
   $ 0.37 $ 0.31 $ 0.71 $ 0.60
Cash dividends per common share
   $ 0.10 $ 0.08 $ 0.18 $ 0.13
Weighted average common shares outstanding - basic
   217,790 223,805 219,409 223,260
Weighted average common shares outstanding - diluted
   222,044 229,211 223,943 228,610
Retained earnings, beginning (for the 26 weeks ended August 4, 2007, refer to Note 6 for information regarding the adoption of FIN 48)
   $ 1,350,400 $ 1,031,796 $ 1,289,041 $ 978,855
Net Income
   81,344 72,099 160,114 136,255
Cash dividends
   (21,702 ) (16,883 ) (38,222 ) (28,098 )
Reissuance of treasury stock
   (4,628 ) —   (5,519 ) —

Retained earnings, ending
   $ 1,405,414 $ 1,087,012 $ 1,405,414 $ 1,087,012


	13 Weeks Ended
	May 3,			May 5,
(In thousands, except per share amounts)	2008			2007

Net sales	$	640,302		$	612,386
Cost of sales, including certain buying, occupancy and warehousing expenses (exclusive of depreciation shown separately below)		376,635			313,927

Gross profit		263,667			298,459
Selling, general and administrative expenses		169,638			156,989
Depreciation and amortization expense		29,550			25,482

Operating income		64,479			115,988
Other income, net		6,458			11,301

Income before income taxes		70,937			127,289
Provision for income taxes		27,042			48,519

Net income	$	43,895		$	78,770


Basic income per common share	$	0.21		$	0.36
Diluted income per common share	$	0.21		$	0.35
Cash dividends per common share	$	0.10		$	0.08

Weighted average common shares outstanding — basic		204,841			220,675
Weighted average common shares outstanding — diluted		208,104			225,565

Retained earnings, beginning	$	1,601,784		$	1,302,345
Adoption of FIN 48		—			(13,304	)
Net Income		43,895			78,770
Cash dividends		(20,425	)		(16,520	)
Reissuance of treasury stock		(454	)		(891	)

Retained earnings, ending	$	1,624,800		$	1,350,400

See Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   26 Weeks Ended
(In thousands)    August 4,
2007 July 29,
2006
Operating activities:

Net income
   $ 160,114 $ 136,255
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   52,857 44,671
Share-based compensation
   19,686 16,196
Deferred income taxes
   (18,976 ) (7,554 )
Tax benefit from share-based payments
   6,916 7,738
Excess tax benefit from share-based payments
   (5,754 ) (5,862 )
Loss on impairment of assets
   —   150
Proceeds from sale of trading securities
   —   183,968
Changes in assets and liabilities:

Merchandise inventory
   (55,137 ) (56,444 )
Accounts and note receivable
   (3,937 ) 12,161
Prepaid expenses and other
   (27,337 ) (3,656 )
Other assets, net
   (3,125 ) (1,208 )
Accounts payable
   (26,216 ) 36,557
Unredeemed gift cards and gift certificates
   (24,817 ) (17,713 )
Deferred lease credits
   (1,127 ) 758
Accrued liabilities
   (58,648 ) (18,452 )

Total adjustments
   (145,615 ) 191,310

Net cash provided by operating activities
   14,499 327,565
Investing activities:

Capital expenditures
   (120,322 ) (103,149 )
Proceeds from sale of assets
   —   12,345
Purchase of investments
   (435,546 ) (211,476 )
Sale of investments
   822,547 194,450
Other investing activities
   (820 ) —

Net cash provided by (used for) investing activities
   265,859 (107,830 )
Financing activities:

Payments on capital leases
   (846 ) (470 )
Repurchase of common stock as part of publicly announced programs
   (184,761 ) —
Repurchase of common stock from employees
   (12,249 ) (7,617 )
Net proceeds from stock options exercised
   11,691 10,263
Excess tax benefit from share-based payments
   5,754 5,862
Cash dividends paid
   (38,222 ) (28,098 )

Net cash used for financing activities
   (218,633 ) (20,060 )

Effect of exchange rates on cash
   2,255 1,154

Net increase in cash and cash equivalents
   63,980 200,829
Cash and cash equivalents - beginning of period
   59,737 130,529

Cash and cash equivalents - end of period
   $ 123,717 $ 331,358

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes
   $ 164,446 $ 99,615
Supplemental disclosure of non-cash transactions:

Transfer of investment securities from available-for-sale to trading classification
   —   $ 180,787


	13 Weeks Ended
	May 3,			May 5,
(In thousands)	2008			2007

Operating activities:
Net income	$	43,895		$	78,770
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,550			25,482
Share-based compensation		8,882			12,506
Deferred income taxes		5,192			(84	)
Tax benefit from share-based payments		154			2,866
Excess tax benefit from share-based payments		(125	)		(2,628	)
Changes in assets and liabilities:
Merchandise inventory		23,836			(9,885	)
Accounts and note receivable		(9,769	)		(11,731	)
Prepaid expenses and other		(56,972	)		(23,410	)
Other assets, net		(460	)		(1,728	)
Accounts payable		(41,456	)		(33,407	)
Unredeemed gift cards and gift certificates		(17,970	)		(14,471	)
Deferred lease credits		4,355			(3,017	)
Accrued income and other taxes		(6,480	)		(51,773	)
Accrued compensation and payroll taxes		(30,006	)		(36,868	)
Accrued liabilities		(3,773	)		(8,298	)

Total adjustments		(95,042	)		(156,446	)

Net cash used for operating activities		(51,147	)		(77,676	)
Investing activities:
Capital expenditures		(73,629	)		(65,321	)
Purchase of investments		(49,897	)		(301,421	)
Sale of investments		347,133			558,680
Other investing activities		(163	)		(820	)

Net cash provided by investing activities		223,444			191,118
Financing activities:
Payments on capital leases		(589	)		(388	)
Net proceeds from issuance of notes payable		75,000			—
Repurchase of common stock as part of publicly announced programs		—			(85,233	)
Repurchase of common stock from employees		(3,365	)		(11,631	)
Net proceeds from stock options exercised		984			6,951
Excess tax benefit from share-based payments		125			2,628
Cash dividends paid		(20,425	)		(16,520	)

Net cash provided by (used for) financing activities		51,730			(104,193	)

Effect of exchange rate on cash		(1,850	)		805

Net increase in cash and cash equivalents		222,177			10,054
Cash and cash equivalents — beginning of period		116,061			59,737

Cash and cash equivalents — end of period	$	338,238		$	69,791


Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	84,461		$	111,266
Cash paid during the period for interest	$	341			—

See Notes to Consolidated Financial Statements

AMERICAN EAGLE OUTFITTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at ~~August 4,~~May 3, 2008 and May 5, 2007 ~~and July 29, 2006~~ and for the 13 ~~and 26~~ week periods ended ~~August 4, 2007~~May 3, 2008 (the “current period”) and ~~July 29, 2006~~May 5, 2007 (the “prior period”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Fiscal ~~2006~~2007 Annual ~~Report on Form 10-K.~~Report. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

As used in this report, all references to “we,” “our,” and the “Company” refer to American Eagle Outfitters, Inc. and its wholly-owned subsidiaries. “American Eagle Outfitters,” “American Eagle,” “AE,” and the “AE Brand” refer to our U.S. and Canadian American Eagle Outfitters ~~stores, including the aerie sub-brand and ae.com. “MARTIN + OSA”~~stores. “AEO Direct” refers to our ~~sportswear concept launched during Fiscal 2006.~~

e-commerce operations, ae.com, aerie.com, martinandosa.com and 77kids.com.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.

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 May 3, 2008, the Company operated in one reportable segment.

Fiscal Year

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

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our 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 September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157,Fair Value Measurements(“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-2,Effective Date of FASB Statement No. 157 (“FSP No. FAS 157-2”), which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually). For items within its scope, FSP No. FAS 157-2 defers the effective date to fiscal years beginning after November 15, 2008. The Company has adopted SFAS No. 157 for its financial assets and financial liabilities during the first quarter of Fiscal 2008. Refer to Note 4 of the Consolidated Financial Statements regarding the Company’s adoption of SFAS No. 157.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with ~~Statement of Financial Accounting Standards (“SFAS”)~~SFAS No. 52,Foreign Currency Translation(“SFAS No. 52”), 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, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with SFAS No. 130,Reporting Comprehensive Income ~~(see~~(see Note 57 of the Consolidated Financial Statements).

~~Recent Accounting Pronouncements~~

~~In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities~~ (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 159 in connection with the adoption of SFAS No. 157,~~Fair Value Measurements~~ ~~(“SFAS No. 157”), in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on its Consolidated Financial Statements.~~

In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 addresses how companies should measure fair value when they are required to use fair value as a measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and the Company will adopt SFAS No. 157 beginning in the first quarter of Fiscal 2008. The Company does not believe that the adoption of SFAS No. 157 will have a material impact on its Consolidated Financial Statements.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-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.

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

~~During the 13 weeks ended October 28, 2006, the~~

The Company ~~reclassified sell-offs of~~sells off end-of-season, overstock, and irregular merchandise ~~and~~to a third-party. The proceeds from these sales are presented ~~the amounts~~ on a gross basis, with proceeds and cost of sell-offs recorded in net sales and cost of sales, respectively. ~~Prior to this, the Company presented the proceeds and cost of sell-offs on a net basis within cost of sales.~~ For the 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007, the Company recorded ~~$2.9~~$21.7 million and ~~$13.7~~$10.8 million of proceeds and ~~$2.8~~$22.7 million and ~~$14.7~~$11.9 million of cost of sell-offs in net sales and cost of sales, respectively. ~~Proceeds of $10.4 million and costs of $13.3 million for the 13 and 26 weeks ended July 29, 2006 were not reclassified to reflect this change as the amounts were determined to be immaterial.~~

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. 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 our e-commerce operation.

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.

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. Prior to February 3, 2007, the Company recorded this write-off of assets within selling, general and administrative expenses. However, the Company has determined that classification within depreciation and amortization expense is more appropriate. Accordingly, the Company recorded $2.1 million and $5.0 million related to asset write-offs within depreciation and amortization expense for the 13 weeks and 26 weeks ended August 4, 2007, respectively. Amounts of $1.5 million and $3.7 million for the 13 weeks and 26 weeks ended July 29, 2006, respectively, have been reclassified for comparative purposes.

Other Income, Net

Other income, net consists primarily of interest income as well as interest expense and foreign currency transaction gain/loss. As of July 8, 2007, the Company discontinued assessing a service fee on inactive gift cards. Prior to July 8, 2007, the Company recorded gift card service fee income in other income, net. ~~For the 13 weeks and 26 weeks ended August 4, 2007, the~~The Company recorded gift card service fee income of ~~$0.2~~$0.6 million ~~and $0.8 million, respectively. For the 13 weeks and 26 weeks ended July 29, 2006, the Company recorded gift card service fee of $0.5 million and $1.1 million, respectively.~~

~~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 income, net.

