American Eagle Outfitters 2004 Annual Report Download - page 74

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60
Part II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to
be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to the management of American Eagle Outfitters,
Inc. (the “Management”), including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Annual Report on Form 10-K as of January 29, 2005, an evaluation was
performed under the supervision and with the participation of the Company’s Management, including the CEO and
CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act). In performing this evaluation, Management reviewed the
Company’s lease accounting practices in response to the letter issued on February 7, 2005 by the Office of the Chief
Accountant of the SEC to the American Institute of Certified Public Accountants expressing its views regarding
certain operating lease accounting issues and their application under GAAP (the “SEC Letter”). The Company’s
lease accounting practices had not changed materially over the years. The Company’s independent auditors had
specifically reviewed and approved the historical lease accounting practices, which were similar to those used by
many other companies in the retail and restaurant industries. When reviewed against GAAP as set forth in the SEC
Letter, the Company determined that its historical method of accounting for rent holidays and tenant allowances was
not in accordance with GAAP. As a result of changing its historical lease accounting practices to conform to GAAP
as set forth in the SEC Letter, Management concluded that the Company's previously reported fixed assets and
deferred lease credits had been understated and that previously issued annual and interim financial statements should
be restated. Because of this change in its lease accounting practices, the Company concluded that it had a material
weakness in the effectiveness of controls over the selection and monitoring of appropriate practices used in
accounting for leases and tenant allowances. Based solely on this change in lease accounting practices, the Chief
Executive Officer and the Chief Financial Officer each concluded that the Company’s disclosure controls and
procedures were not effective as of January 29, 2005.
Management’s Annual Report on Internal Control Over Financial Reporting
The Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The
Company’s internal control over financial reporting is designed to provide a reasonable assurance to Management
and the Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Management assessed the effectiveness of the Company's internal control over financial reporting as of January 29,
2005. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. This assessment