2018 Guide to Effective Proxies

2.4 Proxy summary | 69 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES AMERICAN AIRLINES GROUP • Wehaveagreedonanewleasethatwillredevelop ORDoverthenext10to15years,givingusfurther roomtogrowourORDoperation.Webuiltafive- gateexpansionatORDTerminal3,givingAmerican anewadvantageatthiskeycompetitivehub. Our Commitment to Sustainability • Withourindustryleadingfleetrenewalprogram,we continuetoaggressivelyretireolderaircraftand replacethemwithnew,morefuel-efficientaircraft. Byyear-end2017,wehadintroduced496new aircraftintothefleetsinceourmerger,andretired 469olderaircraft,givingustheyoungestfleet amongstthelargestairlines.Newaircraftentering American’sfleet,liketheBoeing737MAX,improve perseatfuelefficiencybyupto40%andthus dramaticallyreduceemissionsoversimilarlysized olderaircraft. • For2017,Americanachieveda2.5%improvement infuelefficiencyanditisnow5.4%moreefficient thanitwasin2014.Overthelast3yearsAmerican emittedapproximately4.9millionmetrictonsofCO2 lessthanitwouldhaveifitsfuelefficiencyhad remainedatits2014level. • Wereceived,forthe16thconsecutiveyear,the highestpossiblerankingbytheHumanRights Campaigninthe2017CorporateEqualityIndex. • Ourteammembersparticipatedinmorethan 21,000volunteereventsintheircommunities, contributingmorethan155,000hoursofvolunteer timeinthecommunitieswheretheyliveandwhere weprovideservice.Inaddition,aspartofthe Company’sFlightsfor50awardsprogram,ourteam membersdonatedmorethan20millionfrequentflier milestononprofitorganizationsintheir communities. Stockholder Engagement and Governance Wewelcomeandvaluecommunicationwithourstockholders.ThefollowingcorporategovernanceandBoardpractices ensureaccountabilityandenhanceeffectivenessintheboardroom: OurGovernanceBestPractices ✓ AnnualBoardelections ✓ Majorityvotingstandard ✓ 11of12directornomineesareindependent ✓ RobustLeadIndependentDirectorrolewith responsibilitiesthatconformtoleadinggovernance practices ✓ RoutinereviewofBoardleadershipstructure ✓ Regularexecutivesessionsheldwithoutmanagement present ✓ Stockholderrighttoproxyaccess ✓ AnnualBoard,committeeanddirectorevaluations ✓ AnnualreviewofBoardandcommitteecomposition ✓ AllmembersoftheAuditCommitteearedesignated financialexperts ✓ DiverseBoard ✓ Significantstockownershiprequirementsfordirectors andseniorvicepresidentsandabove ✓ ComprehensiveriskmanagementwithBoardand committeeoversight ✓ Commitmenttocorporatesocialresponsibility Executive Compensation—How We Link Pay and Performance OurCEOandotherexecutiveofficershave demonstratedtheircommitmenttofairpayandpay forperformancebyinitiatingthefollowing exceptionalactionswithrespecttotheir compensation. • Since2015,atMr.Parker’srequest,weprovide 100%ofhisdirectcompensationintheformof equityincentivesinlieuofbasesalaryandannual cashincentivecompensation.Thathashelpedto advanceourcommitmenttopayingforperformance andaligningMr.Parker’sinterestswiththatofour stockholders.Morethanhalfoftheseequity incentiveswillbeearnednotearlierthanthethird anniversaryofthegrantdatebasedonourrelative pre-taxincomemarginandtotalstockholderreturn (TSR)performance. • Athisrequest,Mr.Parker’stargetdirect compensationhasbeenhistoricallysetatbelowthe averageforhispeersatDeltaandUnited. • Alsoathisrequest,in2016,ourCompensation CommitteeagreedtoeliminateMr.Parker’s employmentagreementsothatheisnolonger contractuallyentitledtoreceiveasetlevelof compensationandbenefitsandisnolonger protectedbythechangeincontrolandseverance provisionsofthatemploymentagreement. 