On July 8, 2007, the Company discontinued assessing a service fee on inactive gift cards. As a result, 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 $4.8 million of revenue related to gift card breakage during the 13 weeks ended ~~August 4,~~May 5, 2007. ~~This amount included cumulative breakage revenue related to gift cards issued since the Company introduced its gift card program.~~

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 maturity of ~~13 weeks~~three months or less to be cash equivalents.

As of ~~August 4, 2007,~~May 3, 2008, short-term investments generally included investments with remaining effective maturities of less than 12 months ~~(averaging approximately two months),~~ consisting primarily of ~~tax-exempt municipal bonds, taxable agency bonds and corporate notes classified as available-for-sale. Additionally, short-term investments include variable rate demand notes~~auction-rate securities (“~~VRDNs”~~ARS”) ~~and auction rate securities~~ classified as available-for-sale ~~which~~that have ~~long-term contractual maturities but feature variable interest rates that reset at short-term intervals.~~

been called.

As of ~~August 4, 2007,~~May 3, 2008, long-term investments included investments with remaining maturities of greater than 12 months ~~but not exceeding five years (averaging approximately 30 months)~~ and consisted primarily of ~~agency bonds~~auction-rate securities classified as ~~available-for-sale.~~

available-for-sale that have experienced failed auctions.

As of February 2, 2008, the Company had a total of approximately $786 million in cash and cash equivalents, short-term and long-term investments, which included approximately $418 million of investments in ARS. For the three months ended May 3, 2008, the Company experienced failed auctions for 41 ARS issues representing principal and accrued interest in the total amount of $286 million. During this time, the Company has also sold 22 ARS issues, at par plus accrued interest, for a total of $57 million. The Company concluded that the fair value of its remaining ARS issues was approximately $368 million, including approximately $5 million of accrued interest, at May 3, 2008. This amount is net of approximately $5 million of unrealized losses that were recognized through other comprehensive income (“OCI”) during the current period. The Company considers the decline in the fair value of its investments temporary, resulting from the current lack of liquidity relating to these investments. The Company believes that the current lack of liquidity relating to ARS investments will have no impact on its ability to fund its ongoing operations and growth initiatives. Refer to Note 4 of the Consolidated Financial Statements for information regarding fair value measurements.

Prior to the current period, the Company classified its auction-rate securities as short-term investments or long-term investments in accordance with their respective interest rate reset intervals. During February 2008, the Company began to experience auction failures related to its investments. Accordingly, liquidity for holders is limited until there is a successful auction, the security is called, matures, or until such time as another market for ARS develops. As a result, during the 13 weeks ended May 3, 2008, the Company reclassified approximately $279 million, net of temporary impairment, of ARS from short-term to long-term investments as a result of failed auctions. Refer to Note 11 of the Consolidated Financial Statements for information regarding a subsequent event related to auction-rate securities.

The Company continues to monitor the market for auction-rate securities and consider the impact, if any, on the fair value of its investments. If current market conditions deteriorate further, we may be required to record additional unrealized losses in other comprehensive income. If the credit ratings of the security issuers deteriorate, or the anticipated recovery in market values does not occur, we may be required to adjust the carrying value of these investments through an other-than-temporary impairment charge recorded in the Consolidated Statement of Operations.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss. ~~Proceeds from~~

The Company evaluates its investments for impairment in accordance with FSP SFAS 115-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments(“FSP SFAS 115-1”). FSP SFAS 115-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the ~~sale~~fair value of ~~available-for-sale securities were $822.5 million and $194.5 million for~~ the ~~26 weeks ended August 4, 2007 and July 29, 2006, respectively. These proceeds are offset against purchases~~investment is less than its cost. If, after consideration of ~~$435.5 million and $211.5 million for~~all available evidence to evaluate the ~~26 weeks ended August 4, 2007 and July 29, 2006, respectively. For the 13 weeks and 26 weeks ended August 4, 2007, realized losses related~~realizable value of its investment, impairment is determined to available-for-sale securities of $0.2 million and $0.4 million, respectively, were included in other income, net. For the 13 weeks and 26 weeks ended July 29, 2006, realized losses related to available-for-sale securities of $0.5 million were included in other income, net.

During the 13 weeks ended April 29, 2006, the Company transferred certain investment securities from available-for-sale classification to trading classification (the “trading securities”). As a result of this transfer, during the 13 weeks ended April 29, 2006, a reclassification adjustment of $(0.3) million was recorded in other comprehensive income relatedbe other-than-temporary, then an impairment loss should be recognized equal to the ~~gain realized in net income at~~difference between the ~~time~~investment’s cost and its fair value.

See Note 3 of ~~transfer. As a result of trading classification,~~ the Company realized $3.5 million of capital gains, which were recorded in other income, net during the 26 weeks ended July 29, 2006. The trading securities were sold during the 13 weeks ended July 29, 2006, at which time the Company received proceeds of $184.0 million. As of August 4, 2007, the Company had no investments classified as trading securities.

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

(In thousands)    August 4,
2007    February 3,
2007    July 29,
2006
Cash and cash equivalents:

Cash and money market investments
   $ 91,010    $ 59,079    $ 95,550
Tax exempt and advantaged investments
   31,779    —      2,700
Taxable investments
   928    658    233,108

Total cash and cash equivalents
   123,717    59,737    331,358
Short-term investments:

Tax exempt and advantaged investments
   356,579    659,906    423,953
Taxable investments
   154,309    107,470    58,779

Total short-term investments
   510,888    767,376    482,732
Long-term investments:

Tax exempt and advantaged investments
   —      7,477    —
Taxable investments
   125,120    244,167    117,291

Total long-term investments
   125,120    251,644    117,291

Total
   $ 759,725    $ 1,078,757    $ 931,381

investments.

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 in order to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned 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 can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with SFAS No. 109,Accounting for Income Taxes. Effective February 4, 2007, the Company adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109(“FIN 48”). FIN 48 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 FIN 48, 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. ~~See Note 6~~As a result of adopting FIN 48, the ~~Consolidated Financial Statements~~Company recorded a net liability of approximately $13.3 million for ~~further discussion~~unrecognized tax benefits, which was accounted for as a reduction to the beginning balance of ~~the adoption~~retained earnings as of ~~FIN 48.~~

February 4, 2007.

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:

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long Lived Assets(“ (“SFAS No. 144”), our management evaluates the ongoing value of leasehold improvements and store fixtures associated with retail stores, which have been open longer than one year. 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. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded in selling, general and administrative expenses. No impairment losses were recognized during the 13 weeks or 26 weeks ended August 4, 2007 or during the 13 weeks ended July 29, 2006. The Company recognized impairment losses of $0.2 million during the 26 weeks ended July 29, 2006.

Goodwill

As of ~~August 4, 2007,~~May 3, 2008, the Company had approximately ~~$10.0~~$11.4 million of goodwill, which is primarily related to the acquisition of ~~its~~our importing operations on January 31, 2000, as well as the acquisition of its Canadian business on November 29, 2000. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, ~~our~~ management evaluates goodwill for possible impairment on at least an annual basis.

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 income, net.

On July 8, 2007, the Company discontinued assessing a service fee on inactive gift cards. As a result, 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 $1.6 million of revenue related to gift card breakage during the current period.

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 ~~the~~any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Co-branded Credit Card and Customer Loyalty Program

In April 2008, the Company introduced a new co-branded credit card (the “AE Visa Card”) and re-launched its private label credit card (the “AE Credit Card”). Both of 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. The Bank pays fees to the Company, which are recorded as revenue, based on the number of credit card accounts activated and on card usage volume. Once a customer is approved to receive the AE Visa Card and the card is activated, the customer is eligible to participate in the Company’s credit card rewards program. Under the rewards program, 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 result in the issuance of an AE gift card when a certain point threshold is 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.

The Company determined that points earned under the credit card rewards program on purchases at AE and aerie should be accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-22,Accounting for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future(“EITF 00-22”). Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award gift card is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE or aerie purchases are accounted for in accordance with EITF Issue No. 01-09,Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)(“EITF 01-09”). As the points are earned, a current liability is recorded for the estimated cost of the award gift card, and the impact of adjustments is recorded in cost of sales.

The Company also offers its ~~AE Brand~~ customers ~~a loyalty program,~~ the AE All-Access Pass (the “Pass”)., a customer loyalty program. Using the Pass, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately ~~one-month~~one month from the mailing ~~date of the reward certificate to the customer.~~date. These rewards can be redeemed for a discount on a purchase of AE merchandise. Rewards not redeemed during the one-month redemption period are forfeited. ~~A current liability is recorded~~The Company has historically accounted for the ~~estimated cost~~credits earned using the Pass in accordance with EITF 01-09. However, in connection with the launch of ~~anticipated redemptions and~~ the credit card rewards program, the Company determined that these credits should be accounted for consistently in accordance with EITF 00-22. The effect of applying EITF 00-22 did not have a material impact on the Company’s Consolidated Financial Statements. Accordingly, beginning in Fiscal 2008, the portion of ~~adjustments~~the sales revenue attributed to the ~~liability~~award credits is ~~recorded in cost of sales.~~

deferred and recognized when the award credits are redeemed or expire.

Stock Repurchases

~~On March 6, 2007 and then, additionally, on May 22,~~

During Fiscal 2007, the Company’s Board ~~of Directors (the “Board”)~~ authorized a total of 30.0 million shares of its common stock to be repurchased under the Company’s share repurchase program through the end of Fiscal 2009. During the 26 weeks ended August 4, 2007, the Company repurchased 6.560.0 million shares of its common stock for repurchase under its share repurchase program with expiration dates extending into Fiscal 2010. During Fiscal 2007, the Company repurchased 18.7 million shares as part of its publicly announced repurchase programs for approximately ~~$184.8~~$438.3 million, at a weighted average ~~share~~ price of ~~$28.41.~~$23.38 per share. The Company did not repurchase any shares as part of its publicly announced repurchase programs during the 13 weeks ended May 3, 2008. As of ~~August 4, 2007,~~May 3, 2008, the Company had ~~23.5~~41.3 million shares ~~available~~remaining authorized for repurchase. These shares ~~may~~will be repurchased at the Company’s discretion. ~~See Note 8 of~~Of the ~~Consolidated Financial Statements for information on a subsequent event related~~41.3 million shares that may yet be purchased under the program, the authorization relating to 11.3 million shares expires in Fiscal 2009 and the ~~Company’s stock repurchase program.~~

authorization relating to 30.0 million expires in Fiscal 2010.

During ~~each of~~ the 2613 week periods ended ~~August 4,~~May 3, 2008 and May 5, 2007, ~~and July 29, 2006,~~ the Company repurchased approximately 0.2 and 0.4 million shares, respectively, from certain employees at market prices totaling approximately ~~$12.2~~$3.4 million and ~~$7.6~~$11.6 million, respectively. These shares were repurchased for the payment of taxes in connection with the vesting of share-based ~~compensation,~~payments, as permitted under the 2005 Stock Award and Incentive Plan (the “2005 Plan”) ~~and Incentive Plan and the 1999 Stock Incentive Plan (the “1999 Plan”)~~.

