<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to______________
COMMISSION FILE NUMBER: 0-23760
AMERICAN EAGLE OUTFITTERS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
OHIO NO. 25-1724320
---- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 THORN HILL DRIVE, WARRENDALE, PA 15086-7528
------------------------------------ ----------
(Address of principal executive offices) (Zip code)
(412) 776-4857
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE, 9,923,550 SHARES OUTSTANDING AS OF MAY 19, 1997
<PAGE> 2
AMERICAN EAGLE OUTFITTERS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets
May 3, 1997 (unaudited) and February 1, 1997 3
Consolidated Statements of Operations (unaudited)
Three months ended May 3, 1997 and May 4, 1996 4
Consolidated Statements of Cash Flows (unaudited)
Three months ended May 3, 1997 and May 4, 1996 5
Notes to Consolidated Financial Statements 6-8
Review By Independent Accountants 9
Independent Accountants' Review Report 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 23 Acknowledgment of Independent Accountants 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except common stock share amounts) May 3, February 1,
ASSETS 1997 1997
----- -----
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $14,261 $ 34,326
Merchandise inventory 35,486 27,117
Receivables 1,637 3,556
Prepaid expenses and other 4,805 4,381
Deferred income taxes 4,425 4,380
------- --------
Total current assets 60,614 73,760
------- --------
Fixed assets:
Fixtures and equipment 24,116 23,118
Leasehold improvements 33,105 32,671
------- --------
57,221 55,789
Less: Accumulated depreciation and amortization 20,775 21,598
------- --------
36,446 34,191
------- --------
Other assets 2,670 2,487
------- --------
Total assets $99,730 $110,438
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,107 $ 20,430
Accrued compensation and payroll taxes 3,941 4,926
Accrued rent 6,064 6,006
Accrued income and other taxes 526 5,478
Other liabilities and accrued expenses 2,267 2,542
------- --------
Total current liabilities 31,905 39,382
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Stockholders' equity:
Common stock, 30,000,000 shares authorized, 10,053,350
shares issued (10,051,950 shares at February 1, 1997) 53,276 52,863
Contributed capital 5,539 5,535
Retained earnings 13,500 17,119
------- --------
72,315 75,517
Less: Deferred compensation 2,865 2,836
Treasury stock, 134,000 shares 1,625 1,625
------- --------
Total stockholders' equity 67,825 71,056
------- --------
Total liabilities and stockholders' equity $99,730 $110,438
======= ========
</TABLE>
See notes to Consolidated Financial Statements
3
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AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
May 3, May 4,
1997 1996
---- ----
<S> <C> <C>
Net sales $ 60,952 $ 54,396
Cost of sales, including certain buying, occupancy
and warehousing expenses 46,699 40,786
-------- --------
Gross profit 14,253 13,610
Selling, general and administrative expenses 18,910 17,286
Depreciation and amortization 1,669 1,567
-------- --------
Operating loss (6,326) (5,243)
Interest income, net 330 314
-------- --------
Loss before income taxes (5,996) (4,929)
Benefit for income taxes (2,377) (1,938)
-------- --------
Net loss $ (3,619) $ (2,991)
======== =========
Net loss per common share $ (0.36) $ (0.30)
======== =========
Weighted average number of shares outstanding 9,918 9,875
======== =========
Retained earnings, beginning $ 17,119 $ 11,194
Net loss (3,619) (2,991)
-------- --------
Retained earnings, ending $ 13,500 $ 8,203
======== ========
</TABLE>
See notes to Consolidated Financial Statements
4
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AMERICAN EAGLE OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
May 3, May 4,
1997 1996
---- ----
<S> <C> <C>
Net loss $ (3,619) $ (2,991)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 1,669 1,567
Loss on disposal 401 237
Restricted stock compensation 262 206
Deferred income taxes (45) -
CHANGES IN ASSETS AND LIABILITIES:
Merchandise inventory (8,369) (1,075)
Receivables 1,782 3,173
Prepaid and other (523) (649)
Accounts payable (2,066) (1,660)
Accrued liabilities (5,725) (3,038)
-------- --------
Total adjustments (12,614) (1,239)
-------- --------
Net cash used for operating activities (16,233) (4,230)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (3,845) (1,467)
Collection on notes from sale of outlet stores - 3,568
-------- --------
Net cash used for investing activities (3,845) 2,101
-------- --------
FINANCING ACTIVITIES:
Stock options exercised 13 -
-- -
Net cash provided by financing activities 13 -
-- -
Net decrease in cash (20,065) (2,129)
Cash - beginning of period 34,326 19,986
-------- --------
Cash - end of period $ 14,261 $ 17,857
======== ========
</TABLE>
See notes to Consolidated Financial Statements
5
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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 May 3, 1997 and for the three month periods
ended May 3, 1997 (the "current period") and May 4, 1996 (the "prior period")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The Consolidated Balance Sheet at
February 1, 1997 was derived from the audited financial statements. The
Company's business is affected by the pattern of seasonality common to most
retail apparel businesses. The results for the current and prior periods are
not necessarily indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim Consolidated Financial Statements presented in this Quarterly Report on
Form 10-Q. Therefore, these Consolidated Financial Statements should be read in
conjunction with the Company's Fiscal 1996 Annual Report.
2. BASIS OF PRESENTATION
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. On an ongoing basis,
management reviews its estimates based on currently available information.