2018ProxyStatement | iii Total of 05 pages in section ofMarch14,69widebodyaircraftofferthisproduct. WeexpecttoofferPremiumEconomyonmostof ourwidebodyfleetbymid-2019. • Welaunchednewproductstomeetcustomer demand,includingtheexpansionofAmerican’s best-in-classloungesbyopeningFlagshipFirst Dining,anewexclusiveexperienceforcustomersin FlagshipFirstoninternationalandA321T transcontinentalflights.Americannowoffers FlagshipFirstDininginMiami,LosAngeles,and NewYork-JFK.AmericanistheonlyU.S.airline thatoffersinternationalfirstclass. MakeCultureaCompetitiveAdvantage Americaniscreatinganenvironmentthatcaresfor frontlineteammembers,developsinnovative,inspiring, andcaringleaders,andequipsourteamwiththetoolsto supportourcustomers. • Weawardedeachteammemberwithtwo complimentaryround-tripticketsacrossAmerican’s globalnetworktocommemoratebeingnamedAir TransportWorld’s2017AirlineoftheYear. • AfterhurricaneshittheCaribbeanandFlorida, AmericanAirlinesteammembersworkedtogether tohelpthepeopleofSanJuan,PuertoRicoand otheraffectedpartsoftheregion.Americanandour teammembersdeliveredmorethan2.5million poundsofreliefsupplies,raisedalmost$2million fortheAmericanRedCrossandcontributed $788,000totheFamilyFundtoprovideemergency assistancetoteammembers. • Weinvestedmorethan$300millioninfacilitiesand equipmentincludingrenovationstoteammember spaces,mobiledevicesforpilotsandflight attendants,andtheOneCampusOneTeam initiativeatourglobalsupportcenterinFortWorth. • Wekeptteammemberpaycompetitivethrough initiativessuchasamid-contractsalaryincreasefor pilotsandflightattendantsandcontinuedstep increases,aswellasamid-contractpayincrease formechanicsandfleetserviceworkers.Inearly 2018wealsosharedbenefitsoftherecentTaxCuts andJobsActthrough$1,000paymentstoall non-officerteammembers. • Weintroducedbest-in-industrymaternityand adoptionbenefits. • Weconductedourfirstteammemberengagement surveyinoveradecade,andwewillcontinuetoact ontheresultssothatAmericancontinuesto improveasaworkplace. • Weprovidedcustomerserviceskillstrainingto 35,000teammembersthroughElevatethe EverydayExperiencetraining. • WerolledoutourLeadershipModelduring2017, whichdefinestheattributesandexpectationsfor leadersatAmerican.Trainingwasinitiatedtobuild skillsthatincludeimprovedlisteningandcoachingto helpourteamleaddifferently.In2017,4,000leaders participatedinleadershiptrainingdesignedtohelp themsupportourfrontlineteammembers.Higher levelleadersunderwentadditionaltrainingtofurther listeningandcoachingskillsduring2017,andthis sametrainingwillrolloutmorebroadlyin2018.We alsobegandevelopmentofimplicitbiastrainingfor leadersandourfrontlineteamduring2017.Allofthis trainingsupportsourimperativetomakeculturea competitiveadvantageforAmericanAirlinesby buildingleaderswhosupportthefrontlineteam. EnsureLong-TermFinancialStrength Toensureourlong-termcompetitivenessintheglobal aviationindustry,wearefocusedoncapturingthe efficienciescreatedbythemerger,deliveringon American’searningspotential,andcreatingvalueforour stockholders.Inthefourfullyearssincethemerger closed,thecompany’scumulativepre-taxearningswere $15.2billion,or$19.4billionexcludingnetspecialitems. • Wereporteda2017pre-taxprofitof$3.1billion,or $3.8billionexcludingnetspecialitems. • Wereturned$1.7billiontoshareholdersin2017, includingtherepurchaseof33.9millionsharesand dividendpaymentsof$198million. • Sincemid-2014wehavereturned$11.4billionto shareholders,reducingoursharecountby 