All of the aforementioned share repurchases have been recorded as treasury stock.

~~Stock Split~~

On November 13, 2006, the Board approved a three-for-two stock split. This stock split was distributed on December 18, 2006, to stockholders of record on November 24, 2006. All share amounts and per share data presented herein have been restated to reflect this stock split.

Earnings Per Share

The following table shows the amounts used in computing earnings per share.

   13 Weeks Ended    26 Weeks Ended
(In thousands)
August 4,
2007

July 29,
2006

August 4,
2007

July 29,
2006
Net income
   $ 81,344    $ 72,099    $ 160,114    $ 136,255
Weighted average common shares outstanding:

Basic shares
   217,790    223,805    219,409    223,260
Dilutive effect of stock options and non-vested restricted stock
   4,254    5,406    4,534    5,350

Diluted shares
   222,044    229,211    223,943    228,610


	13 Weeks Ended
	May 3,		May 5,
(In thousands)	2008		2007
Net income	$	43,895	$	78,770
Weighted average common shares outstanding:
Basic shares		204,841		220,675
Dilutive effect of stock options and non-vested restricted stock		3,263		4,890

Diluted shares		208,104		225,565

Equity awards to purchase approximately 5.8 million and 2.8 million shares of common stock during the 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007, ~~and approximately 2.8 million and 3.0 million shares of common stock during the 13 weeks and 26 weeks ended July 29, 2006,~~ 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 both the 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007, approximately 0.6 million shares, of performance-based restricted stock 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 ~~EPS~~ performance goals. For the 13 weeks and 26 weeks ended July 29, 2007, approximately 1.1 million shares of performance-based restricted stock were not included in the computation of weighted average diluted common share amounts.

Segment Information

In accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information (“(“SFAS No. 131”), the Company has identified ~~four~~five operating segments (American Eagle U.S. retail stores, American Eagle Canadian retail stores, ~~ae.com and~~aerie by American Eagle retail stores, MARTIN + ~~OSA)~~OSA retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. ~~Three~~All of the operating segments ~~(American Eagle U.S. retail stores, American Eagle Canadian retail stores and ae.com, collectively the “AE brand”)~~ have been aggregated and are presented as one reportable segment, as permitted by SFAS No. 131, based on their similar economic characteristics, products, production processes, target customers and distribution methods. Our intimates sub-brand, aerie by American Eagle, was not identified as a separate operating segment under SFAS No. 131 as it is reviewed and operated as a component of the operating segments comprising the AE brand. At the end of the current period, MARTIN + OSA was determined to be immaterial for segment reporting purposes. Therefore, the Company has combined MARTIN + OSA with the AE Brand operating segment as one reportable segment. The Company will continue to monitor the materiality of MARTIN + OSA and will present it as a separate reportable segment at the time it becomes material to the Consolidated Financial Statements.

Reclassification

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 on the Consolidated Balance Sheets, our short-term investments and our long-term investments:


	May 3,		February 2,		May 5,
(In thousands)	2008		2008		2007
Cash and cash equivalents:
Cash	$	48,702	$	45,422	$	43,562
Money-market		289,536		70,639		26,229

Total cash and cash equivalents	$	338,238	$	116,061	$	69,791
Short-term investments:
Student-loan backed securities	$	—	$	248,800	$	65,000
Treasury and agency securities		—		20,172		144,220
State and local government securities		16,695		136,161		214,806
Corporate securities		14,500		98,745		147,290

Total short-term investments	$	31,195	$	503,878	$	571,316
Long-term investments:
Student-loan backed securities	$	209,070	$	—	$	—
Treasury and agency securities		—		122,811		167,578
State and local government securities		83,271		6,419		10,093
Corporate securities		43,049		36,580		15,010

Total long-term investments	$	335,390	$	165,810	$	192,681

Total	$	704,823	$	785,749	$	833,788

Proceeds from the sale of available-for-sale securities were $347.1 million and $558.7 million for the 13 weeks ended May 3, 2008 and May 5, 2007, respectively. These proceeds are offset against purchases of $49.9 million and $301.4 million for the 13 weeks ended May 3, 2008 and May 5, 2007, respectively. Net realized gains (losses) related to available-for-sale securities were $0.1 million and $(0.2) million for the 13 weeks ended May 3, 2008 and May 5, 2007, respectively.

4. Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. Fair value is defined under SFAS No. 157 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. The Company has adopted the provisions of SFAS No. 157 as of February 3, 2008, for its financial instruments, including its auction-rate securities.

Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, SFAS No. 157 establishes a 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.

	•		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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of May 3, 2008, 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 auction-rate securities.

In accordance with SFAS No. 157, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of May 3, 2008:


	Fair Value Measurements at May 3, 2008
			Quoted Market
			Prices in Active
			Markets for		Significant Other		Significant
	Carrying Amount as		Identical Assets		Observable Inputs		Unobservable Inputs
(in thousands)	of May 3, 2008		(Level 1)		(Level 2)		(Level 3)

Cash and Cash Equivalents
Cash	$	48,702	$	48,702	$	—	$	—
Money-market		289,536		289,536		—		—

Total cash and cash equivalents	$	338,238	$	338,238	$	—	$	—
Short-term Investments
Student-loan backed securities	$	—	$	—	$	—	$	—
Treasury and agency securities		—		—		—		—
State and local government securities		16,695		3,095		13,600		—
Corporate securities		14,500		—		14,500		—

Total Short-term Investments	$	31,195	$	3,095	$	28,100	$	—
Long-term Investments
Student-loan backed securities	$	209,070	$	—	$	—	$	209,070
Treasury and agency securities		—		—		—		—
State and local government securities		83,271		—		—		83,271
Corporate securities		43,049		—		—		43,049

Total Long-term Investments	$	335,390	$	—	$	—	$	335,390

Total	$	704,823	$	341,333	$	28,100	$	335,390

Due to the Company experiencing failed ARS during the quarter, the Company evaluated its ARS portfolio and determined that the majority of its portfolio should be valued using discounted cash flow analysis. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. The Company concluded that these ARS securities represent a Level 3 valuation within the SFAS No. 157 hierarchy. Accordingly, for the period ending May 3, 2008, the Company recorded a temporary impairment of $5.1 million in relation to its ARS. 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			Auction-Rate
				Auction-Rate			Loan-Related			Dividend Received
				Municipal			Auction-Rate			Deduction
(in thousands)	Total			Securities			Securities			Securities

Carrying Value at February 3, 2008	$	—		$	—		$	—		$	—
Additions/Settlements		—			—			—			—
Transfers to Level 3	$	340,475		$	84,575		$	212,000		$	43,900
Gains and losses:		—			—
Reported in earnings		—			—			—			—
Reported in OCI		(5,085	)		(1,304	)		(2,930	)		(851	)

Balance at May 3, 2008	$	335,390		$	83,271		$	209,070		$	43,049

5. Property and Equipment

Property and equipment consists of the following:


	May 3,			February 2,			May 5,
(In thousands)	2008			2008			2007
Property and equipment, at cost	$	1,154,610		$	1,091,310		$	915,091
Less: Accumulated depreciation and amortization		(486,919	)		(465,742	)		(391,604	)

Net property and equipment	$	667,691		$	625,568		$	523,487

6. Note Payable and Other Credit Arrangements

Unsecured Demand Lending Arrangements

During the current period, the Company entered into an agreement with three separate financial institutions to provide demand credit facilities totaling $175.0 million. During the current period, the Company borrowed a total of $75.0 million from one financial institution at a rate of prime minus a negotiated margin to increase the Company’s cash position to add financial flexibility. Additionally, during the current period, the Company repaid $37.5 million of this borrowing and drew a corresponding amount from a separate financial institution at an equivalent rate. The Company has incorporated the proceeds with its working capital. At May 3, 2008, $75.0 million was outstanding on these facilities, leaving a remaining available balance of $100.0 million. As of May 3, 2008, the average borrowing rate on these demand lines is 3.25%.

Uncommitted Letter of Credit Facilities

The Company has uncommitted letter of credit facilities for $125.0 million with two separate financial institutions. At May 3, 2008, letters of credit for $64.1 million were outstanding on these facilities, leaving a remaining available balance of $60.9 million.

7. Comprehensive Income

Comprehensive income is comprised of the following:


	13 Weeks Ended
	May 3,			May 5,
(In thousands)	2008			2007
Net Income	$	43,895		$	78,770
Other comprehensive income:
Temporary impairment related to auction-rate securities, net of $1.9 million of tax		(3,140	)		—
Unrealized (loss) gain on investments, net of tax		(314	)		182
Reclassification adjustment for (gain) loss realized in net income related to the sale of available-for-sale securities, net of tax		(52	)		132
Foreign currency translation adjustment		(2,626	)		4,503

Other comprehensive (loss) income:		(6,132	)		4,817

Total comprehensive income	$	37,763		$	83,587

8. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of SFAS No. 123 (revised 2004),Share-Based Payment (“(“SFAS No. 123(R)”), which requires companies to measure and recognize compensation expense for all share-based ~~compensation~~payments at fair value. In accordance with the provisions of SFAS No. 123(R), the Company recognizes

compensation expense for stock option awards and time-based restricted stock awards on a straight-line basis over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier). Performance-based restricted stock awards are recognized as compensation expense based on the fair value of the Company’s common stock on the date of grant, the number of shares ultimately expected to vest and the vesting period.

Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007 was ~~$7.2~~$8.9 million ($~~4.4~~5.5 million, net of tax) and ~~$19.7~~$12.5 million ($~~12.1~~7.7 million, net of tax), ~~respectively, and for the 13 weeks and 26 weeks ended July 29, 2006, was $7.7 million ($4.8 million, net of tax) and $16.1 million ($10.0 million, net of tax),~~ respectively.

Stock Option Grants

A summary of the Company’s stock option activity for the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 follows:

   26 Weeks Ended August 4, 2007 (1)
   Options
Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)
Outstanding - February 3, 2007
   12,209,342 $ 11.24
Granted
   2,356,973 $ 29.80
Exercised (2)
   (1,096,438 ) $ 10.09
Cancelled
   (305,048 ) $ 21.51

Outstanding - August 4, 2007
   13,164,829 $ 14.42    5.2    $ 137,260

Vested and expected to vest - August 4, 2007
   12,769,126 $ 14.23    5.1    $ 135,353

Exercisable - August 4, 2007
   8,077,062 $ 8.66    4.4    $ 119,861


	13 Weeks Ended
	May 3, 2008 (1)
					Weighted-Average
					Remaining		Aggregate
			Weighted-Average		Contractual		Intrinsic Value
	Options		Exercise Price		Term (in years)		(in thousands)
Outstanding — February 3, 2008		12,915,576	$	14.41
Granted (Exercise price equal to fair value)		3,399,885	$	21.21
Exercised (2)		79,844	$	12.37
Cancelled		101,496	$	25.81

Outstanding — May 3, 2008		16,134,121	$	15.78		4.9	$	86,294

Vested and expected to vest — May 3, 2008		15,626,959	$	15.56		4.8	$	86,015

Exercisable — May 3, 2008		8,449,198	$	8.73		3.7	$	83,976


(1)		As of ~~August 4, 2007,~~May 3, 2008, the Company had approximately ~~7.4~~4.3 million shares available for stock option grants.