Changes in facts and circumstances may result in revised estimates.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common shares
outstanding during the periods presented. Common share equivalents, principally
in the form of employee stock option awards, are not reflected in the common
stock outstanding as they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted in the Company's 1997
annual report. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary (termed basic earnings per
share) earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement 128 on the calculation of primary and fully
diluted earnings per share for the quarters ended May 3, 1997 and May 4, 1996
is not expected to be material.
RECLASSIFICATION
Certain reclassifications have been made to the Consolidated Financial
Statements for the prior period in order to conform to the May 3, 1997
presentation.
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Because no borrowings were required under the terms of the Company's line of
credit, there were no amounts paid for interest during the three months ended
May 3, 1997 or May 4, 1996. Income tax payments were $2.4 million and $0.6
million during the three months ended May 3, 1997 and May 4, 1996,
respectively.
4. RELATED PARTY TRANSACTIONS
As described in the information that follows, the Company has various
transactions with related parties. The nature of the relationship is
6
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primarily through common ownership. The Company has an operating lease for its
corporate headquarters and distribution center with an affiliate of the
Company. The lease, which was entered into on January 1, 1996, and expires on
December 31, 2010, provides for annual rental payments of approximately $1.2
million through 2001, $1.6 million through 2006, and $1.8 million through the
end of the lease.
In addition, the Company purchases merchandise from and sells merchandise to
various related parties and uses the services of a related importing company.
Transactions with these related parties and associated balance sheet amounts
were as follows:
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
May 3, May 4,
1997 1996
---- -----
<S> <C> <C>
Merchandise purchases plus
import administrative charges $ 12,377 $ 7,076
Accounts payable $ 5,985 $ 4,499
Accounts receivable $ 138 $ 401
Rent expense $ 401 $ 395
Merchandise sales $ 305 $ 178
</TABLE>
The Company has provided one-year loans, which are renewed annually, to certain
officers and other individuals to pay the taxes on the restricted stock that
vested in April 1995. As of May 3, 1997, the outstanding value of these loans,
including interest at 6.8%, approximated $515,000 as compared with $350,000 at
May 4, 1996.
5. ACCOUNTS RECEIVABLE
Accounts Receivable is comprised of the following:
<TABLE>
<CAPTION>
May 3, February 1,
1997 1997
---- ----
<S> <C> <C>
Accounts Receivable - Landlord $ 898 $ 1,336
Related Party Accounts Receivable 138 1,334
Accounts Receivable - Other 601 886
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Total $ 1,637 $ 3,556
======= =======
</TABLE>
6. INCOME TAXES
The provisions of FASB No. 109, "Accounting for Income Taxes", have been
reflected in the preparation of the accompanying Consolidated Financial
Statements. For the three months ended May 3, 1997 and May 4, 1996, the
effective tax rate used to provide income tax amounts approximated 39%.
7. LEASE COMMITMENTS
The Company is contingently liable for the rental payments totaling
approximately $7.0 million for the outlet stores which were sold in October
1995.
7
<PAGE> 8
8. SUBSEQUENT EVENT
Effective May 4, 1997, the Company acquired Prophecy Ltd. (Prophecy), a New
York-based contract apparel manufacturer. The majority partner of Prophecy was
the Schottenstein family. The goals of the acquisition are to leverage the
talent and expense of the Company's New York design office and to use Prophecy's
production expertise and manufacturing relationships to shorten the product
delivery cycle and enable the Company to continually improve product quality and
value. The terms of the acquisition included a cash payment of $0.9 million at
closing, as well as the assumption of net liabilities of approximately $2.7
million.
8
<PAGE> 9
REVIEW BY INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, our independent accountants, have performed a limited review
of the Consolidated Financial Statements for the quarters ended May 3, 1997 and
May 4, 1996, as indicated in their report on the limited review included below.
Since they did not perform an audit, they express no opinion on the
Consolidated Financial Statements referred to above. Management has given
effect to any significant adjustments and disclosures proposed in the course of
the limited review.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
American Eagle Outfitters, Inc.
We have reviewed the accompanying consolidated balance sheet of American Eagle
Outfitters, Inc. as of May 3, 1997, and the related consolidated statements of
operations for the three-month periods ended May 3, 1997 and May 4, 1996 and
the consolidated statements of cash flows for the three-month periods ended May
3, 1997 and May 4, 1996. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of American Eagle Outfitters, Inc. as
of February 1, 1997, and the related consolidated statements of operations and
cash flows for the year then ended (not presented herein) and in our report
dated March 7, 1997 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of February 1, 1997, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Pittsburgh, Pennsylvania
May 27, 1997
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of the listed items included in the Company's
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three months ended
------------------
May 3, May 4,
1997 1996
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales, including certain buying,
occupancy and warehousing expenses 76.7 75.0
----- -----
Gross profit 23.3 25.0
Selling, general and administrative
expenses 31.0 31.8
Depreciation and amortization 2.7 2.9
----- -----
Operating loss (10.4) (9.7)
Interest income, net 0.5 0.6
----- -----
Loss before income taxes (9.9) (9.1)
Benefit for income taxes (3.9) (3.6)
----- -----
Net loss (6.0)% (5.5)%
===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MAY 3, 1997 TO THREE MONTHS ENDED MAY 4, 1996
Net sales for the three months ended May 3, 1997 (the "current period")
increased 12.0% to $60.9 million from $54.4 million for the three months ended
May 4, 1996 (the "prior period"). The increase in net sales resulted primarily
from increases of $5.2 million from non-comparable store sales and $1.7 million
or 3.3% in comparable stores sales, offset by a decrease of $0.3 million from
merchandise sales to Mycal Ltd. (formerly Nimius). The total increase in net
sales resulted primarily from an increase in units sold rather than from an
increase in prices. The Company operated 309 stores, excluding 3 temporary
locations, at the end of the current period, compared to 274 stores, excluding 3
temporary locations, operated at the end of the prior period.