37percentto475.5millionsharesattheendof 2017. SeeAnnexAforareconciliationofpre-taxprofit excludingnetspecialitems,anon-GAAPmeasure. ThinkForward,LeadForward Wearecommittedtore-establishingAmericanasan industryleaderbycreatinganaction-orientedculturethat movesquicklytobringproductstomarket,embraces technologicalchangeandquicklyseizesuponnew opportunitiesforournetworkandourproduct. • Weacquired2.7%oftheoutstandingsharesof ChinaSouthernAirlines,thelargestairlineinChina. • Weextendedourtrans-AtlanticJointBusiness Agreementwithourairlinepartners. • Wecommittedmorethan$1.6billiontoimprove LAXTerminals4and5,settingthestagefor Americantoreceiveadditionalgates,strengthenour Pacificgatewayandbethepre-eminentairlinefor LosAngeles. ii 2018ProxyStatement | PROXY STATEMENT SUMMARY ThissummarycontainshighlightsaboutourCompanyandtheupcoming2018AnnualMeetingofStockholders(the “AnnualMeeting”).Thissummarydoesnotcontainalloftheinformationthatyoushouldconsiderinadvanceofthe meetingandweencourageyoutoreadtheentireproxystatementandtheAnnualReportonForm10-Kforth year endedDecember31,2017thataccompaniesthisproxystatementbeforevoting. 2018 Annual Meeting of Stockholders DateandTime: Wednesday, June13,2018at 9:00a.m.,localtime Location: Latham&WatkinsLLP 885ThirdAvenue NewYork,NewYork 10022 RecordDate: April16,2018 ProxyMailDate: Onorabout April30,2018. Voting Matters and Board Recommendations Matter Board Recommendation Page 1.ElectionofDirectors FOR eachDirector Nominee 5 2.RatificationofPublic AccountingFirm FOR 15 3.Aproposaltoconsiderand approve,onanon-binding, advisorybasis,executive compensationasdisclosed intheattachedProxy Statement FOR 17 4.Aproposaltoamendour RestatedCertificateof Incorporation(“Charter Amendment”)toenable stockholderswhoholdat least20%ofour outstandingcommonstock tocallspecialmeetings FOR 19 5.Ashareholderproposalto enablestockholderswho holdatleast10%ofour outstandingcommonstock tocallspecialmeetings AGAINST 21 2017 In Review 2017wasagreatyearforAmericanAirlinesthankstothe workofourover120,000full-timeequivalentteam members. Wearefocusedonfourlong-termstrategicobjectivesto guideourthinkinganddecisionsandkeeptheentireteam focusedonmanagingAmericanforthelong-term.They are:CreateaWorld-ClassCustomerExperience,Make CultureaCompetitiveAdvantage,EnsureLong-Term FinancialStrengthandThinkForward,LeadForward. CreateaWorld-ClassCustomerExperience Wearedeliveringvaluetoallcustomers,especially premiumcustomers,aswellasdrivingoperational excellenceandstrengtheningournetworkbygrowing wherewehaveacompetitiveadvantage.During2017: • Werecordedourbeston-timedepartureandarrival performancesince2003,andourbestbaggage handlingperformancesinceDOTbeganreportingin 1994. • Weexpandedtheairline’sglobalfootprintby launchingLosAngeles-to-Beijingservice,and announcedservicefromPhiladelphiatoPrague, CzechRepublic,andBudapest,Hungary;Dallas- FortWorthtoReykjavik-Keflavik,Iceland;and Chicago-O’HaretoVenice,Italy,whichwillstartthis summer. • Weoperatetheyoungestfleetamongourpeersand invested$4.1billioninnewaircraft,includingour firstBoeing737MAX.Bytheendof2018weexpect toinductatotalof20newMAXaircraft,whichare replacingolder,lessfuelefficientaircraft. • Weintroducednewstreaming-capablesatellite- basedinternetaccessonnarrowbodyaircraft, startingwiththe737MAXandexpandingsoonto mostofourdomesticmainlinefleet. • WeintroducedBasicEconomytocompetewithultra low-costcarriers.Thisproductisnowoffered