(2)		Options exercised during the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 had exercise prices ranging from ~~$0.62~~$1.98 to ~~$20.77.~~$19.74.

The weighted-average grant date fair value of stock options granted during the 2613 weeks ended ~~August 4,~~May 3, 2008 and May 5, 2007 was ~~$10.68,~~$7.20 and ~~the weighted-average grant date fair value of stock options granted during the 26 weeks ended July 29, 2006 was $6.49.~~$10.71, respectively. The aggregate intrinsic value of options exercised during the 2613 weeks ended ~~August 4,~~May 3, 2008 and May 5, 2007 was ~~$20.8 million. The aggregate intrinsic value of options exercised during the 26 weeks ended July 29, 2006 was $21.5 million.~~

$0.7 million and $10.1 million, respectively.

Cash received from the exercise of stock options was ~~$11.7~~$1.0 million for the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 and ~~$10.3~~$7.0 million for the 2613 weeks ended ~~July 29, 2006.~~May 5, 2007. The actual tax benefit realized from stock option exercises totaled ~~$6.9~~$0.2 million for the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 and ~~$7.7~~$2.9 million for the 2613 weeks ended ~~July 29, 2006.~~

May 5, 2007.

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:

   26 Weeks Ended

August 4,
2007

July 29,
2006

Black-Scholes Option Valuation Assumptions

Risk-free interest rates (1)
   4.5 % 4.9 %
Dividend yield
   0.9 % 1.0 %
Volatility factors of the expected market price of the Company’s common stock (2)
   39.2 % 41.3 %
Weighted-average expected term (3)
   4.4 years 4.5 years
Expected forfeiture rate (4)
   8.0 % 8.0 %


	13 Weeks Ended
	May 3,			May 5,
Black-Scholes Option Valuation Assumptions	2008			2007
Risk-free interest rate (1)		2.5	%		4.5	%
Dividend yield		1.7	%		0.9	%
Volatility factor (2)		44.4	%		39.2	%
Weighted-average expected term (3)	4.3 years			4.4 years
Expected forfeiture rate (4)		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 13 weeks ended May 3, 2008 was determined based on historical experience. The weighted averaged expected option term for the 13 weeks ended May 5, 2007 was determined using a combination of the “simplified method” for plain vanilla options as allowed by Staff Accounting Bulletin No. 107,Share-Based Payments (“(“SAB No. 107”), 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 upon historical experience.

As of ~~August 4, 2007,~~May 3, 2008, there was ~~$27.4~~$35.7 million of unrecognized compensation expense related to nonvested stock option awards that is expected to be recognized over a weighted average period of ~~2.2~~2.3 years.

Restricted Stock Grants

The Company grants both time-based and performance-based restricted stock awards under its 2005 Plan. The time-based restricted stock awards vest over three years, and performance-based restricted stock awards are earned if certain pre-established goals are met. The grant date fair value of the restricted stock awards ~~are~~is based on the closing market price of the Company’s common stock on the date of grant. A summary of the Company’s restricted stock activity is presented in the following tables.

26 Weeks Ended
August 4, 2007
      Shares
Weighted-
Average Grant
Date Fair Value
Time-Based Restricted Stock

Nonvested - February 3, 2007 (1)
   138,000 $ 16.63
Granted
   —   —
Vested
   (60,000 ) $ 12.12
Cancelled
   —   —

Nonvested - August 4, 2007
   78,000 $ 20.10

~~(1)~~

Nonvested time-based restricted stock at February 3, 2007 includes 45,000 shares issued under the 1999 Plan. Under the 1999 Plan, awards were valued using the average of the high and low market price of the Company’s common stock on the date of grant.

26 Weeks Ended
August 4, 2007
   Shares
Weighted-
Average Grant
Date Fair Value
Performance-Based Restricted Stock

Nonvested - February 3, 2007
   1,034,075 $ 17.93
Granted
   662,550 $ 29.71
Vested
   (1,029,575 ) $ 17.93
Cancelled
   (40,589 ) $ 27.86

Nonvested - August 4, 2007
   626,461 $ 29.75


	13 Weeks Ended
	May 3, 2008
				Weighted-
				Average
				Grant Date
Time-Based Restricted Stock	Shares			Fair Value
Nonvested — February 2, 2008		74,500		$	19.97
Granted		—			—
Vested		(15,000	)	$	19.60
Cancelled		—			—

Nonvested — May 3, 2008		59,500		$	20.06


	13 Weeks Ended
	May 3, 2008
				Weighted-
				Average
				Grant Date
Performance-Based Restricted Stock	Shares			Fair Value
Nonvested — February 2, 2008		612,575		$	29.73
Granted		872,466		$	21.26
Vested		(428,983	)	$	29.75
Cancelled		(173,592	)	$	29.81

Nonvested — May 3, 2008		882,466		$	21.34

As of ~~August 4, 2007,~~May 3, 2008, there was ~~$14.1~~$0.7 million of unrecognized compensation expense related to nonvested restricted stock awards that is expected to be recognized over a weighted average period of ~~8 months.~~

~~4. Property and Equipment~~

~~Property and equipment consists of the following:~~

(In thousands)    August 4,
2007 February 3,
2007 July 29,
2006
Property and equipment, at cost
   $ 965,085 $ 857,690 $ 752,028
Less: Accumulated depreciation and amortization
   (412,867 ) (376,045 ) (347,638 )

Net property and equipment
   $ 552,218 $ 481,645 $ 404,390

~~5. Comprehensive Income~~

~~Comprehensive income is comprised of the following:~~

      13 Weeks Ended 26 Weeks Ended
(In thousands)    August 4,
2007 July 29,
2006 August 4,
2007 July 29,
2006
Net Income
   $ 81,344 $ 72,099 $ 160,114 $ 136,255
Other comprehensive income (loss):

Unrealized (loss) gain on investments, net of tax
   (420 ) 239 (238 ) (49 )
Reclassification adjustment for loss realized in net income related to the sale of available-for-sale securities, net of tax
   129 298 261 298
Reclassification adjustment for gain realized in net income related to the transfer of investment securities from available-for-sale classification to trading classification, net of tax
   —   —   —   (177 )
Foreign currency translation adjustment
   3,141 (1,167 ) 7,644 2,076
Reclassification adjustment for loss realized in net income related to the disposition of National Logistics Services
   —   —   —   878

Other comprehensive income (loss):
   2,850 (630 ) 7,667 3,026

Total comprehensive income
   $ 84,194 $ 71,469 $ 167,781 $ 139,281

6.one year.

9. Income Taxes

~~For~~

The effective income tax rate based on actual operating results for the 13 weeks ended May 3, 2008 and ~~26 weeks ended August 4,~~May 5, 2007 the effective tax rate used for the provision of income tax approximated 38.1%. For the 13 weeks and 26 weeks ended July 29, 2006, the effective tax rate used for the provision of income tax approximated 39.0% and 39.3%, respectively. The lower effective tax rate during Fiscal 2007 is primarily due to an increase in tax exempt interest income and the additional tax liability recorded during the 26 weeks ended July 29, 2006 related to the repatriation of unremitted Canadian earnings.

Effective February 4, 2007, the Company adopted FIN 48, 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 FIN 48, 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.

~~As a result of adopting FIN 48, the Company recorded a net liability of~~were consistent at approximately $13.3 million for unrecognized tax benefits, which was accounted for as a reduction to the beginning balance of retained earnings as of February 4, 2007. As of February 4, 2007, the gross amount of unrecognized tax benefits was $39.3 million, of which $27.6 million would affect the effective tax rate if recognized. The gross amount of unrecognized tax benefits as of August 4, 2007 was $46.2 million, of which $32.9 million would affect the effective tax rate if recognized. The Company does not believe that its unrecognized tax benefits will significantly change within the next twelve months.

38%.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had approximately $8.8 million in interest and penalties related to unrecognized tax benefits accrued as of February 4, 2007. The amount of accrued interest and penalties related to unrecognized tax benefits as of August 4, 2007 was $10.2 million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for tax years prior to July 2003. The examination of the Company’s U.S. federal income tax returns for tax years ended July 2003 to July 2005 is anticipated to be substantially completed by the end of 2007. The Company does not anticipate that any adjustments will result in a material change to its financial position. 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 2001. 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.

~~In December 2004, the FASB issued Staff Position No. FAS 109-2,~~~~Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004~~ (“FSP No. 109-2”). FSP No. 109-2 provides guidance to companies to determine how the American Jobs Creation Act of 2004 (the “Act”) affects a company’s accounting for the deferred tax liabilities on unremitted foreign earnings. The Act provided for a special one-time deduction of 85% of certain foreign earnings that are repatriated and that meet certain requirements. During Fiscal 2006, the Company repatriated $83.4 million as extraordinary dividends from its Canadian subsidiaries. In anticipation of the repatriation, the Company had recorded $0.6 million of income tax expense related to this repatriation during the 26 weeks ended July 29, 2006, in addition to the $3.8 million income tax liability that had been previously recorded in Fiscal 2005.

The decision to take advantage of the special one-time deduction under the Act is a discrete event, and it has not changed the Company’s intention to indefinitely reinvest accumulated earnings from its Canadian operations to the extent not repatriated under the Act. Accordingly, no provision has been made for income taxes that would be payable upon the distributions of such earnings.

10. Legal Proceedings

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with SFAS No. 5,Accounting for Contingencies, ~~our~~ management 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 FASB Interpretation No. 14,Reasonable Estimation of the Amount of a ~~Loss-an~~Loss — an interpretation of FASB Statement No. 5. 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 or results of operations of the Company.

11. Subsequent Events

Subsequent to ~~the second quarter of Fiscal 2007, the Company repurchased 2.4 million shares of its common stock under the March 6, 2007 and~~ May ~~22, 2007 repurchase authorizations. The shares were repurchased for approximately $58.5 million, at a weighted average share price of $24.34. As of September 4, 2007,~~3, 2008, the Company had ~~21.1~~$18.8 million ~~shares available for repurchase under the~~of auction-rate securities called at par value plus accrued interest through May ~~22, 2007 authorization.~~30, 2008. These ~~shares may be repurchased at the Company’s discretion. See Note 2~~securities included $10.0 million of dividend received deduction investments and $8.8 million in municipal bonds. As a result of the subsequent calls, these securities have been reclassified as short term investments in the Consolidated ~~Financial Statements for additional information regarding the Company’s repurchase program.~~Balance Sheet as of May 3, 2008.

Review by Independent Registered Public Accounting Firm

Ernst & Young LLP, our independent registered public accounting firm, has performed a limited review of the unaudited Consolidated Financial Statements for the 13 ~~and 26~~ week periods ended ~~August 4,~~May 3, 2008 and May 5, 2007, ~~and July 29, 2006,~~ as indicated in their report on the limited review included below. Since they did not perform an audit, they express no opinion on the Consolidated Financial Statements referred to above. Our management has given effect to any significant adjustments and disclosures proposed in the course of the limited review.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Eagle Outfitters, Inc.