Gross profit for the current period increased to $14.3 million from $13.6
million for the prior period. This increase was attributable to higher initial
mark-ups, offset by higher markdowns and occupancy costs compared to the prior
period. Gross profit as a percent of net sales for the current period decreased
to 23.3% from 25.0% for the prior period. This decrease was attributable to the
increased markdowns as a percent of net sales, only partially offset by an
increase as a percent of net sales of higher initial mark-ups.
Selling, general and administrative expenses for the current period increased
to $18.9 million from $17.3 million for the prior period. As a percent of net
sales, these expenses decreased to 31.0% from 31.8% for the prior period. The
increase of $1.6 million resulted from an increase of $1.0 million in salaries
primarily to support the new store growth, an increase of $0.4 million in
promotional advertising, and an increase of $0.3 million in services purchased.
Depreciation and amortization expense for the current period increased to $1.7
million from $1.6 million for the prior period and represented 2.7% of sales in
the current period as compared to 2.9% of sales in the prior period.
Interest income for the current and prior periods was $0.3 million. Interest
income was generated on cash available for investment. No
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borrowings were required under the terms of the Company's line of credit during
the current period.
The loss before income taxes for the current period increased to $6.0 million
from a $4.9 million loss before income taxes for the prior period. As a percent
of net sales, the loss before income taxes for the current period increased to
9.9% from 9.1% for the prior period. The increase in the loss before income
taxes of $1.1 million was primarily a result of higher selling, general, and
administrative expenses and depreciation, offset by increased gross profit
dollars.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of working capital in the current period were cash
flow used by operating activities, primarily to support inventory increases for
anticipated sales and new store growth and accounts payable decreases.
Additionally, the Company used working capital to support capital expenditures.
The Company had working capital of $28.7 and $34.4 million at May 3, 1997 and
February 1, 1997, respectively.
At May 3, 1997, the Company had an unsecured demand lending arrangement with a
bank to provide a $60.0 million line of credit at either the lender's prime
lending rate (8.25% at May 3, 1997) or a negotiated rate such as LIBOR. The
facility has a limit of $40.0 million that can be used for direct borrowing.
Cash generated from operations in prior periods was sufficient enough to
finance operations so that no borrowings were required against the line during
the current period. Letters of credit in the amount of $22.1 million were
outstanding at May 3, 1997. The remaining available balance on the line was
$37.9 million at May 4, 1997.
Capital expenditures, net of construction allowances, totaled $3.8 million for
the three months ended May 3, 1997. These expenditures included the addition of
10 new store locations (including 3 temporary locations), 12 store remodels,
leasehold improvements in existing stores, and the purchase of CAD equipment
and software.
The Company expects to open an additional 15 stores during the remainder of the
fiscal year. The Company has also selected an additional 8 of its
better-performing older stores to upgrade to the newest store design during the
remainder of Fiscal 1997. These locations were selected based upon criteria
such as historical sales performance and lease terms. These forward-looking
statements will be influenced by factors including the Company's financial
position, consumer spending, and the number of advantageous mall store leases
that may become available. The Company believes that the cash flow from
operations and its bank line of credit will be sufficient to meet its presently
anticipated cash requirements through Fiscal 1997.
SEASONALITY
Historically, the Company's operations have been seasonal, with highest sales
and net income occurring in the fourth fiscal quarter, reflecting increased
demand during the year-end holiday selling season and, to a lesser extent, the
third quarter, reflecting increased demand during the back-to-school selling
season. The Company has generally recognized net losses during its first and
second fiscal quarters.
IMPACT OF INFLATION
The Company does not believe that the relatively modest levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on its net sales or its profitability. Substantial increases
in cost, however, could have a significant impact on the Company and the
industry in the future.
SAFE HARBOR STATEMENT AND BUSINESS RISKS
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 the Company's
expectations or beliefs concerning future events, including the following: the
planned opening of 15 stores during the remainder of Fiscal 1997; the selection
of 8 stores for remodeling during the remainder of Fiscal 1997; and the
sufficiency of cash flows and line of credit facilities to meet Fiscal 1997
cash requirements. The Company cautions that these statements are further
qualified by factors that could cause actual results to differ materially from
those in the forward-looking statements, including without limitation, the
following: a decline in demand for the merchandise offered by the Company; any
events causing the disruption of imports including the insolvency of a
significant supplier; the ability of the Company to locate and obtain favorable
store sites and negotiate acceptable lease terms; the ability of the Company to
gauge the fashion tastes of its customers and provide merchandise that
satisfies customer demand; the effect of the economic conditions; and the
effect of competitive pressures from other retailers.
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Results actually achieved thus may differ materially from expected results in
any forward-looking statements.
The Company's results of operations will also fluctuate from quarter to quarter
in the future as a result of numerous other factors. These include factors the
Company cannot control that impact mall-based retailers generally, such as
factors affecting the amount of traffic in enclosed shopping malls and regional
and national economic conditions affecting disposable consumer income. They
also include factors over which the Company has some control, such as
distinguishing itself from its competitors based on the quality and design of
its private label brand names; identifying and responding to fashion trends in
a timely manner; the ability to direct source merchandise closer to need and in
appropriate quantities; the ability to retain qualified personnel; and the
number and timing of the opening of new stores. Any one or a combination of
these factors could have a material adverse affect on the Company's results of
operations and financial condition.
