American Eagle Outfitters 2008 Annual Report Download - page 21

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations are based upon our
Consolidated Financial Statements and should be read in conjunction with those statements and notes thereto.
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 11 new American Eagle stores and 17 new aerie stores in the United States and
Canada during Fiscal 2009;
• the selection of 25 to 35 American Eagle stores in the United States and Canada for remodeling during Fiscal
2009;
• the future opening of 77kids by american eagle stores;
• the success of MARTIN + OSA and martinandosa.com;
• the success of aerie by american eagle and aerie.com;
• the expected payment of a dividend in future periods;
• the possibility of growth through acquisitions and/or internally developing additional new brands;
• the possibility that we may be required to take additional temporary or other-than-temporary impairment
(“OTTI”) charges relating to our investment securities;
• the possibility that the amounts drawn on our demand borrowing agreements will be called for repayment
and that the facilities may not be available for future borrowings; and
• the possibility that we may be required to take additional store impairment charges related to under-
performing stores.
We caution that these forward-looking statements, and those described elsewhere in this report, involve
material risks and uncertainties and are subject to change based on factors beyond our control, as discussed within
Part I, Item 1A of this Form 10-K. Accordingly, our future performance and financial results may differ materially
from those expressed or implied in any such forward looking statement.
Critical Accounting Policies
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally
accepted in the United States, which require us to make estimates and assumptions that may affect the reported
financial condition and results of operations should actual results differ from these estimates. We base our estimates
and assumptions on the best available information and believe them to be reasonable for the circumstances. We
believe that of our significant accounting policies, the following involve a higher degree of judgment and
complexity. Refer to Note 2 to the Consolidated Financial Statements for a complete discussion of our significant
accounting policies. Management has reviewed these critical accounting policies and estimates with the Audit
Committee of our Board.
Revenue Recognition. We record revenue for store sales upon the purchase of merchandise by customers.
Our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Revenue
is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is
recognized when the gift card is redeemed for merchandise.
Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other
promotions. The estimated sales return reserve is based on projected merchandise returns determined through the
use of historical average return percentages. We do not believe there is a reasonable likelihood that there will be a
material change in the future estimates or assumptions we use to calculate our sales return reserve. However, if the
actual rate of sales returns increases significantly, our operating results could be adversely affected.
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