American Eagle Outfitters 2009 Annual Report Download - page 13

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As a result of the global recession, we have been unable to liquidate our holdings of certain ARS because the
amount of securities submitted for sale has exceeded the amount of purchase orders for such securities and the
auctions failed. For failed auctions, we continue to earn interest on these investments at the contractual rate. In the
event we need to access these funds, we will not be able to do so until a future auction is successful, the issuer
redeems the securities, a buyer is found outside of the auction process or the securities mature.
If our ARS holdings continue to be unable to clear successfully at future auctions or if issuers do not redeem the
securities, we may be required to adjust the carrying value of the securities and record additional impairment
charges. If we determine that the fair value of these ARS is temporarily impaired, we would record a temporary
impairment within other comprehensive income, a component of stockholders’ equity. If it is determined that the
fair value of our ARS is other-than-temporarily impaired, we would record a loss in our Consolidated Statements of
Operations, which could materially adversely impact our results of operations and financial condition.
Our ability to obtain and/or maintain our credit facilities due to the ramifications of the global credit
crisis and corresponding financial institution failures
We believe that we have sufficient cash flows from operating activities to meet our operating requirements. In
addition, the banks participating in our various credit facilities are currently rated as investment grade, and
substantially all of the amounts under the credit facilities are currently available to us. We draw on our credit
facilities to increase our cash position to add financial flexibility. Although we expect to continue to generate
positive cash flow despite the current economy, there can be no assurance that we will be able to successfully
generate positive cash flow in the future. Continued negative trends in the credit markets and/or continued financial
institution failures could lead to lowered credit availability as well as difficulty in obtaining financing. In the event
of limitations on our access to credit facilities, our liquidity, continued growth and results of operations could be
adversely affected.
Our efforts to expand internationally through franchising
We have entered into a franchise agreement with a franchisee to open and operate a series of stores throughout
the Middle East over the next several years. While the franchise arrangement does not involve a capital investment
from us and requires minimal operational involvement, the effect of this arrangement on our business and results of
operations is uncertain and will depend upon various factors, including the demand for our products in new markets
internationally. Furthermore, although we provide store operation training, literature and support, to the extent that
the franchisee does not operate its stores in a manner consistent with our requirements regarding our brand and
customer experience standards, the value of our brand could be negatively impacted. A failure to protect the value of
our brand or any other adverse actions by a franchisee could have an adverse effect on our results of operations and
our reputation.
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 infrastructure systems; any
disaster or casualty resulting in the interruption of service from our distribution centers or in a large number of our
stores; any interruption of our business related to an outbreak of a pandemic disease in a country 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 make from time-to-time.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
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