We have reviewed the consolidated balance sheets of American Eagle Outfitters, Inc. (the Company) as of ~~August 4,~~May 3, 2008 and May 5, 2007, and ~~July 29, 2006,~~ the related consolidated statements of operations and retained earnings ~~for the three and six month periods ended August 4, 2007 and July 29, 2006,~~ and the consolidated statements of cash flows for the ~~six~~three month periods ended ~~August 4, 2007~~May 3, 2008 and ~~July 29, 2006.~~May 5, 2007. These financial statements are the responsibility of the Company’s management.

We conducted our ~~reviews~~review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, ~~(United States),~~ the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of American Eagle Outfitters, Inc. as of February ~~3, 2007,~~2, 2008, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year then ended not presented herein, and in our report dated ~~April 2, 2007,~~March 26, 2008, we expressed an unqualified opinion on those consolidated financial ~~statements.~~statements and included an explanatory paragraph regarding the Company’s adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” effective February 4, 2007. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February ~~3, 2007,~~2, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
May 30, 2008

~~September 4, 2007~~


ITEM 2.		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 these 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 approximately 32 American Eagle stores in the United States and Canada, 37 aerie stores and 14 MARTIN + OSA stores in the United States during Fiscal 2007;~~

	•		the planned opening of approximately 40 American Eagle stores in the United States and Canada, approximately 80 aerie stand-alone stores and approximately 11 MARTIN + OSA stores in the United States during Fiscal 2008;

	•		the selection of 40 to 50 American Eagle stores in the United States for remodeling during Fiscal 2008;

	•		the online launch of our new children’s apparel brand, 77kids by american eagle during Fiscal 2008 with the opening of U.S. stores planned for 2010;

	•		the completion of improvements and expansion at our distribution centers;

	•		the success of MARTIN + OSA and martinandosa.com;

	•		the success of aerie by american eagle and aerie.com;

	•		the expected payment of a dividend in future periods;

	•		the possibility of growth through acquisitions and/or internally developing additional new brands; and

	•		the possibility that future auctions of our ARS holdings will not be successful and that we may be required to take temporary or other-than-temporary impairment charges relating to our ARS investments.

~~the selection of approximately 53 American Eagle stores in the United States for remodeling during Fiscal 2007;~~

~~the completion of improvements and expansion at our distribution centers;~~

~~the success of MARTIN + OSA;~~

~~the success of our intimates sub-brand, aerie by American Eagle;~~

~~the expected payment of a dividend in future periods; and~~

~~the possibility of growth through acquisitions and/or internally developing additional new brands.~~

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 Item 1A of this Quarterly Report on Form 10-Q and Item 1A of our Fiscal ~~2006~~2007 Annual Report on Form 10-K. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

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.

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. 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; 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 our e-commerce operation. Any inability to obtain acceptable levels of 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 and our ability to control selling, general and administrative expenses.

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.
17

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
~~We achieved our fourteenth~~

Net sales increased for the 17^th consecutive quarter ~~of record sales and earnings~~ during the 13 weeks ended ~~August 4, 2007~~May 3, 2008 (the ~~“second~~“first quarter”). ~~Net~~Although net sales were below our original plan, they increased ~~17%~~5% over the prior year to ~~$703.2~~$640.3 million.
~~During~~

Our operating margin of 10.1% in the ~~second~~first quarter, ~~we discontinued assessing a service fee on inactive gift cards. As a result, we estimate gift card breakage and recognize revenue in proportion~~compared to ~~actual gift card redemptions as a component of net sales. We recorded $4.8 million in revenue related to gift card breakage during~~18.9% for the current period, which had the effect of increasing gross profit and operating income by a comparable amount. This amount included cumulative breakage revenue related to gift cards issued since the introduction of our gift card program in 1998.
~~Operating income as a percent to net sales decreased 80 basis points from the prior year to a rate of 17.4%.~~13 weeks ended May 5, 2007. The decrease was ~~driven primarily by~~largely due to a combination of the 6% decline in ~~gross profit,~~comparable store sales and increased markdowns.

Net income for the first quarter decreased 44% to $43.9 million, or 6.9% as a ~~percent~~rate to net sales. Net income ~~for~~per diluted common share also decreased 40% to $0.21 versus $0.35 last year.

We ended the ~~second~~first quarter ~~increased 13%~~with $704.8 million in cash, short-term and long-term investments. During the period, we continued to ~~$81.3~~make significant investments in our business, including $73.6 million ~~or 11.6% as a percent~~in capital expenditures. These expenditures related primarily to ~~net sales.~~
new and remodeled stores in the U.S. and Canada, expansion of our distribution centers, and the roll-out of our new point-of-sale system.

Our business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.

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

   13 Weeks Ended 26 Weeks Ended

August 4,
2007

July 29,
2006

August 4,
2007

July 29,
2006

Net sales
   100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales, including certain buying, occupancy and warehousing expenses
   55.0 54.3 53.3 52.9

Gross profit
   45.0 45.7 46.7 47.1
Selling, general and administrative expenses
   23.7 23.7 24.5 24.6
Depreciation and amortization expense
   3.9 3.8 4.0 4.0

Operating income
   17.4 18.2 18.2 18.5
Other income, net
   1.3 1.5 1.5 1.5

Income before income taxes
   18.7 19.7 19.7 20.0
Provision for income taxes
   7.1 7.7 7.5 7.9

Net income
   11.6 % 12.0 % 12.2 % 12.1 %

18

13 Weeks Ended
May 3, May 5,
2008 2007
Net sales 100.0 % 100.0 %
Cost of sales, including certain buying, occupancy and warehousing expenses 58.8 51.3

Gross profit 41.2 48.7
Selling, general and administrative expenses 26.5 25.6
Depreciation and amortization expense 4.6 4.2

Operating income 10.1 18.9
Other income, net 1.0 1.9

Income before income taxes 11.1 20.8
Provision for income taxes 4.2 7.9

Net Income 6.9 % 12.9 %

The following table shows our consolidated store data for the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 and ~~July 29, 2006.~~

   26 Weeks Ended
   August 4,
2007 July 29,
2006
Number of stores:

Beginning of period
   911 869
Opened
   20 18
Closed
   (3 ) (4 )

End of Period
   928 883

Total gross square feet at end of period
   5,350,468 4,911,192

May 5, 2007.

13 Weeks Ended
May 3, May 5,
2008 2007
Number of stores:
Beginning of period 987 911
Opened 34 11
Closed (3 ) (2 )

End of Period 1,018 920

Total gross square feet at end of period 5,888,629 5,257,032

Our operations are conducted in one reportable ~~segment. The American Eagle~~ segment ~~consists of 919~~which includes 942 U.S. and Canadian AE retail stores, ~~(including five~~55 aerie stand-alone ~~stores), ae.com~~retail stores, AEO Direct and ~~our nine~~21 MARTIN + OSA retail stores. ~~At the end of the current period, MARTIN + OSA was determined to be immaterial for classification as a separate reportable segment.~~

Comparison of the 13 weeks ended ~~August 4, 2007~~May 3, 2008 to the 13 weeks ended ~~July 29, 2006~~
May 5, 2007

Net Sales

Net sales for the 13 weeks ended May 3, 2008 increased 5% to $640.3 million compared to $612.4 million for the 13 weeks ended May 5, 2007. Increased net sales were a result of a 12% increase in square footage as well as AEO Direct sales increasing approximately ~~17% to $703.2 million from $602.3 million~~29% versus last year. ~~The sales increase was primarily due~~We experienced a decline in traffic and lower transactions per store, which led to ~~an increase in~~first quarter comparable store sales decreasing 6%, compared to a 9%6% increase ~~in gross square feet due to new~~last year. Men’s comparable stores ~~and remodels, as well as an increase in sales from our e-commerce operation.~~
During the second quarter, we experienced a low single-digit increase in our transaction value, driven by a mid single-digit increase in units per transaction and partially offset by a slight decrease in our average unit retail price. Comparable store sales increased ~~in the high single-digits in our men’s business and~~3% to last year while women’s decreased ~~in the low single-digits in the women’s business over~~11% to last year.

Gross Profit

Gross profit ~~increased 15% to $316.4~~for the first quarter was $263.7 million, ~~from $275.3 million last year. However,~~or 41.2% as a percent to net sales, ~~gross profit declined by 70 basis points~~compared to a rate of 45.0%. Our merchandise margin declined by 50 basis points primarily due to an increase in markdowns partially offset by a strong initial mark-up. Buying, occupancy and warehousing costs increased by 20 basis points,$298.5 million, or 48.7% as a percent to net sales ~~primarily~~last year. The primary cause of the reduced margin was increased markdowns as a result of lower than expected sales. Rent increased as a rate to sales due to ~~rent expense relating to upcoming aerie~~new store openings ~~as well as incremental~~and the first quarter comparable store sales decline. Additionally, we experienced higher delivery costs ~~associated with transitioning our e-commerce fulfillment in-house~~related to ~~our Ottawa, Kansas distribution center. Share-based compensation expense~~fuel surcharges. There was $1.5 million share-based payment expensed included in gross profit ~~was $1.4~~for the period compared to $1.9 million ~~both this year and~~ 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 and others may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses. See Note 2 of 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 ~~17%~~approximately 8% to ~~$166.4~~$169.6 million from ~~$142.8~~$157.0 million, ~~but remained flat~~and deleveraged by 90 basis points, as a percent to net sales, ~~at a~~to 26.5% from 25.6% last year. The higher rate ~~of 23.7%. Improvements~~this quarter is primarily due to the comparable store sales decline. Increases in ~~store payroll~~direct compensation and ~~lower~~benefits, services purchased, travel and communications were partially offset by reductions in incentive compensation, ~~were offset by an increase in store~~advertising and supplies ~~and professional services,~~ as a percent to net sales. ~~Share-based compensation~~There was $7.4 million share-based payment expense included in selling, general and administrative expenses ~~decreased to $5.8 million,~~ compared to ~~$6.3~~$10.6 million last year.
19

Depreciation and Amortization Expense

Depreciation and amortization expense as a percent to net sales increased to ~~3.9%~~4.6% for the ~~second~~first quarter compared to ~~3.8%~~4.2% for the corresponding period last year. Depreciation and amortization expense increased to ~~$27.4~~$29.6 million compared to ~~$23.2~~$25.5 million last year. The increase in expense is primarily due to an increase in ~~our property and equipment base driven by our increased level of~~net capital expenditures.

Other Income, Net

Other income, net decreased to ~~$8.8~~$6.5 million from ~~$9.0~~$11.3 million primarily due to lower interest income as a ~~gift card program change that occurred in July 2007. Prior~~result of lower investment balances coupled with lower interest rates compared to July 8, 2007, we recorded gift card service fee income in other income, net. As of July 8, 2007, we discontinued assessing a service fee on inactive gift cards and now record estimated gift card breakage revenue in net sales. For the 13 weeks ended August 4, 2007 and July 29, 2006, we recorded gift card service fee income of $0.2 million and $0.5 million, respectively, in other income, net.
last year.

