American Eagle Financial Statement Analysis November 8, 2010

Michael Harney
Sameer Paul
Daniel Dayan
Taylor Griffith

Part I
A. Management discussion and analysis is usually presented on several pages at the beginning of the report. It is an opportunity for management to explain their perceptions of the operating results to the investors. Review management’s discussion and analysis of the risk factors, which have been impacting the company over the preceding 2 years.
List the risks. In your opinion which of these factors is/are the most significant one(s) possibly influencing the company’s performance? State the reasons for your conclusion.

List of Risk Factors:

1. Our ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner
2. The effect of economic pressures and other business factors
3. Our ability to grow through new store openings and existing store remodels and expansions
4. Our planned closure of MARTIN+OSA
5. Our international merchandise sourcing strategy
6. Our reliance on external vendors
7. Seasonality
8. Our reliance on our ability to implement and sustain information technology systems
9. Our reliance on key personnel
10. Failure to comply with regulatory requirements
11. Negative conditions in global credit markets may further impair our investment securities portfolio
12. Our ability to obtain and/or maintain our credit facilities due to the ramifications of the global credit crisis and corresponding financial institution failures
13. Our efforts to expand internationally through franchising
14. (Other risk factors)
15. Our ability to successfully acquire and integrate other businesses; any interruption of our key infrastructure systems
16. Any disaster or casualty resulting in the interruption of service from our distribution centers or in a large number of our stores
17. Any interruption of our business related to an outbreak of a pandemic disease in a country where we source or market our merchandise
18. Changes in weather patterns
19. The effects of changes in current exchange rates and interest rates
20. And international and domestic acts of terror

Top Three Risk Factors:

We believe that the top three risk factors for AE Inc. are:
1. Their ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner
2. The effect of the economic downturn
3. AE Inc.’s reliance on external vendors

Our group believes that these three risk factors are the most significant because they pertain to the direct operating activities of the company. AE’s primary source of revenue comes from its clothing sales. It is crucial for the company to accurately forecast and produce styles and fashion that consumers are willing to purchase in their targeted market.

Secondly, economic uncertainty caused by the 2008 recession continues to result in a lack of consumer confidence and a widespread reduction of business activity. This being said, it will be a struggle for AE to adapt to the constant market fluctuations if economic uncertainty continues to exist in the market.

Finally, the company’s reliance on external vendors could pose a threat to AE’s cash flows. AE heavily relies on foreign vendors as a source of their inventory and economic turbulence and risk in foreign markets could disrupt the vendor’s ability to provide clothing to AE.

We believe that these three risk factors are very important for the company’s ability to see future success.

B. How does the company make money, i.e., what are its primary products or services?

American Eagle Outfitters Inc. operates in the clothing industry. The company offers high-quality, trendy clothing, accessories, and personal care products. American Eagle also features clothing brands aerie and 77kids.

C. How much did the top executive get paid in each of the past 2 years? (Break down into components).

James