American Eagle Outfitters 2005 Annual Report Download - page 33

AMERICAN EAGLE OUTFITTERS PAGE 9
We have a Vendor Code of Conduct that provides guidelines for all of our vendors regarding working conditions,
employment practices and compliance with local laws. A copy of the Vendor Code of Conduct is posted on our website,
ae.com. We have a factory compliance program to audit for compliance with the Code of Conduct. However, there can
be no assurance that our factory compliance program will be effective in discovering violations. Publicity regarding
violation of our Vendor Code of Conduct or other social responsibility standards by any of our vendor factories could
adversely affect our sales and financial performance.
Since the time of the attack on the World Trade Centers in 2001, we believe that there has been an increased risk of
terrorist activity on a global basis. Such activity might take the form of a physical act that impedes the flow of imported
goods or the insertion of a harmful or injurious agent to an imported shipment. We have instituted policies and
procedures designed to reduce the chance or impact of such actions including, but not limited to, a significant increase
in the number of factory audits performed; the revision of our factory audit protocol to include all critical security
issues; the review of security procedures of our other international trading partners, including forwarders, consolidators,
shippers and brokers; and the cancellation of agreements with entities who fail to meet our security requirements. In
addition, we have become a certified member of the Customs - Trade Partnership Against Terrorism program, a
voluntary program in which an importer agrees to work with Customs to strengthen overall supply chain security. There
can be no assurance that terrorist activity can be prevented and we cannot predict the likelihood of any such activities or
the extent of their adverse impact on our operations.
Seasonality
Historically, our operations have been seasonal, with a significant amount of net sales and net income occurring in the
fourth fiscal quarter, reflecting increased demand during the year-end holiday selling season and, to a lesser extent, the
third quarter, reflecting increased demand during the back-to-school selling season. During Fiscal 2005, the third and
fourth fiscal quarters accounted for approximately 58% of our sales and approximately 61% of our income from
continuing operations. As a result of this seasonality, any factors negatively affecting us during the third and fourth
fiscal quarters of any year could have a material adverse effect on our financial condition and results of operations
for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the timing of
certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise
offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general
economic conditions.
Our reliance on key personnel
Our success depends to a significant extent upon the continued services of our key personnel, including senior
management, as well as its ability to attract and retain qualified key personnel and skilled employees in the future.
Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in
our management.
Our ability to successfully upgrade and maintain our information systems
We rely upon our various information systems to manage our operations and regularly make investments to upgrade,
enhance or replace these systems. Any delays or difficulties in transitioning to these or other new systems, or in
integrating these systems with our current systems, or any other disruptions affecting our information systems, could
have a material adverse impact on our business.
Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002
In order to meet the requirements of the Sarbanes-Oxley Act of 2002 in future periods, we must continuously document,
test, monitor and enhance our internal control over financial reporting. There can be no assurance that the periodic
evaluation of our internal controls required by Section 404 of the Sarbanes-Oxley Act will not result in the
identification of significant control deficiencies and/or material weaknesses or that our auditors will be able to attest to
the effectiveness of our internal control over financial reporting. Failure to maintain the effectiveness of our internal