Provision for Income Taxes

The effective tax rate ~~declined to~~remained unchanged at approximately 38% ~~from 39%~~this year compared to last year. ~~The decrease was primarily due to an increase in tax exempt interest income during the 13 weeks ended August 4, 2007.~~

Net Income

Net income ~~increased 13%~~decreased approximately 44% to ~~$81.3~~$43.9 million, or ~~11.6%~~6.9% as a percent to net sales, from ~~$72.1~~$78.8 million, or ~~12.0%~~12.9% as a percent to net sales last year. Net income per diluted common share ~~increased~~decreased to ~~$0.37~~$0.21 from ~~$0.31~~$0.35 in the prior year. The ~~increase~~decrease in net income was attributable to the factors noted above.
~~Comparison of the 26 weeks ended August 4, 2007 to the 26 weeks ended July 29, 2006~~
~~Net Sales~~
Net sales increased approximately 17% to $1.316 billion from $1.125 billion last year. The sales increase was primarily due to a 9% increase in gross square feet from new stores and remodels, a comparable store sales increase, as well as an increase in sales from our e-commerce operation.
We experienced a low single-digit increase in our transaction value, driven by a low single-digit increase in units per transaction. Our average unit retail price was flat, compared to the corresponding period last year. Comparable store sales increased in the high single-digits in our men’s business and in the low-single digits in the women’s business over last year.
~~Gross Profit~~
Gross profit increased 16% to $614.9 million from $529.6 million last year. However, as a percent to net sales, gross profit declined by 40 basis points to a rate of 46.7%. Our merchandise margin decreased by 20 basis points primarily due to an increase in markdowns and the impact of presenting the cost of merchandise sell-offs and the related proceeds on a gross basis in the current period (see Note 2 of the Consolidated Financial Statements), partially offset by an improved markon. Amounts for prior periods were not adjusted to reflect the change in the presentation of merchandise sell-offs as the amounts were determined to be immaterial. Buying, occupancy and warehousing costs increased by 20 basis points, as a percent to net sales, primarily due to incremental costs associated with transitioning our e-commerce fulfillment in-house to our Ottawa, Kansas distribution center. Share-based compensation expense included in gross profit increased to approximately $3.3 million, compared to $3.2 million last year.
~~Selling, General and Administrative Expenses~~
Selling, general and administrative expenses increased 17% to $323.4 million from $277.4 million, but improved by 10 basis points, as a percent to net sales, to a rate of 24.5%. The improvement in the rate was primarily due to lower incentive compensation, as a percent to net sales, partially offset by an increase in professional services. Share-based compensation expense included in selling, general and administrative expenses increased to approximately $16.4 million, compared to $12.9 million last year.
20
~~Depreciation and Amortization Expense~~
Depreciation and amortization expense, as a percent to net sales, remained flat at a rate of 4.0%, compared to last year. However, depreciation and amortization expense increased to $52.9 million, compared to $44.7 million last year. The increase in expense is primarily due to an increase in our property and equipment base driven by our increased level of capital expenditures.
~~Other Income, Net~~
Other income, net increased to $20.1 million from $17.1 million primarily due to increased investment income resulting from improved investment returns. Additionally, we realized a $0.9 million foreign currency translation loss last year, related to the final settlement of National Logistics Services. These increases were partially offset by a $3.5 million realized capital gain last year, related to investments that were classified as trading securities prior to being sold during the 26 weeks ended July 29, 2006.
~~Provision for~~

Income Taxes
The effective tax rate decreased to approximately 38% from approximately 39% last year. The decrease in the effective tax rate is primarily due to an increase in tax exempt interest income this year and the additional tax liability recorded during the 26 weeks ended July 29, 2006 related to the anticipated repatriation of unremitted Canadian earnings, which had the effect of increasing the effective tax rate last year.
~~Net Income~~
Net income increased 18% to $160.1 million, or 12.2% as a percent to net sales, from $136.3 million, or 12.1% as a percent to net sales last year. Net income per diluted common share increased to $0.71 from $0.60 in the prior year. The increase in net income was attributable to the factors noted above.
~~Income Taxes~~

Effective February 4, 2007, we adopted FIN 48. As a result of adopting FIN 48, we recorded a net liability of approximately $13.3 million for unrecognized tax benefits, which was accounted for as a reduction to the beginning balance of retained earnings as of February 4, 2007.
~~We placed~~

Due to the completion of the second phase of our Ottawa, Kansas distribution center ~~into service~~ in ~~May 2007. As a result,~~2007, we are eligible for approximately ~~$2.5~~$4.0 million of nonrefundable incentive tax credits in Kansas. These credits can be utilized to offset future Kansas income taxes and will expire in 10 years. These available credits are not currently utilizable due to existing credit carryovers and the level of income taxes paid to Kansas. Additionally, use of these credits is dependent upon our meeting certain requirements in future periods. Due to the contingencies related to the future use of the credits, we believe that it is more likely than not that the benefit of this asset will not be realized within the carryforward period. Thus, a full valuation allowance of ~~$2.5~~$4.0 million has been recorded as of ~~August 4, 2007.~~
For the 26 weeks ended July 29, 2006, the remaining $0.5 million of a $1.4 million valuation allowance that had been previously recorded against a capital loss deferred tax asset was released. We were able to realize sufficient capital gains to fully utilize the capital loss carry forward prior to its expiration in July 2006.
May 3, 2008.

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 ~~our~~ common stock and the payment of dividends. Historically, these uses of cash have been funded with cash flow from operations. Additionally, our uses of cash include the construction of our new corporate headquarters, ~~and the development~~expansion of MARTIN + OSA and aerie by American Eagle. In the future, we expect that our uses of cash will also include new brand concept, ~~development.~~
21
including development of 77kids by american eagle. Our growth ~~strategies include continued expansion of the American Eagle Brand,~~strategy includes internally developing new brands and the possibility of acquisitions. We periodically consider and evaluate these options to support future growth. In the event that 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:

   August 4,
2007    February 3,
2007    July 29,
2006
Working Capital (in 000’s)
   $ 777,932    $ 737,790    $ 827,069
Current Ratio
   3.48    2.59    3.42

May 3, February 2, May 5,
2008 2008 2007
Working Capital (in 000’s) $ 456,446 $ 644,656 $ 757,505
Current Ratio 2.30 2.71 3.57

The decrease in working capital as of May 3, 2008 compared to February 2, 2008 and May 5, 2007 is primarily related to the reduction in cash and cash equivalents and short-term investments.

Cash Flows from Operating Activities

Net cash ~~provided by~~used for operating activities totaled ~~$14.5~~$51.1 million for the 2613 weeks ended ~~August 4, 2007, compared to $327.6 million for the 26 weeks ended July 29, 2006.~~May 3, 2008. Our major source of cash from operations was merchandise sales. Our primary outflows of cash for operations were for the payment of operational costs and the purchase of inventory.
The decrease in net cash provided by operating activities of $313.1 million from the prior year was primarily due to proceeds from the sale of trading securities of $184.0 million received during the 26 weeks ended July 29, 2006, as well as a $62.8 million increase in cash used for the payment of accounts payable and a $40.2 million increase in cash used for accrued liabilities. The increase in cash used for the payment of accounts payable resulted primarily from a change in payment terms and method with our foreign buying agent, which also resulted in a reduction to the available amounts that we maintain under our unsecured letter of credit facility as discussed below. The increase in cash used for accrued liabilities resulted primarily from a reduction in our accrued income and other taxes as a result of payments made during the current period.

Cash Flows from Investing Activities

Investing activities for the 2613 weeks ended ~~August 4, 2007~~May 3, 2008 included ~~$387.0~~$297.2 million from the net sale of investments classified as available-for-sale, partially offset by ~~$120.3~~$73.6 million for capital expenditures. Investing activities for the 26 weeks ended July 29, 2006 included $103.1 million for capital expenditures, as well as $17.0 million for the net purchase of investments classified as available-for-sale.
We invest primarily in tax-exempt municipal bonds, taxable agency bonds, corporate notes and auction rate securities with an original maturity up to five years and an expected rate of return of approximately a 5.8% taxable equivalent yield. We place an emphasis on investing in tax-exempt and tax-advantaged asset classes and all investments must have a highly liquid secondary market and a stated maturity not exceeding five years.

Cash Flows from Financing Activities

Cash ~~used for~~provided by financing activities ~~resulted~~ primarily included proceeds from ~~$197.0~~a $75.0 million ~~used for the repurchase of~~borrowing against our ~~common stock and $38.2~~demand facilities, partially offset by $20.4 million used for the payment of ~~dividends~~dividends.

Auction-rate Securities

As discussed in Note 2 to the Consolidated Financial Statements, we adopted the provisions of SFAS No. 157 effective February 3, 2008. We have determined that we utilize observable inputs (Level 2) and unobservable (Level 3) inputs in determining the fair value of our ARS portfolio.

As of February 2, 2008, we had a total of approximately $786 million in cash and cash equivalents, short-term and long-term investments, which included approximately $418 million of investments in ARS. For the three months ending May 3, 2008, we experienced failed auctions for 41 ARS issues representing principal and accrued interest in the total amount of $286 million. During this time, we have also sold 22 ARS issues, at par plus accrued interest, for a total of $57 million. We concluded that the fair value of our remaining ARS issues was approximately $368 million, including approximately $5 million of accrued interest, at May 3, 2008. This amount is net of approximately $5 million of unrealized losses that were recognized through other comprehensive income (“OCI”) during ~~26 weeks ended August 4, 2007. During~~ the ~~26 weeks ended July 29, 2006, cash used for financing activities resulted primarily~~current period. We consider the decline in the fair value of our investments temporary, resulting from ~~$28.1 million used for~~ the ~~payment~~current lack of ~~dividends.~~
liquidity relating to these investments. We believe that the current lack of liquidity relating to ARS investments will have no impact on our ability to fund our ongoing operations and growth initiatives.

Credit Facilities

During the ~~second quarter,~~current period, we ~~reduced~~entered into an agreement with three separate financial institutions to provide demand credit facilities totaling $175.0 million. During the ~~amount available under our unsecured letter~~current period, we borrowed a total of ~~credit facility (the “facility”) to $100.0~~$75.0 million ~~and eliminated~~from one financial institution at a ~~$40.0 million unsecured demand line~~rate of ~~credit (the “line”). The interest rate on the facility is at the lender’s~~ prime ~~lending rate (8.25% at August 4, 2007) or at LIBOR plus~~minus a negotiated margin ~~rate. No direct borrowings were required against the line for~~rate to increase our cash position to add financial flexibility. Additionally, during the current ~~or prior periods.~~period, we repaid $37.5 million of this borrowing and drew a corresponding amount from a separate financial institution at an equivalent rate. We have incorporated the proceeds with our working capital. At ~~August 4, 2007, letters of credit in the amount of $13.4~~May 3, 2008, $75.0 million ~~were~~was outstanding on ~~the facility,~~these facilities, leaving a remaining available balance of ~~$86.6~~$100.0 million. ~~We also~~As of May 3, 2008, the average borrowing rate on these demand lines is 3.25%.