12
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PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 1997 Annual Meeting of Shareholders on May 7,
1997. Holders of 7,978,306 Common Shares of the Company were present
representing approximately 80% of the Company's 9,917,950 Common Shares
issued and outstanding.
(b) The following persons were elected as members of the Company's Board of
and Directors to serve until the annual meeting following their election or
(c) until their successors are duly elected and qualified. Each person
received the number of votes for or the number of votes with authority
withheld indicate below.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- ---- --------- --------------
<S> <C> <C>
Martin P. Doolan 7,538,723 439,583
Thomas R. Ketteler 7,538,723 439,583
George Kolber 7,538,214 440,092
John L. Marakas 7,538,725 439,581
Jay L. Schottenstein 7,538,823 440,483
Saul Schottenstein 7,523,223 455,083
David W. Thompson 7,538,216 440,090
</TABLE>
The proposal to approve the amendments to the Company's 1994 Stock
Option Plan described in the Proxy Statement passed with 6,377,605
votes For, 641,304 votes Against and 11,923 votes withheld.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.10 Purchase Agreement re: Prophecy Limited
Partnership.
23. Acknowledgment of Independent Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K - None
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated June 16, 1997
American Eagle Outfitters, Inc.
(Registrant)
/s/ Laura A. Weil
------------------------------------
Laura A. Weil
Executive Vice President and Chief Financial Officer
/s/ Dale E. Clifton
-----------------------------------
Dale E. Clifton
Vice President, Controller and Chief Accounting Officer
14
<PAGE> 1
Exhibit 10.10
PURCHASE AGREEMENT
This Agreement is made effective as of the 4th day of May, 1997, by and
among Prophecy Co., an Ohio corporation (the "G.P. Buyer"), Prophecy Ltd.
Partner Co., an Ohio corporation (the "L.P. Buyer") (G.P. Buyer and L.P. Buyer
sometimes referred to collectively as the "Buyers"), Glosser Brothers
Acquisition, Inc., a Delaware corporation ("GB"), The Jay L. Schottenstein
Descendants Trust ("JLS Trust"), The Ann S. Deshe Descendants Trust ("ASD
Trust"), The Susan S. Diamond Descendants Trust ("SSD Trust"), The
Schottenstein Family Limited Partnership, an Ohio limited partnership ("SFLP")
(GB, JLS Trust, ASD Trust, SSD Trust, and SFLP collectively referred to herein
as the "Sellers"), and Prophecy Limited Partnership, an Ohio limited
partnership (the "Partnership").
WHEREAS, GB is the general partner of the Partnership and owns a 2%
general partnership interest (the "GB Interest") in the Partnership under the
Certificate and Agreement of Limited Partnership, dated as of November 22, 1994
(the "Partnership Agreement"); and
WHEREAS, JLS Trust is a limited partner of the Partnership and owns a
35.92% limited partnership interest (the "JLS Trust Interest") in the
Partnership under the Partnership Agreement;
WHEREAS, ASD Trust is a limited partner of the Partnership and owns a
20.54% limited partnership interest (the "ASD Trust Interest") in the
Partnership under the Partnership Agreement;
WHEREAS, SSD Trust is a limited partner of the Partnership and owns a
20.54% limited partnership interest (the "SSD Trust Interest") in the
Partnership under the Partnership Agreement;
WHEREAS, SFLP is a limited partner of the Partnership and owns a 5%
limited partnership interest (the "SFLP Interest") in the Partnership under the
Partnership Agreement;
WHEREAS, the G.P. Buyer desires to purchase the general partner interest
in the Partnership through the purchase of the GB Interest, and the L.P. Buyer
desires to purchase the limited partner interests in the Partnership through
the purchase of the JLS Trust Interest, the ASD Trust Interest, the SSD Trust
Interest, and the SFLP Interest (all of the interests, collectively, to be
referred to as the "Purchased Interests") and the Sellers desire to sell and
assign all of their Purchased Interests in the Partnership to the Buyers,
pursuant to the terms of this Agreement;
WHEREAS, upon giving effect to such sale and assignment of the Purchased
Interests, the G.P. Buyer shall become the substituted general partner of the
Partnership and the L.P. Buyer shall become the substituted limited partner of
the Partnership, each holding a percentage interest in the Partnership
according to an amended agreement of limited partnership to be agreed upon
between the G.P. Buyer and the L.P. Buyer following the Closing (the "Amended
Partnership Agreement"); and
WHEREAS, all of the partners of the Partnership have consented to the sale
and assignment of the Purchased Interests to the Buyers.
<PAGE> 2
NOW, THEREFORE, in consideration of the promises and the mutual benefits
to be derived from this Agreement and of the respective agreements and
covenants set forth herein, the parties, intending to be legally bound, agree
as follows:
I. CLOSING
1.1 CLOSING. The closing with respect to the transactions provided for in
this Agreement (the "Closing") shall take place upon the signing of this
Agreement to be effective the close of business on May 4, 1997 (the "Effective
Date").
