American Eagle Outfitters 2001 Annual Report Download - page 34

ae.com AE Management’s Discussion and Analysis of Financial Condition and Results of Operations
Income Taxes
We had deferred tax assets of $28.9 million at February 2, 2002, which resulted primarily from financial and tax accounting differences. We have had
taxable income during each of the past three tax years and anticipate that future taxable income will be able to recover the full amount of the deferred
tax assets. A portion of the deferred tax assets has resulted from a capital loss. We anticipate that we will have sufficient capital gain income to recognize
the benefit recorded from the loss. Assuming a 38% effective tax rate, we will need to recognize pretax net income of approximately $76.0 million in
future periods to recover existing deferred tax amounts. See Note 11 of the Consolidated Financial Statements.
Impact of Inflation
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 sig-
nificant impact on our business and the industry in the future.
Safe Harbor Statement, Business Risks, and Seasonality
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 90 American Eagle stores in the United States and Canada in Fiscal 2002,
•the selection of approximately 40 stores in the United States for remodeling,
•the sufficiency of existing cash and investment balances, cash flows and line of credit facilities to meet Fiscal 2002 cash requirements, and
•the possibility of growth through acquisitions.
We caution that these statements are further qualified by factors that could cause our actual results to differ materially from those in the forward-looking
statements, including without limitation, the following:
•our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner,
•the ability to obtain suitable sites for new stores at acceptable costs,
•customer acceptance of our new store design,
•our ability to successfully acquire and integrate other businesses,
•the expansion of buying and inventory capabilities,
•the interruption of the flow of merchandise from key vendors,
•the hiring and training of qualified personnel,
•the availability of capital,
•any disaster or casualty resulting in the interruption of service for our distribution centers,
•the effect of overall economic conditions and consumer spending patterns,
•the effect of changes in weather patterns,
•the change in currency and exchange rates, interest rates, duties, tariffs, or quotas,
•the effect of competitive pressures from other retailers, and
•the effect of international and domestic potential acts of terror.
The impact of the aforementioned factors, some of which are beyond our control, may cause our actual results to differ materially from expected results
in these statements and other forward-looking statements we may make from time-to-time.
Historically, our operations have been seasonal, with a significant amount of net 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. During Fiscal 2001, these periods accounted for approximately 60.4% of our sales. As a result of this seasonality, any factors
negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have
a material adverse effect on our financial condition and results of operations for the entire year. Our quarterly results of operations also may fluctuate
based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the amount of net sales contributed by
new and existing stores, the timing and level of markdowns, store closings, refurbishments and relocations, competitive factors, weather and general
economic conditions.
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