Additionally, we have an uncommitted letter of credit ~~facility~~facilities for ~~$100.0~~$125.0 million with atwo separate financial ~~institution.~~institutions. At ~~August 4, 2007,~~May 5, 2008, letters of credit ~~in the amount of $51.1~~for $64.1 million were outstanding on ~~this facility,~~these facilities, leaving a remaining available balance of ~~$48.9~~$60.9 million.
22

Capital Expenditures
~~We expect capital~~

Capital expenditures for ~~Fiscal 2007 to be approximately $240 million to $260 million. This will relate primarily to~~ the construction of new stores and remodeling of existing AE stores. Additionally, we will continue to support our infrastructure growth by investing in information technology upgrades at our home office, construction of our new corporate headquarters in Pittsburgh, Pennsylvania, and the completion of our Ottawa, Kansas distribution center.
~~For the 26~~13 weeks ended ~~August 4, 2007, capital expenditures of $120.3 million~~May 3, 2008 included ~~$58.2~~$39.5 million related to investments in our AE stores, including 1434 new AE, aerie, and M+O stores in the United States and Canada, ~~four new MARTIN + OSA stores, two new stand-alone aerie stores and 34~~five remodeled AE stores in the United ~~States.~~States and fixtures and visual investments. The remaining ~~amounts included approximately $17.4 million for~~capital expenditures were primarily related to the expanding our distribution

center, construction of our ~~new corporate headquarters, $14.9 million related to~~home office, and our information technology ~~upgrades at~~infrastructure including the roll-out of our ~~home office, $13.5~~new point-of-sale system.

We expect capital expenditures for Fiscal 2008 to be approximately $250 million ~~for the purchase of a corporate aircraft and $11.7 million for construction at our Ottawa, Kansas distribution center.~~
~~In the second half of Fiscal 2007, we~~to $275 million. These expenditures will ~~invest in the construction of an additional 35~~relate primarily to approximately 80 new aerie stand-alone stores, 1840 new AEand 40 to 50 remodeled American Eagle stores in the United States and Canada, 10approximately 11 new MARTIN + OSA stores, ~~and the remodeling of approximately 19 AE stores in the United States. Additionally, we will continue to primarily invest in distribution center improvements and expansion,~~ information technology upgrades, ~~and~~ the construction of the second phase of our new corporate ~~headquarters.~~
headquarters and distribution center expansion/improvement, including the completion of the second phase of our Ottawa, Kansas distribution center expansion. We plan to fund these capital expenditures through existing cash and cash generated from operations.

Stock Repurchases
~~On March 6, 2007 and then, additionally, on May 22,~~

During Fiscal 2007, our Board authorized a total of ~~30.0~~60.0 million shares of ~~our~~its common stock ~~to be repurchased~~for repurchase under ~~our~~its share repurchase program ~~through the end of~~with expiration dates extending into Fiscal ~~2009.~~2010. During ~~the 26 weeks ended August 4,~~Fiscal 2007, we repurchased ~~6.5~~18.7 million shares as part of our ~~common stock~~publicly announced repurchase programs for approximately ~~$184.8~~$438.3 million, at a weighted average ~~share~~ price of ~~$28.41.~~$23.38 per share. We did not repurchase any shares as part of our publicly announced repurchase programs during the 13 weeks ended May 3, 2008. As of ~~August 4, 2007,~~May 3, 2008, we had ~~23.5~~41.3 million shares ~~available~~remaining authorized for repurchase.
Subsequent to the second quarter of Fiscal 2007, we repurchased 2.4 million shares of our common stock under the March 6, 2007 and May 22, 2007 repurchase authorizations. The shares were repurchased for approximately $58.5 million, at a weighted average share price of $24.34. As of September 4, 2007, we had 21.1 million shares available for repurchase under the May 22, 2007 authorization. These shares ~~may~~will be repurchased at our discretion.
Of the 41.3 million shares that may yet be purchased under the program, the authorization relating to 11.3 million shares expires in Fiscal 2009 and the authorization relating to 30.0 million expires in Fiscal 2010.

During ~~each of~~ the 2613 week periods ended ~~August 4,~~May 3, 2008 and May 5, 2007, ~~and July 29, 2006,~~ we repurchased approximately 0.2 and 0.4 million shares, respectively, from certain employees at market prices totaling approximately ~~$12.2~~$3.4 million and ~~$7.6~~$11.6 million, respectively. These shares were repurchased for the payment of taxes in connection with the vesting of share-based ~~compensation,~~payments, as permitted under the 2005 Stock Award and Incentive Plan ~~and the 1999 Plan.~~
(the “2005 Plan”).

All of the aforementioned share repurchases have been recorded as treasury stock.

Dividends

During the ~~second~~first quarter of Fiscal ~~2007,~~2008, our Board declared a quarterly cash dividend of $0.10 per share, which was paid on July 13, 2007. Subsequent to the second quarter of Fiscal 2007, our Board declared a quarterly cash dividend of $0.10 per share payable on October 12, 2007 to stockholders of record at the close of business on September 28, 2007.April 11, 2008. The payment of future dividends is at the discretion of our Board and is based on 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~~
As a result of the adoption of FIN 48 on February 4, 2007, our gross liability for unrecognized tax benefits was approximately $48.1 million, including approximately $8.8 million of accrued interest and penalties. The gross liability as of August 4, 2007 was $56.4 million, including approximately $10.2 million of acrrued interest and penalties. We estimate that approximately $4.0 million of this amount will be paid within one year. We are unable to reasonably estimate the amount or timing of payments for the remainder of the liability. Other than the adoption of FIN 48, there have been no significant changes to the Contractual Obligations table which was included in our Fiscal 2006 Annual Report on Form 10-K.
23

Critical Accounting Policies

Our critical accounting policies are described in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended February ~~3, 2007~~2, 2008 contained in our Fiscal ~~2006~~2007 Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Impact of Inflation/Deflation

We do not believe that inflation has had a significant effect on our net sales or our profitability. Substantial increases in cost, however, 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 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There were no material changes in our exposure to market risk from February ~~3, 2007.~~2, 2008. Our market risk profile as of February ~~3, 2007~~2, 2008 is disclosed in Item 7A,Quantitative and Qualitative Disclosures About Market Risk, of our Fiscal ~~2006~~2007 Annual Report on Form 10-K.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES.~~

ITEM 4. 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 Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our 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 Quarterly Report on Form 10-Q, as of ~~August 4, 2007,~~May 3, 2008, 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 in Rule 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 Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the 13 weeks ended ~~August 4, 2007~~May 3, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

~~ITEM 1A.~~

~~RISK FACTORS.~~

~~In addition to the updated risk factors below, risk~~

ITEM 1A. RISK FACTORS.

Risk factors that affect our business and financial results are discussed within Item 1A of our Fiscal ~~2006~~2007 Annual Report on Form 10-K.
~~Our ability to continue our current level of sales and earnings growth~~
With our Fiscal 2007 second quarter, we achieved 14 consecutive quarters of record-high sales and earnings. Our gross margin and operating margin rates are also near historic highs and exceed most of our industry peers. Although it is difficult to maintain this level of performance or to continue to reach higher levels, we have growth initiatives that we are pursuing to achieve our goal of increasing earnings per share by at least 15% per year over the long term. Nonetheless, our product offerings are constantly changing and our success is directly dependent on customer acceptance of these new offerings. If our future product offerings are not as well accepted by our customers, our financial performance may decline until we are able to improve our product. A decline in our financial performance could result in a decline in the price of our common stock.
~~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 2007, we plan to open approximately 32 new American Eagle stores in the U.S. and Canada, 37 aerie stores and 14 MARTIN + OSA stores. Additionally, we plan to remodel or expand approximately 53 existing American Eagle stores during Fiscal 2007. 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.
25

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

Issuer Purchases of Equity Securities

The following table provides information regarding our repurchases of our common stock during the 13 weeks ended ~~August 4, 2007.~~

Period

Total
Number of
Shares Purchased
   Average
Price Paid
Per Share    Total Number of
Shares Purchased as
Part of Publicly
Announced Programs
Maximum Number of
Share that May
Yet be Purchased
Under the Program
   (1)    (2)    (1)(3)    (1)(3)
Month #1 (May 6, 2007 through June 1, 2007)
   1,721,474    $ 27.61    1,700,000    25,500,000
Month #2 (June 2, 2007 through July 7, 2007)
   2,000,000    $ 26.26    2,000,000    23,500,000
Month #3 (July 8, 2007 through August 4, 2007)
   683    $ 25.82    —      23,500,000

Total
   3,722,157    $ 26.88    3,700,000    23,500,000

May 3, 2008.

Total Number of Maximum Number of
Total Average Shares Purchased as Shares that May
Number of Price Paid Part of Publicly Yet Be Purchased
Period Shares Purchased Per Share Announced Programs Under the Program
(1) (2) (1) (1)
Month #1 (February 3, 2008 through March 1, 2008) — $ — — 41,250,000
Month #2 (March 2, 2008 through April 5, 2008) 159,130 $ 21.15 41,250,000
Month #3 (April 6, 2007 through May 3, 2007) — $ — — 41,250,000

Total 159,130 $ 21.15 — 41,250,000


(1)		Shares purchased during Month ~~#1 include 1.7 million repurchased as part of our publicly announced share repurchase program and 21,474 shares~~#2 were all repurchased from employees for the payment of taxes in connection with the vesting of share-based payments. Shares purchased during Month #2 include 2.0 million repurchased as part of our publicly announced share repurchase program. During Month #3, the Company repurchased 683 shares from employees 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)~~

On March 6, 2007, our Board authorized the repurchase of 7.0 million shares of our common stock. This repurchase authorization does not have an expiration date. On May 22, 2007, our Board authorized the repurchase of 23.0 million shares of our common stock. This authorization expires at the end of Fiscal 2009.

~~ITEM 4.~~

~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.~~

(a) We held our 2007 Annual Meeting of Stockholders on June 12, 2007. Holders of 197,317,442 shares of our common stock were present in person or by proxy, representing approximately 90% of our 220,315,491 shares outstanding on the record date.

(b) and (c) The following persons continue to serve as Class I directors: Michael G. Jesselson, Roger S. Markfield and Jay L. Schottenstein; and the following persons continue to serve as Class II directors: Janice E. Page, J. Thomas Presby, and Gerald E. Wedren. The following persons were elected as Class III members of the Board of Directors to serve a three year term until the annual meeting in 2010 or until their successors are duly elected and qualified. Each person received the number of votes for or the number of votes with authority withheld indicated below.