II. SALE OF THE PURCHASED INTERESTS AND RELATED TRANSACTIONS
2.1 SALE OF PURCHASED INTERESTS. On the terms set forth in this Agreement,
the Sellers hereby sell, convey, assign, transfer and deliver to the Buyers,
and the Buyers hereby purchase and accept from the Sellers, effective as of the
Effective Date, the entire right, title and interest in and to the Purchased
Interests, free and clear of all liens, security interests, taxes, charges,
encumbrances and claims of every kind, for an aggregate purchase price not to
exceed One Million Six Hundred Thousand ($1,600,000) Dollars (the "Purchase
Price"). The Purchase Price shall be allocated among the Sellers prorata in
proportion to their percentage ownership interests in the Partnership and shall
be paid by the Buyers in the following manner: (A) $900,000 cash payment at
Closing; and (B) provided only if Buyers continue to own and operate the
Partnership business, then contingent payments of $233,333 to be paid on each
of the first two anniversaries of the Closing and $233,334 to be paid on the
third anniversary of the Closing. The amount of these contingent payments is
subject to adjustment as set forth in Section 2.2 below.
2.2 ADJUSTMENT TO PURCHASE PRICE. As soon as practicable after the
Effective Date, the Sellers and Buyers shall jointly prepare a balance sheet
based on the Partnership's books and records as of the close of business on
March 31, 1997 (hereinafter referred to as the "Closing Balance Sheet"). If the
Closing Balance Sheet shows an increase or decrease of more than $50,000 (a
"Material Increase" or "Material Decrease") in the net book value of the
Partnership as compared to the negative net book value of $1,730,000 shown on
the preliminary balance sheet the Partnership as of December 31, 1996 (the
"Preliminary Balance Sheet"), the contingent purchase price payments set forth
in Section 2.1 shall be adjusted according to this Section 2.2. For purposes of
making such an adjustment, if the Closing Balance Sheet shows a Material
Increase, then the contingent payments shall be increased dollar for dollar for
every dollar of such Material Increase. Or, in the alternative, if the Closing
Balance Sheet shows a Material Decrease, then the contingent payments shall be
reduced dollar for dollar for every dollar of such Material Decrease. Any such
resulting adjustment to the Purchase Price shall be added or deducted from the
contingent payments equally. If the Closing Balance Sheet shows neither a
Material Increase nor a Material Decrease, there shall be no adjustment to the
contingent payments.
2.3 CONTINUATION OF PARTNERSHIP AS A PARTNERSHIP. On and after the
Closing, and effective as of the Effective Date, the G.P. Buyer shall be a
substituted general partner, and the L.P. Buyer a
2
<PAGE> 3
substituted limited partner in the Partnership, pursuant to the Amended
Partnership Agreement. Notwithstanding the above, the Partnership shall be
deemed to terminate with respect to the Sellers.
2.4 LIQUIDATION OPTION. If the Buyers, in their sole discretion, elect to
terminate the operation of the business of the Partnership (not including the
continuation of the business in a different legal entity) at any time during
the three years after the Closing, the Buyers shall provide Sellers written
notice of their intention to either sell or wind-up and liquidate the
Partnership business. Upon receipt of the notice, Sellers shall have the right,
exercisable for a period of 30 days by written notice to the Buyers, to acquire
the Partnership business at a price to be agreed upon.
2.5 TAXES. The Sellers shall prepare, execute and file all tax returns
relating to, and the Sellers shall be responsible for and pay when due, any and
all sales, real estate, transfer or use or other tax due with regard to the
purchase and sale of the Purchased Interests.
III. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLERS AND
THE PARTNERSHIP
Each of the Sellers, jointly and severally, hereby represents and warrants
to the Buyers and agrees as follows:
3.l EXISTENCE AND GOOD STANDING. GB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the power and authority to own, operate and lease its properties, to
carry on its business as now being conducted and to enter into this Agreement
and perform its obligations hereunder. Each of JLS Trust, ASD Trust, and SSD
Trust is a trust duly organized and validly existing under the laws of the
State of Ohio, and has the power and authority to own, operate and lease its
properties, to carry on its business as now being conducted and to enter into
this Agreement and perform its obligations hereunder. SFLP is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Ohio, and has the power and authority to own, operate and
lease its properties, to carry on its business as now being conducted and to
enter into this Agreement and perform its obligations hereunder.
3.2 OWNERSHIP OF PURCHASED INTERESTS. Each of GB, JLS Trust, ASD Trust,
SSD Trust and SFLP is the lawful owner of their respective Purchased Interests,
free and clear of all security interests, liens, encumbrances and claims of
every kind. Sellers have full legal right power and authority to enter into
this Agreement and to sell, assign, transfer and convey the Purchased Interests
pursuant to this Agreement. The delivery to the Buyer of the Purchased
Interests pursuant to the provisions of this Agreement will transfer to the
Buyer valid title thereto, free and clear of all security interests, liens,
encumbrances and claims of every kind, except with respect to the GB Interest,
which may be subject to such encumbrances arising solely as a result of its
representing a general partner interest in the Partnership.
3.3 ORGANIZATION, POWER, AND GOOD STANDING OF PARTNERSHIP. The Partnership
is a limited partnership, duly organized, validly existing and in good standing
under the laws of the State of
3
<PAGE> 4
Ohio. The Sellers have furnished to the Buyer a true, complete and correct copy
of the Partnership Agreement, which remains in full force and effect without
modification through the Closing. The Partnership has all requisite power and
authority to own, operate and lease its properties, to carry on its business as
now being conducted and to enter into this Agreement and perform its
obligations hereunder. The Partnership is duly qualified to do business as a
foreign partnership and is in good standing in each of the jurisdictions in
which the property operated by the Partnership or the nature of its business
makes such qualification necessary except where failure to so qualify would not
have a material adverse effect on the financial condition of the Partnership
and would not in any way affect the enforceability of this Agreement.