nationwideandtoleisuremarketsinMexicoand mostoftheCaribbean.Weexpecttoexpanditto sometrans-Atlanticroutesthisspring. • WeexpandedPremiumEconomy,whichoffersa widerseat,morelegroom,anamenitykit,and enhancedmealchoicesoninternationalflights.As 2018ProxyStatement | i AMERICAN EAGLE OUTFITTERS, INC. PROXYSTATEMENTSUMMARY • Excellent Financial Condition. We ended Fiscal 2017 with $414 million in cash and no debt, after investing $169 million into capitalprojectsandreturningover$176milliontostockholdersthroughcashdividendsandsharerepurchases.Operatingand Free Cash Flow (1) continued to expand in Fiscal 2017, reaching $394 million and $222 million, respectively. Reflecting confidence in our growth prospects and strong cash position, in March 2018, we announced a 10% increase in our cash dividend. OperatingandFreeCashFlow (1) ($ inMillions) $342 $366 $394 $188 $203 $222 2015 2016 2017 FreeCashFlow Opera�ngCashFlow • DeliveryofStockholderReturnsVersusPeers. OurFiscal2017totalshareholderreturn(“TSR”)wasapproximately25%,and ourthree-yearrelativeTSRisatthetopofourproxypeergroup(describedonpage34herein)asdemonstratedbelow. -10% 0% 10% 20% 30% 40% 50% 1Year TSR Peergroup 75thPercen�le AEO Peergroup Median 3Year • CommittedtoCorporateGiving. InFiscal2017,wecontinuedtofocusonmakingapositiveimpactonourcustomersandthe communitiesthatsupportusthroughourcorporategivingcampaigns.Wedonatedmorethan$2.5milliontocharitablecauses andprovidedadditionalsupportthroughtheAEOFoundation,ournon-profitcorporatefoundation. (1) SeeAppendixAofthisproxystatementforadditionaldetailontheadjustedresultsandotherimportantinformationregardingtheuseofnon- GAAPoradjustedmeasures. 8 | Total of 07 pages in section PROXYSTATEMENTSUMMARY Business Highlights from Fiscal 2017 • Strong Sales Performance . In Fiscal 2017, AEO posted record revenues of $3.8 billion, rising 5% over the previous year. Despite a difficult retail environment, both the AE and Aerie brands achieved record sales. Fiscal 2017 represented our third consecutive year of comparable sales growth, with consolidated comparable sales rising by 4%. The AE brand delivered comparablesalesgrowthof2%andAeriepostedacomparablesalesgainof27%. $3.5 $3.6 $3.8 CAGR*3.8% 2015 2016 2017 Revenue ($ inBillions) * Compoundedannualgrowthrate ComparableSalesGrowth +7% 2017 2015 2016 +3% +4% • Sequential Improvements. After a challenging start to the year, AEO’s teams took quick action to strengthen merchandise assortmentsandelevatethecustomerexperience.Theseeffortscontributedtoastrongersecondhalfoftheyear.Thisincluded an acceleration of revenue growth to a 7% increase in the second half, compared to 2% in the first half. This resulted in 3% growthinadjustedoperatingincome (1) comparedtoa27%declineinadjustedoperatingincome (1) inthefirsthalfof2017.The companyexperiencedsequentialquarterlyimprovementtoitsadjustedoperatingincome (1) throughouttheyear,postingyear- over-yearadjustedearningspershare(“EPS”) (1) growthinthefourthquarter,ourbestperformanceoftheyear. $127 $93 $225 $232 Fall2017 AdjustedOpera�ng Income (1) ($ inMillions) Spring2016 Spring2017 Fall2016 -27% +3% • Omni-Channel Success. Our omni-channel initiatives are driving positive results. The Company’s store performance strengthened throughout the year, and AEO successfully capitalized on improved mall trends and stronger merchandise collections to register positive brick-and-mortar comparable sales increases at both AE and Aerie during the fourth quarter. AEO’sdigitalsalescontinuedtoincrease,expandingbymorethan20%fortheyear,anddeliveringtwelvestraightquartersof doubledigitgrowth.At$1billioninannualsalesandstrongprofitmargins,ourdigitalchannelnowrepresents26%ofoursales. WealsolaunchedAEOConnected,ournewloyaltyprogram,inFiscal2017,whichwilldrivecontinuedmarketsharegainsto ouralreadystrongbrands. (1) SeeAppendixAofthisproxystatementforadditionaldetailontheadjustedresultsandotherimportantinformationregardingtheuseofnon- GAAPoradjustedmeasures. 