American Eagle Outfitters 2005 Annual Report Download - page 76

PAGE 52 AMERICAN EAGLE OUTFITTERS
The Company has made a decision to take advantage of the special one-time deduction of 85% of certain foreign
earnings that are repatriated under the American Jobs Creation Act of 2004, prior to the tax year ending July 29, 2006.
As of January 28, 2006, unremitted Canadian earnings subject to repatriation approximated $73 million. Accordingly,
the Company has recorded a tax liability of $3.8 million related to the planned repatriation of this amount. This decision
has not changed the Company’s intention to indefinitely reinvest accumulated earnings from its Canadian Operations to
the extent not repatriated under the Act. Accordingly, no provision will be made for income taxes that would be
payable upon the distributions of such earnings.
Income tax accruals of $35.9 million and $25.4 million were recorded at January 28, 2006 and January 29, 2005,
respectively. As of January 28, 2006, contingent tax reserves of approximately $16.0 million were recorded, of which
$8.1 million related to potential state and local income tax liabilities.
For the year ended January 28, 2006, the Company released $0.9 million from the $1.4 million valuation allowance it
had previously recorded against a capital loss deferred tax asset as it expects to be able to generate sufficient capital
gains. The capital loss carryforward will expire in July 2006.
A reconciliation between the statutory federal income tax rate and the effective tax rate from continuing operations follows:
For the Years Ended
January 28,
2006
January 29,
2005
January 31,
2004
Federal income tax rate 35% 35% 35%
State income taxes, net of federal income tax effect 4 4 4
Change in valuation reserve for capital losses — — 1
Change in tax reserves — — (1)
Accrued tax on unremitted Canadian earnings 1 — —
State tax credits, net of federal income tax effect (1) — —
Tax impact of tax exempt interest (1) — —
38% 39% 39%
11. Retirement Plan and Employee Stock Purchase Plan
The Company maintains a profit sharing and 401(k) plan (the “Retirement Plan”). Under the provisions of the
Retirement Plan, full-time employees and part-time employees are automatically enrolled to contribute 3% of their
salary if they have attained 21 years of age, have completed sixty days of service, and work at least twenty hours per
week. Individuals can decline enrollment or can contribute up to 30% of their salary to the 401(k) plan on a pretax
basis, subject to IRS limitations. After one year of service, the Company will match up to 4.5% of participants' eligible
compensation. Contributions to the profit sharing plan, as determined by the Board of Directors, are discretionary. The
Company recognized $4.8 million in expense during both Fiscal 2005 and Fiscal 2004 and $2.1 million in expense
during Fiscal 2003 in connection with the Retirement Plan.
The Employee Stock Purchase Plan is a non-qualified plan that covers all full-time and part-time employees who are at
least 18 years old, have completed sixty days of service, and work at least twenty hours a week. Contributions are
determined by the employee, with the Company matching 15% of the investment up to a maximum investment of $100
per pay period. These contributions are used to purchase shares of Company stock in the open market.