3.4 AUTHORITY RELATIVE TO AGREEMENT. The execution, delivery and
performance of this Agreement and all documents and instruments to be delivered
in connection herewith by each of the Sellers has been duly and effectively
authorized by all necessary corporate, trustee or partnership action of the
Partnership and the Sellers. This Agreement has been duly executed by each of
the Sellers and is a valid, legally binding and enforceable obligation of each
of the Sellers.
3.5 EFFECT OF AGREEMENT. The execution, delivery and performance of this
Agreement and all documents and instruments to be delivered in connection
herewith by each of the Sellers and the consummation by each of them of the
transactions contemplated hereby and thereby does not (i) require the consent,
approval or authorization of any person, corporation, partnership, joint
venture or other business association or public authority; (ii) violate, with
or without the giving of notice or the passage of time, or both, any provisions
of law or statue or any rule, regulation, order, award, judgement or decree of
any court or governmental authority applicable to any of the Sellers; or (iii)
conflict with or result in a breach or termination of any provision of, or
constitute a default under, or result of the creation of any lien, charge or
encumbrance upon any of the assets of the Partnership or the Purchased
Interests pursuant to any corporate charter, by law, partnership agreement,
indenture, mortgage, deed of trust, lease, contract, agreement or other
instrument, or any order, judgement, award, decree, statue, ordinance,
regulation or any other restriction of any kind or character, to which any of
the Sellers is a party, or by which any of the Sellers or any of the Purchased
Interests may be bound.
3.6 FINANCIAL STATEMENTS. The Sellers and the Partnership have heretofore
furnished the Buyers with the Preliminary Balance Sheet, which represents the
preliminary balance sheet of the Partnership as of December 31, 1996. The
Closing Balance Sheet fairly presents the financial condition of the
Partnership at the date thereof.
3.7 TITLE TO PROPERTIES; ENCUMBRANCES. Except for properties and assets
reflected in the Closing Balance Sheet which have been sold or otherwise
disposed of in the ordinary course of business, the Partnership has good, valid
and marketable title to all of its material properties and assets (real and
personal, tangible and intangible), including, without limitation, all of the
properties and assets reflected in the Closing Balance Sheet, except as
indicated in any notes thereto.
4
<PAGE> 5
3.8 PARTNERSHIP CONTRACTS. The Partnership neither has nor is bound by any
agreement, contract, obligation, lease or commitment that would have a material
adverse effect on the Partnership or this Agreement or that could not be
cancelled without penalty upon 30 days notice. Each agreement, contract,
obligation, lease and commitment of the Partnership is in full force and effect
and there exists no default or event of default or event, occurrence, condition
or act (including the sale of the Purchased Interests hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder. The
Partnership has not violated any of the terms or conditions of any agreement,
contract, obligation, lease or commitment in any material respect, and, to the
best knowledge, information and belief of the Partnership and the Sellers, all
of the covenants to be performed by any other party thereto have been performed
in all material respects.
3.9 LITIGATION. There is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding by or before or any
investigation by any governmental or other instrumentality or agency, pending,
or, to the best knowledge, information and belief of the Partnership and the
Sellers, threatened, against or affecting the Partnership which, if adversely
determined, would have a material adverse effect on the business of the
Partnership; and the Sellers do not know of any valid basis for any such
action, proceeding or investigation. The Partnership is not subject to any
judgment, order or decree entered in any lawsuit or proceeding.
3.10 TAXES. The Partnership has filed or caused to be filed, within the
times and within the manner prescribed by law, all federal, state, local and
foreign tax returns and tax reports which are required to be filed by, or with
respect to the Partnership. All federal, state, local and foreign income,
profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) payable by, or due from, the
Partnership prior to the Effective Date have been or will be fully paid by the
Sellers. No examination of any tax return of the Partnership is currently in
progress other than a New York state payroll tax inquiry for the quarter ended
June 30, 1995. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Partnership.
Where requested, the Partnership has provided the Buyers accurate and complete
copies of all tax returns filed by the Partnership. The Sellers shall pay or
immediately reimburse the Buyers on demand all tax liabilities of every nature
whatsoever incurred by the Partnership on or prior to the Effective Date or as
a result of the transactions contemplated by this Agreement.
3.11 LIABILITIES. The Partnership has no outstanding claims, liabilities
or indebtedness, contingent or otherwise, of a type required to be accrued
under generally accepted accounting principles, except as set forth in the
Closing Balance Sheet or incurred in the ordinary course of its business after
the date thereof. The Partnership is not in default in respect of the terms or
conditions of any indebtedness.
3.12 COMPLIANCE WITH LAWS. The Partnership is in compliance in all
material respects with all applicable laws, regulations, orders, judgments and
decrees.
5
<PAGE> 6
3.13 NO CHANGES SINCE THE CLOSING BALANCE SHEET DATE. Since the date of
the Closing Balance Sheet, except as expressly contemplated hereby or except as
incurred in the ordinary course of business, the Partnership has not (a)
incurred any liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, (b) permitted any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge
of any kind, (c) sold, transferred or otherwise disposed of any assets, (d)
made any capital expenditure or commitment therefor, (e) made any bonus or
profit sharing distribution or payment of any kind, (f) incurred indebtedness
for borrowed money or made any loan, (g) written off as uncollectible any notes
or accounts receivable, (h) cancelled or waived any claims or rights, (i) made
any change in any method of accounting or auditing practice, (j) otherwise
conducted its business or entered into any transaction, except in the usual and
ordinary manner and in the ordinary course of business, or (k) agreed, whether
or not in writing, to do any of the foregoing.
