American Eagle Outfitters 2006 Annual Report Download - page 20

Our ability to successfully complete important infrastructure projects
We are implementing multiple infrastructure projectsinFiscal 2007. The major projects include:
•theconstruction of a new corporateheadquarters in Pittsburgh,Pennsylvania;
•theconstruction of a new corporatedata center at our existing Warrendale, Pennsylvania campus;
•theintegration of our expanded Ottawa, Kansas distribution center, including the transition of ae.com
fulfillment services to this location; and
•theinstallation of anewpoint of sale systeminall of our stores.
We rely upon our facilities and information systems to support the management of our operations. Any delays or
difficulties in these important projects could have amaterial adverse impact on our business.
Failuretocomply with regulatory requirements
As apublic company, we are subject tonumerous regulatory requirements. Our policies, procedures and internal
controls aredesigned to comply withallapplicable laws and regulations, including those imposed by the
Sarbanes-Oxley Act of 2002, the SEC and theNew York Stock Exchange (the “NYSE”). Failure to comply with
such laws and regulations could have amaterial adverse effect on our reputation, financial condition and on the
market price of our common stock.
Our reliance on third-party distribution services for our Canadian stores
Our stores in Canada receive merchandise through logistics services provided under atransitional services
agreement withtheNLSPurchaser. Any significant interruption in the logistics services provided by the NLS
Purchaser could have amaterial adverse effect on the operation of our stores in Canada and on our financial
condition and results.
Other risk factors
Additionally, other factors could adversely affect our financial performance, including factors such as: our ability
to successfully acquire and integrate other businesses; any interruption of our key business systems; any disaster
or casualtyresulting in the interruption of service from our distribution centers or in alarge numberof our stores;
any interruption of key services provided by third party vendors; any interruption of our business related to an
outbreak of apandemic disease, such as the AvianFlu, in acountry where we source or market our merchandise;
changes in weather patterns; the effects of changes in current exchange rates and interest rates; and international
and domestic acts of terror.
The impact of any of the previously discussed 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 makefrom time-to-time.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
PAGE 10 ANNUAL REPORT 2006
ITEM 2. PROPERTIES.
We own our corporate headquarters and distribution center located in asuburban area near Pittsburgh,
Pennsylvania. These facilities occupy approximately 490,000 square feet,120,000 square feet of which is used
for executive, administrative and buying offices. We also own a 45,000 square foot building, whichwill house
our data center beginning in Fiscal 2007. We lease three additional locations near our headquarters, which are
used for office and storage space,totaling approximately 51,000 square feet.These leases expire with various
terms through 2011.
During Fiscal 2006, we completed our purchase of a186,000 square foot building and adjacent land in an urban
Pittsburgh,Pennsylvania location. In Fiscal 2007, we will begin construction of a152,000 square foot building
on the adjacent land. These buildings will be usedfortherelocation andexpansion of our corporate headquarters.
We expect tobegin relocatingourcorporate headquarters to the newlocation duringthefirst half of Fiscal 2007.
During Fiscal 2006, we entered into alease for approximately 36,000 square feet for store support services in the
same urban Pittsburgh location, which expires in March 2022.
We rent approximately125,000 square feet of office spacein New York, New Yorkforourdesigners and
sourcing and production teams, as well as for the officesofMARTIN +OSA.Thelease for this space expires in
May 2016. We also lease an additional 5,000 square feet of office spacein New York, New York, which expires
in February 2014.
We own adistribution facility in Ottawa, Kansas consisting of approximately 400,000 square feet,aswell as
additional land to be usedfortheexpansion of this facility. During Fiscal 2006, we began construction on a
555,000 square foot expansion of this distribution center. This expanded facility will be usedtosupport new and
existing growth initiatives, including ae.com, aerie and MARTIN +OSA.
All of our stores in the UnitedStates and Canadaare leased. The store leases generally have initial terms of 10
years. Certain leases also include earlytermination options, which can be exercised under specific conditions.
Most of these leases provide for base rent and require the payment of apercentage of sales as additional rent
when sales reach specified levels. Under our storeleases, we are typically responsible for tenant occupancy costs,
including maintenance and common area charges, real estatetaxes and certain other expenses. We have generally
been successful in negotiating renewals as leases near expiration.
ITEM 3. LEGAL PROCEEDINGS.
We are aparty to litigation incidental to our business. At this time, our management does not expect the results of
the litigation to be material to our financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.
Not applicable.
AMERICAN EAGLE OUTFITTERS PAGE 11