American Eagle Outfitters 2004 Annual Report Download - page 35

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Part II
obtained from unrelated third parties. The Company had the following transactions with these related parties during
Fiscal 2004, Fiscal 2003 and Fiscal 2002.
• The Company acquired Linmar Realty Company II, a general partnership that owned the Company's
corporate headquarters and distribution center. Prior to the acquisition, the Company had an operating lease
with Linmar Realty for these properties.
• The Company sold portions of its end-of-season, overstock and irregular merchandise to RVI.
• SSC and its affiliates charged the Company for an allocated cost of various professional services provided
to the Company, including certain legal, real estate, travel and insurance services.
• The Company discontinued its cost sharing arrangement with SSC for the acquisition of an interest in
several corporate aircraft. The Company incurred operating costs and usage fees under this arrangement.
See Note 3 of the Consolidated Financial Statements and Part III, Item 13 of this Form 10-K for additional
information regarding related party transactions.
Income Taxes
As of January 29, 2005, the Company had deferred tax assets of $9.6 million associated with Canadian tax loss
carryforwards. We anticipate that future taxable income in Canada will be sufficient to utilize the full amount of the
deferred tax assets. Assuming a 37% effective tax rate, we will need to recognize pretax net income of approximately
$26 million in future periods to realize this deferred tax asset.
For the year ended January 31, 2004, a valuation allowance was provided against the deferred tax asset that resulted
from a capital loss carryforward in the amount of $1.4 million. Management believes that it is no longer more likely
than not that the previously identified tax strategies will enable the Company to utilize the capital loss carryforward
prior to its July 2006 expiration date. The effective tax rate used for the provision of income tax approximated 39%.
The recently enacted American Jobs Creation Act of 2004 allows U.S. companies to repatriate earnings from their
foreign subsidiaries and receive an 85% deduction for eligible dividends. At this time, the Company has not yet
identified qualified earnings that would be beneficial to repatriate. The Company will continue to monitor its foreign
earnings during Fiscal 2005 to determine whether it is beneficial to repatriate earnings under the Act.
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.
Safe Harbor Statement, Seasonality and Risk Factors
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 35 to 40 American Eagle stores in the U.S. and Canada in Fiscal 2005,
§ the selection of approximately 60 American Eagle stores in the U.S. for remodeling or refurbishment in Fiscal
2005,
§ the possibility of growth through acquisitions and/or internally developing new brands,
§ the expected payment of a dividend in future periods, and
§ the expected completion of our external trading partners’ security procedures validation process by the Bureau
of Customs and Border Protection during 2005.