3.14 DISCLOSURE. None of this Agreement, the Closing Balance Sheet, or any
document delivered in accordance with the terms hereof contains any untrue
statement of a material fact, or omits any statement of a material fact
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Partnership or the Sellers which
materially and adversely affects the business, prospects or financial condition
of the Partnership or its properties or assets, which has not been set forth in
this Agreement or any document delivered in accordance with the terms hereof.
3.15 INVENTORY; ACCOUNTS RECEIVABLE. The inventory, including, without
limitation finished goods, inventory in-transit, work-in-progress, piece goods
and trim, of the Partnership reflected on the Closing Balance Sheet is carried
on the books of the Partnership at the lower of cost (first-in, first-out
basis) or market, plus or minus any adjustments agreed to by the Buyer in
connection with preparation of the Closing Balance Sheet. The accounts
receivable reflected in the Closing Balance Sheet (the "Accounts Receivable")
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. The Accounts Receivable
are currently collectable net of the respective reserves, if any, shown on the
Closing Balance Sheet (which reserves are adequate and calculated consistent
with past practice), and, to Sellers' knowledge, there is no contest, claim, or
right of set-off with any obligor of an Accounts Receivable relating to the
amount or validity of such Accounts Receivable in excess of the amount of the
reserves.
3.16 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on
behalf of the Sellers or the Partnership is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person or entity controlling, controlled by or under common control with
any of the parties hereto, in connection with any of the transactions
contemplated by this Agreement.
6
<PAGE> 7
IV. REPRESENTATIONS AND WARRANTIES OF THE BUYERS.
Buyers, jointly and severally, represent and warrant to the Sellers as
follows:
4.1 ORGANIZATION; GOOD STANDING; POWER. Each of the Buyers is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio and has all requisite corporate power and authority
to own, lease and operate its properties, to carry on its business and to enter
into this Agreement and perform its obligations hereunder and thereunder. Each
of the Buyers is duly qualified to do business as a foreign corporation and is
in good standing in each of the jurisdictions in which the property owned,
leased or operated by it or the nature of the business conducted by it after
the consummation of the transaction contemplated hereunder makes such
qualification necessary.
4.2 AUTHORITY RELATIVE TO AGREEMENT, ETC. The execution, delivery and
performance of this Agreement and all documents and instruments to be delivered
in connection herewith and the transactions contemplated hereby and thereby by
the Buyers have been duly and effectively authorized by all necessary corporate
action of the Buyers. This Agreement has been duly executed by the Buyer and is
a valid, legally binding and enforceable obligation of the Buyers.
4.3 EFFECT OF AGREEMENT. The execution, delivery and performance of this
Agreement and all documents and instruments to be delivered in connection
herewith by the Buyers and the consummation of the transactions contemplated
hereby will not (i) require the consent, approval or authorization of any
person, corporation, partnership, joint venture or other business association
or other public authority; (ii) violate, with or without the giving of notice
or the passage of time, or both, any provisions of law applicable to the
Buyers; or (iii) conflict with or result in a breach or termination of any
provision of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any of the properties or assets of the Buyers
pursuant to any indenture, corporate charter, bylaw, agreement, indenture,
mortgage, deed of trust, lease, contract, agreement or other instrument or any
order, judgment, award, decree, statute, ordinance, regulation or any other
restriction of any kind or character, to which the Buyers are a party, or by
which the Buyers or any of their assets or properties may be bound.
V. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
5.1 SURVIVAL OF REPRESENTATIONS, ETC. All representations, warranties and
agreements made by the Sellers, on the one hand, or the Buyers on the other
hand, in this Agreement or in any document or instrument delivered pursuant to
the provisions hereof or in connection with the transactions contemplated
hereby, and the remedies of the Sellers, on the one hand, or the Buyers on the
other hand, with respect thereto, shall survive the Closing hereunder.
5.2 INDEMNIFICATION. (a) Each Seller, jointly and severally, shall
indemnify, pay on behalf of, defend and hold harmless each Buyer, its parent,
and their directors, officers, employees, agents
7
<PAGE> 8
and successors and assigns (collectively, the "Buyer Parties"), from and
against any and all demands, claims, actions or causes of action, losses,
damages, liabilities, costs and expenses, including, without limitation, the
costs of investigation and reasonable attorney's fees and expenses, asserted
against, resulting to, imposed upon or incurred by the Buyer Parties arising
out of or relating to any breach of this Agreement by any of the Sellers or the
performance by any of the Sellers of any of their obligations under this
Agreement; provided, however, each Sellers liability hereunder shall be limited
to no more than the amount of the Purchase Price actually received by such
Seller.
(b) Each Buyer, jointly and severally, shall indemnify, pay on behalf
of, defend and hold harmless each Seller, its affiliates, and their trustees,
directors, officers, employees, agents and successors and assigns
(collectively, the "Seller Parties"), from and against any and all demands,
claims, actions or causes of action, losses, damages, liabilities, costs and
expenses, including, without limitation, the costs of investigation and
reasonable attorney's fees and expenses, asserted against, resulting to,
imposed upon or incurred by the Seller Parties arising out of or relating to
any breach of this Agreement by any of the Buyers or the performance by any of
the Buyers of any of their obligations under this Agreement.