2018ProxyStatement | 7 PROXY STATEMENT SUMMARY This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Director (the “Board”) of AmericanEagleOutfitters,Inc.,aDelawarecorporation,foruseattheAnnualMeetingofStockholderstobeheldonJune6,2018, at11:00a.m.,localtime,atLanghamPlace,NewYork,locatedat400FifthAvenue,NewYork,NewYorkandatanyadjourn ent or postponement thereof. It is first being mailed to the stockholders on April 25, 2018. (“We,” “our,” “AEO,” “us” and the “Company”refertoAmericanEagleOutfitters,Inc.) 2018 Annual Meeting of Stockholders June6,2018 11:00a.m.,localtime LanghamPlace,NewYork 400FifthAvenue NewYork,NewYork Voting Matters Yourvoteisveryimportanttousandourbusiness.Pleasecastyourvoteimmediatelyonalloftheproposalstoensurethatyour sharesarerepresented. Board Recommendation Formore information, seepage PROPOSAL1 —ElectionofClassIIDirectors FOR 13 The three Class II Director nominees possess the necessary qualifications and range of experienceandexpertisetoprovideeffectiveoversightandadvicetoManagement. PROPOSAL2 —RatificationofAppointmentofErnst&YoungLLP FOR 25 The Audit Committee approved the retention of Ernst & Young LLP as the Company’s independent auditor for fiscal year 2018. As a matter of good corporate governance, stockholdersarebeingaskedtoratifytheCommittee’sselectionoftheindependentauditor. PROPOSAL3 —AdvisoryApprovalofNamedExecutiveOfficerCompensation FOR 27 The Company’s executive compensation programs are designed to create a direct linkage between stockholder interests and Management, with incentives specifically tailored to the achievementoffinancial,operationalandstockperformancegoals. Forward-Looking Statements ThisProxyStatementcontainsvariousforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933, asamended,andSection21EoftheSecuritiesExchangeActof1934,asamended(the“ExchangeAct”),includinginourCEO’s lettertoourstockholdersandourCompensationDiscussionandAnalysis,whichrepresentourexpectationsorbeliefsconcerning future events, including with respect to merchandise innovation and product focused marketing, customer engagement, brand growth, new technologies, and improved customer experience. These forward-looking statements rely on assumptions and involve risks and uncertainties, many of which are beyond our control, including, but not limited to factors detailed herein and underPartI,“Item1A.RiskFactors”andinothersectionsofourmostrecentAnnualReportonForm10-Kandinotherfilingswith theSecuritiesandExchangeCommission(“SEC”). Shouldoneormoreoftheserisksoruncertaintiesmaterialize,orshouldunderlyingassumptionsproveincorrect, ctualoutcomes mayvarymateriallyfromthoseindicated.Allsubsequentwrittenandoralforward-lookingstatementsattributabletousorpersons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on our forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement,and,exceptasrequiredbylaw,weundertakenodutytoupdateorreviseanyforward-lookingstatement. 6 |