American Eagle Outfitters 2004 Annual Report Download - page 66

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Part II
Income tax accruals of $25.4 million and $21.4 million were recorded at January 29, 2005 and January 31 2004,
respectively. As of January 29, 2005 contingent tax reserves of approximately $7.4 million were recorded, of which
$6.8 million related to potential state and local income tax liabilities.
Of the $9.8 million deferred tax asset related to net operating loss carryforwards, $9.6 million was associated with
Canadian tax loss carryforwards, of which $8.0 million expires over the next five tax years and $1.6 million expires
over the next six tax years. Assuming a 37% effective tax rate, we will need to recognize pretax net income of
approximately $26 million in future periods to recover this deferred tax amount. We anticipate that future Canadian
taxable income will be sufficient to utilize the full amount of this deferred tax asset. For the year ended January 31,
2004, the Company recorded a valuation allowance against a capital loss deferred tax asset of $1.4 million. The
capital loss carryforward will expire in July 2006.
A reconciliation between statutory federal income tax and the effective tax rate from continuing operations follows:
For the Years Ended
January 29,
2005
January 31,
2004
February 1,
2003
Federal income tax rate 35% 35% 35%
State income taxes, net of federal income tax effect 4 4 3
Change in valuation reserve for capital losses - 1 -
Change in tax reserves - (1) -
39% 39% 38%
12. Retirement Plan and Employee Stock Purchase Plan
The Company maintains a profit sharing and 401(k) plan (the “Retirement Plan”). Under the provisions of the
Retirement Plan, full-time employees and part-time employees are automatically enrolled to contribute 3% of their
salary if they have attained twenty one years of age, have completed sixty days of service, and work at least twenty
hours per week. Individuals can decline enrollment or can contribute up to 30% of their salary to the 401(k) plan on
a pretax basis, subject to IRS limitations. After one year of service, the Company will match up to 4.5% of
participants' eligible compensation. Contributions to the profit sharing plan, as determined by the Board of Directors,
are discretionary. The Company recognized $4.8 million, $2.1 million and $3.1 million in expense during Fiscal
2004, Fiscal 2003 and Fiscal 2002, respectively, in connection with the 401(k) retirement plan and profit sharing
plan.
The Employee Stock Purchase Plan is a non-qualified plan that covers employees who are at least 18 years old, have
completed sixty days of service, and work at least twenty hours a week. Contributions are determined by the
employee, with a maximum of $60 per pay period, with the Company matching 15% of the investment. These
contributions are used to purchase shares of Company stock in the open market.
13. Stock Incentive Plan, Stock Option Plan, and Restricted Stock Grants
All amounts below have been updated to reflect the Company’s two-for-one stock split, unless otherwise indicated.
Stock Option Plan
On February 10, 1994, the Company's Board of Directors adopted the American Eagle Outfitters, Inc. 1994 Stock
Option Plan (the “1994 Plan”). The 1994 Plan provided for the grant of 8,100,000 incentive or non-qualified options
to purchase common stock. The 1994 Plan was subsequently amended to increase the shares available for grant to
16,200,000 shares. Additionally, the amendment provided that the maximum number of options which may be
granted to any individual may not exceed 5,400,000 shares. The options granted under the 1994 Plan are approved