(c) No claim shall be made for indemnification under this Article V by
a party, unless and until the total value of all claims by the party exceed
$50,000, in which event only claims exceeding such amount may be recovered. No
claim shall be made for indemnification under this Article V by a party unless
written notice of the claim has been sent to the other party on or before two
(2) years from the Closing.
VI. MISCELLANEOUS
6.1 FURTHER ASSURANCES; RECORDS, ETC. (a) From time to time after the
Closing, upon the reasonable request of the other party hereto, each party will
execute, deliver and acknowledge all such further instruments and documents as
the other may reasonably require to further evidence the completion of the
transactions contemplated under this Agreement.
(b) On and after the Closing, Buyers will permit the Sellers and their
representatives reasonable access to the books, records and accounts of the
Partnership reasonably necessary to prepare, review or audit any of the
financial statements or tax returns of any of them, and Buyers and the Sellers
agree to cooperate with each other in preparing and filing tax returns to the
extent deemed reasonably necessary by both parties.
6.2 AMENDMENT. This Agreement may be amended, modified or supplemented
only by a written instrument executed by all the parties hereto. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
8
<PAGE> 9
6.3 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, the Buyers shall pay the fees and expenses of their
counsel, accountants, other experts and all other expenses incurred by them
incident to the negotiation, preparation and execution of this Agreement, and
the Sellers shall pay any and all such fees and expenses incurred by them or
the Partnership incident to the negotiation, preparation and execution of this
Agreement and the performance by the Sellers or the Partnership of their
obligations hereunder.
6.4 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid:
If to the Sellers, to:
c/o Irwin A. Bain, Esq.
Glosser Brothers Acquisition, Inc.
1800 Moler Road
Columbus, Ohio 43207
If to the Buyers, to:
Prophecy Co.
150 Thorn Hill Drive
Warrendale, PA 15086
Attn: George Kolber
or to such other address as any party shall have specified by notice in writing
to the other.
6.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
6.6 BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer on any
other person other than the parties hereto and the Buyer Parties and the Seller
Parties, or their successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6.7 APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and in accordance with the laws of the
State of Ohio
6.8 COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have duly executed and delivered this Agreement as of the date first above
written.
SELLERS:
GLOSSER BROTHERS ACQUISITION, INC. THE JAY L. SCHOTTENSTEIN
DESCENDANTS TRUST
/s/ Thomas R. Ketteler /s/ Jay L. Schottenstein
- ------------------------------ ----------------------------
By: Thomas R. Ketteler By: Jay L. Schottenstein
Its: Vice President Its: Trustee
THE ANN S. DESHE DESCENDANTS TRUST THE SUSAN S. DIAMOND
DESCENDANTS TRUST
/s/ Ann S. Deshe /s/ Susan S. Diamond
- ------------------------------ ----------------------------
By: Ann S. Deshe By: Susan S. Diamond
Its: Trustee Its: Trustee
THE SCHOTTENSTEIN FAMILY LIMITED PARTNERSHIP
/s/ Jay L. Schottenstein
- ------------------------------
By: Jay L. Schottenstein
Its: General Partner
G.P. BUYER: L.P. BUYER
PROPHECY CO. PROPHECY LTD. PARTNER CO.
/s/ George Kolber /s/ George Kolber
- ------------------------------ ------------------------------
By: George Kolber By: George Kolber
Its: Chief Operating Officer Its: Chief Operating Officer
THE PARTNERSHIP:
PROPHECY LIMITED PARTNERSHIP
By: Glosser Brothers Acquisition, Inc.,
its General Partner
/s/ Thomas R. Ketteler
- ------------------------------
By: Thomas R. Ketteler
Its: Vice President
10
<PAGE> 1
Exhibit 23
Acknowledgment of Ernst & Young LLP
The Board of Directors and Stockholders
American Eagle Outfitters, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Forms S-8) of American Eagle Outfitters, Inc. pertaining to the American Eagle
Outfitters, Inc. 1994 Stock Option Plan, the Stock Fund of the American Eagle
Outfitters, Inc. Profit Sharing and 401(k) Plan, the American Eagle Outfitters,
Inc. Employee Stock Purchase Plan, and the American Eagle Outfitters, Inc. 1994
Restricted Stock Plan of our report dated May 27, 1997 relating to the unaudited
consolidated interim financial statements of American Eagle Outfitters, Inc.
which are included in its Form 10-Q for the quarter ended May 3, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
Pittsburgh, Pennsylvania
June 13, 1997
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MAY 3, 1997 AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000919012
<NAME> AMERICAN EAGLE OUTFITTERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 14,261
<SECURITIES> 0
<RECEIVABLES> 1,637
<ALLOWANCES> 0
<INVENTORY> 35,486
<CURRENT-ASSETS> 60,614
<PP&E> 57,221
<DEPRECIATION> 20,775
<TOTAL-ASSETS> 99,730
<CURRENT-LIABILITIES> 31,905
<BONDS> 0
0
0
<COMMON> 53,276
<OTHER-SE> 14,549
<TOTAL-LIABILITY-AND-EQUITY> 99,730
<SALES> 60,952
<TOTAL-REVENUES> 60,952
<CGS> 46,699
<TOTAL-COSTS> 46,699
<OTHER-EXPENSES> 20,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (330)
<INCOME-PRETAX> (5,996)
<INCOME-TAX> (2,377)
<INCOME-CONTINUING> (3,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,619)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