Name
   Shares For    Shares Withheld
Jon P. Diamond
   183,545,904    13,771,538
Alan T. Kane
   196,075,159    1,242,283
Cary D. McMillan
   195,462,305    1,855,137
James V. O’Donnell
   192,812,179    4,505,263
The proposal to amend and restate the Company’s Amended and Restated Certificate of Incorporation to increase the number of shares of authorized common stock from 250 million to 600 million passed. It received 158,149,805 shares for, 38,765,893 against and 401,744 shares abstain.
The proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm passed. It received 197,076,932 shares for, 114,063 shares against and 126,447 shares abstain.
~~(d) Not applicable.~~
26
ITEM 6. EXHIBITS.
~~ITEM 6.~~ ~~EXHIBITS.~~
*
~~Exhibit 3.1~~ ~~Amended and Restated Certificate of Incorporation, as amended~~
~~Exhibit 4.1~~ ~~See Amended and Restated Certificate of Incorporation, as amended, in Exhibit 3.1 hereof~~
*
Exhibit 15 Acknowledgement of Independent Registered Public Accounting Firm
*

* Exhibit 31.1 Certification by James V. O’Donnell pursuant to Rule 13a-14(a) or Rule 15d-14(a)
*

* Exhibit 31.2 Certification by Joan Holstein Hilson pursuant to Rule 13a-14(a) or Rule 15d-14(a)
**

**Exhibit 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
**

**Exhibit 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
* Filed with this report.
** Furnished with this report.
26
27
~~SIGNATURES~~
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: ~~September 6, 2007~~
June 5, 2008
American Eagle Outfitters, Inc.

(Registrant)

By:
/s/ James V. O’Donnell

James V. O’Donnell
Chief Executive Officer

(Principal Executive Officer)
By:
/s/ Joan Holstein Hilson

Joan Holstein Hilson
Executive Vice President and
Chief Financial Officer, AE Brand

(Principal Financial Officer and
Principal Accounting Officer)
27
28


*(In thousands, except per share amounts)*		August 4, 2007			February 3, 2007			July 29, 2006
		(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	123,717		$	59,737		$	331,358
Short-term investments			510,888			767,376			482,732
Merchandise inventory			321,263			263,644			267,392
Accounts and note receivable			29,783			26,045			13,290
Prepaid expenses and other			61,353			33,720			33,953
Deferred income taxes			44,194			51,886			40,507

Total current assets			1,091,198			1,202,408			1,169,232

Property and equipment, at cost, net of accumulated depreciation and amortization			552,218			481,645			404,390
Goodwill			9,950			9,950			9,950
Long-term investments			125,120			251,644			117,291
Non-current deferred income taxes			48,806			30,340			27,382
Other assets, net			20,223			15,651			11,858

Total assets		$	1,847,515		$	1,991,638		$	1,740,103

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	146,431		$	171,150		$	175,934
Accrued compensation and payroll taxes			35,099			58,371			26,542
Accrued rent			56,259			57,543			49,954
Accrued income and other taxes			13,290			91,934			38,934
Unredeemed gift cards and gift certificates			30,093			54,554			25,371
Current portion of deferred lease credits			12,787			12,803			10,402
Other liabilities and accrued expenses			19,307			18,263			15,026

Total current liabilities			313,266			464,618			342,163

Non-current liabilities:
Deferred lease credits			64,472			65,114			60,036
Non-current accrued income taxes			52,514			—			—
Other non-current liabilities			42,425			44,594			44,516

Total non-current liabilities			159,411			109,708			104,552

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; 248,777, 248,155 and 246,275 shares issued, respectively; 216,573, 221,284 and 224,092 shares outstanding, respectively			2,481			2,461			2,445
Contributed capital			479,450			453,418			403,007
Accumulated other comprehensive income			29,381			21,714			25,054
Retained earnings	��		1,405,414			1,302,345			1,087,012
Treasury stock, 31,499, 25,699 and 20,977 shares, respectively			(541,888	)		(362,626	)		(224,130	)

Total stockholders’ equity			1,374,838			1,417,312			1,293,388

Total liabilities and stockholders’ equity		$	1,847,515		$	1,991,638		$	1,740,103


	13 Weeks Ended						26 Weeks Ended
*(In thousands, except per share amounts)*	August 4, 2007			July 29, 2006			August 4, 2007			July 29, 2006
Net sales	$	703,189		$	602,326		$	1,315,575		$	1,124,754
Cost of sales, including certain buying, occupancy and warehousing expenses (exclusive of depreciation shown separately below)		386,742			327,065			700,669			595,124

Gross profit		316,447			275,261			614,906			529,630
Selling, general and administrative expenses		166,386			142,772			323,375			277,441
Depreciation and amortization expense		27,375			23,237			52,857			44,671

Operating income		122,686			109,252			238,674			207,518
Other income, net		8,766			8,969			20,067			17,065

Income before income taxes		131,452			118,221			258,741			224,583
Provision for income taxes		50,108			46,122			98,627			88,328

Net income	$	81,344		$	72,099		$	160,114		$	136,255

Basic income per common share	$	0.37		$	0.32		$	0.73		$	0.61
Diluted income per common share	$	0.37		$	0.31		$	0.71		$	0.60

Cash dividends per common share	$	0.10		$	0.08		$	0.18		$	0.13

Weighted average common shares outstanding - basic		217,790			223,805			219,409			223,260
Weighted average common shares outstanding - diluted		222,044			229,211			223,943			228,610

Retained earnings, beginning (for the 26 weeks ended August 4, 2007, refer to Note 6 for information regarding the adoption of FIN 48)	$	1,350,400		$	1,031,796		$	1,289,041		$	978,855
Net Income		81,344			72,099			160,114			136,255
Cash dividends		(21,702	)		(16,883	)		(38,222	)		(28,098	)
Reissuance of treasury stock		(4,628	)		—			(5,519	)		—

Retained earnings, ending	$	1,405,414		$	1,087,012		$	1,405,414		$	1,087,012


	26 Weeks Ended
*(In thousands)*	August 4, 2007			July 29, 2006
Operating activities:
Net income	$	160,114		$	136,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,857			44,671
Share-based compensation		19,686			16,196
Deferred income taxes		(18,976	)		(7,554	)
Tax benefit from share-based payments		6,916			7,738
Excess tax benefit from share-based payments		(5,754	)		(5,862	)
Loss on impairment of assets		—			150
Proceeds from sale of trading securities		—			183,968
Changes in assets and liabilities:
Merchandise inventory		(55,137	)		(56,444	)
Accounts and note receivable		(3,937	)		12,161
Prepaid expenses and other		(27,337	)		(3,656	)
Other assets, net		(3,125	)		(1,208	)
Accounts payable		(26,216	)		36,557
Unredeemed gift cards and gift certificates		(24,817	)		(17,713	)
Deferred lease credits		(1,127	)		758
Accrued liabilities		(58,648	)		(18,452	)

Total adjustments		(145,615	)		191,310

Net cash provided by operating activities		14,499			327,565
Investing activities:
Capital expenditures		(120,322	)		(103,149	)
Proceeds from sale of assets		—			12,345
Purchase of investments		(435,546	)		(211,476	)
Sale of investments		822,547			194,450
Other investing activities		(820	)		—

Net cash provided by (used for) investing activities		265,859			(107,830	)
Financing activities:
Payments on capital leases		(846	)		(470	)
Repurchase of common stock as part of publicly announced programs		(184,761	)		—
Repurchase of common stock from employees		(12,249	)		(7,617	)
Net proceeds from stock options exercised		11,691			10,263
Excess tax benefit from share-based payments		5,754			5,862
Cash dividends paid		(38,222	)		(28,098	)

Net cash used for financing activities		(218,633	)		(20,060	)

Effect of exchange rates on cash		2,255			1,154

Net increase in cash and cash equivalents		63,980			200,829
Cash and cash equivalents - beginning of period		59,737			130,529

Cash and cash equivalents - end of period	$	123,717		$	331,358

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	164,446		$	99,615

Supplemental disclosure of non-cash transactions:
Transfer of investment securities from available-for-sale to trading classification		—		$	180,787


	26 Weeks Ended August 4, 2007 (1)
	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding - February 3, 2007	12,209,342		$	11.24
Granted	2,356,973		$	29.80
Exercised (2)	(1,096,438	)	$	10.09
Cancelled	(305,048	)	$	21.51

Outstanding - August 4, 2007	13,164,829		$	14.42	5.2	$	137,260

Vested and expected to vest - August 4, 2007	12,769,126		$	14.23	5.1	$	135,353

Exercisable - August 4, 2007	8,077,062		$	8.66	4.4	$	119,861


	26 Weeks Ended August 4, 2007
	Shares		Weighted- Average Grant Date Fair Value
Time-Based Restricted Stock
Nonvested - February 3, 2007 (1)	138,000		$	16.63
Granted	—			—
Vested	(60,000	)	$	12.12
Cancelled	—			—

Nonvested - August 4, 2007	78,000		$	20.10


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Share that May Yet be Purchased Under the Program
	(1)	(2)		(1)(3)	(1)(3)
Month #1 (May 6, 2007 through June 1, 2007)	1,721,474	$	27.61	1,700,000	25,500,000
Month #2 (June 2, 2007 through July 7, 2007)	2,000,000	$	26.26	2,000,000	23,500,000
Month #3 (July 8, 2007 through August 4, 2007)	683	$	25.82	—	23,500,000

Total	3,722,157	$	26.88	3,700,000	23,500,000


					Total Number of		Maximum Number of
	Total		Average		Shares Purchased as		Shares that May
	Number of		Price Paid		Part of Publicly		Yet Be Purchased
Period	Shares Purchased		Per Share		Announced Programs		Under the Program
	(1)		(2)		(1)		(1)
Month #1 (February 3, 2008 through March 1, 2008)		—	$	—		—		41,250,000
Month #2 (March 2, 2008 through April 5, 2008)		159,130	$	21.15				41,250,000
Month #3 (April 6, 2007 through May 3, 2007)		—	$	—		—		41,250,000

Total		159,130	$	21.15		—		41,250,000


Name	Shares For	Shares Withheld
Jon P. Diamond	183,545,904	13,771,538
Alan T. Kane	196,075,159	1,242,283
Cary D. McMillan	195,462,305	1,855,137
James V. O’Donnell	192,812,179	4,505,263


*	~~Exhibit 3.1~~	~~Amended and Restated Certificate of Incorporation, as amended~~

	~~Exhibit 4.1~~	~~See Amended and Restated Certificate of Incorporation, as amended, in Exhibit 3.1 hereof~~

*	Exhibit 15	Acknowledgement of Independent Registered Public Accounting Firm

*
* Exhibit 31.1	Certification by James V. O’Donnell pursuant to Rule 13a-14(a) or Rule 15d-14(a)

*
* Exhibit 31.2	Certification by Joan Holstein Hilson pursuant to Rule 13a-14(a) or Rule 15d-14(a)

**
**Exhibit 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

**
**Exhibit 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


American Eagle Outfitters, Inc. (Registrant)

By:		/s/ James V. O’Donnell
	James V. O’Donnell
	Chief Executive Officer
(Principal Executive Officer)


By:		/s/ Joan Holstein Hilson
	Joan Holstein Hilson
	Executive Vice President and Chief Financial Officer, AE Brand
(Principal Financial Officer and Principal Accounting Officer)

Leasehold Improvements

Lesser of 5 to 10 years or the term of the lease

Fixtures and equipment

3 to 5 years