Annual Report Cases CP13-1 Computing Ratios LO13-4, 13-5,13-6,13-7 Refer to the financial statements and footnotes of American Eagle Outfitters given in Appendix B at the end of this book. Compute the following ratios for fiscal 2017: return on equity, return on assets, net profit margin, inventory turnover. current ratio, and the debt-to-equity ratio. CP13-2 Computing Ratios LO13-4, 13-5,13-6,13-7 Refer to the financial statements and footnotes of Express given in Appendix C at the end of this book. Compute the following ratios for fiscal 2017: return on equity, return on assets, net profit margin, inventory turnover, current ratio, and the debt-to-equity ratio. CP13-3 Comparing Companies within an Industry LO13-2,13-4, 13-5,13-6,13-7 Refer to the financial statements of American Eagle Outfitters (Appendix B) and Express (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Compute the following ratios for fiscal 2017: return on equity, return on assets, net profit margin, inventory turnover, current ratio, and the debt-to-equity ratio. Discuss how the ratios for each company compare to the industry average ratios. the Peators Focus H Form 10-K Partial 10-K report for teaching purposes. For complete 10-K, go to sec.gov or ae.com. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended February 3, 2018 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-33338 American Eagle Outfitters, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 77 Hot Metal Street, Pittsburgh, PA (Address of principal executive offices) No. 13-2721761 (I.R.S. Employer Identification No.) Common Shares, $0,01 par value (Title of class) 15203-2329 (Zip Code) Registrant's telephone number, including area code: (412) 432-3300 Securities registered pursuant to Section 12(b) of the Act: New York Stock Exchange (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None NO Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act. YES Indicate by check mark whether the registrant (1) has fled all reports required to be fled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at the past 90 days. YES NO NO S Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ($232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ($229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part Ill of this Form 10k or anu amandmant in this Form 10 1 Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporting company 0 (Do not check if a smaller reporting company) Emerging growth company 0 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO >> The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of July 29, 2017 was $1,929,085,816. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 177,607,606 Common Shares were outstanding at March 12, 2018. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the 2018 Annual Meeting of Stockholders scheduled to be held on June 6, 2018 are incorporated into Part III herein. Source: American Eagle Outfitters, Inc. B- Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the NYSE under the symbol "AEO". As of March 12, 2018, there were 504 stockholders of record. However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 40,000. The following table sets forth the range of high and low closing prices of the common stock as reported on the NYSE during the periods indicated. For the Quarters Ended February 3, 2018 October 28, 2017 July 29, 2017 April 29, 2017 January 28, 2017 October 29, 2016 July 30, 2016 April 30, 2016 $ $ $ $ $ $ $ Market Price High 19.37 $ 14.46 $ 14.41 $ 15.85 $ Low 12.77 $ 10.62 10.85 13.08 18.91 $ 14.45 19.37 $ 16.80 $ 17.92 $ 13.39 $ 16.90 $ 13.12 $ $ $ $ S Cash Dividends per Common Share 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 During Fiscal 2017 and Fiscal 2016, we paid quarterly dividends as shown in the table above. The payment of future dividends is at the discretion of our Board of Directors (the "Board") and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis. LEAR tem 6. Selected Consolidated Financial Data. The following Selected Consolidated Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations, included under Item 7 below and the Consolidated Financial Statements and Notes thereto, included in Item 8 below. Most of the selected Consolidated Financial Statements data presented below is derived from our Consolidated Financial Statements, if applicable, which are filed in response to Item 8 below. The selected Consolidated Statement of Operations data for the years ended January 31, 2015 and February 1, 2014 and the selected Consolidated Balance Sheet data as of January 30, 2016, January 31, 2015 and February 1, 2014 are derived from audited Consolidated Financial Statements not included herein. (In thousands, except per share amounts, ratios and other non-financial information) Summary of Operations (2) Total net revenue $ Comparable sales increase (decrease) (3) Gross profit Gross profit as a percentage of net sales Operating income Operating income as a percentage of net sales Income from continuing operations Income from continuing operations as a percentage of net sales Per Share Results Income from continuing operations per common share-basic Income from continuing operations per common share-diluted Weighted average common shares outstanding-basic Weighted average common shares outstanding-diluted Cash dividends per common share Balance Sheet Information Total cash and short-term investments Long-term investments Total assets. Long & short-term debt Manlibald February 3, 2018 S $ $ $ 8.0% 3,795,549 $ 3,609,865 $ 3,521,848 $ 3,282,867 4% 7% 3% 1,366,927 $ 1,302,734 $ 1,154,674 37.0% 1,370,505 36.1% 302,788 $ 204,163 5,4% 1.15 1.13 177,938 180,156 January 28, 2017 $ +40 70 $ $ $ 0.50 $ S $ 413,613 1,816,313 $ $ A For the Years Ended (1) January 30, 2016 37.9% 331,476 $ 9.2% 212,449 $ 5.9% 1.17 1.16 181,429 183,835 0.50 378,613 1,782,660 no con $ $ 319,878 9.1% 213,291 6.1% 1.10 $ 1.09 $ 194,351 196,237 0.50 260,067 $ $ $ 1,612,246 $ . - January 31, 2015 4004 090 (5)% 35.2% 155,765 4.7% 88,787 2.6% 0,46 0.46 194,437 195,135 0.50 $ $ $ 1,696,908 $ February 1, 2014 $ 3,305,802 $ 1,113,999 $ (6)% 33.7% 141,055 4.3% $ 410,697 82,983 2.5% 0,43 0.43 192,802 194,475 0.38 428,935 $ $ 1,694,164 $ 470 wweighted average common snares outstanding-basic Weighted average common shares outstanding-diluted Cash dividends per common share Balance Sheet Information Total cash and short-term investments Long-term investments Total assets Long & short-term debt Stockholders' equity Working capital Current ratio Average return on stockholders' equity (5) Other Financial Information (2) Total stores at year-end Capital expenditures Total net revenue per average selling square foot (4) Total selling square feet at end of period Total net revenue per average gross square foot (4) Total gross square feet at end of period Number of employees at end of period $ $ $ $ $ 177,938 180,156 0.50 1,047 169,469 $ 514 $ 5,278,554 412 6,580,812 40,700 181,429 183,835 $ 0.50 $ 413,613 $ 378,613 $ 260,067 $ 410,697 - $ $ $ $ 1,612,246 $ 1,696,908 1,816,313 $ $ $ $ $ 1,051,376 $ 1,139,746 1,246,791 $ 1,204,569 $ $ 1,166,178 483,309 $ 407,446 $ 259,693 $ 368,947 $ 462,604 2.00 2.11 16.7% - 1,782,660 - 1.83 18.8% 1,050 161,494 534 $ 5,311,659 428 $ 194,351 196,237 6,619,267 38,700 0.50 $ 1.56 19.9% 1,047 153,256 545 5,285,025 436 6,601.112 37,800 194,437 195,135 0.50 $ - 1 1.80 7.0% 1,056 $ 245,002 $ 525 5,294,744 SSSS 6,613,100 38,000 $ 192,802 194,475 0.38 $ 420 $ 428,935 $ 1,694,164 - 7.0% 1,066 278,499 547 5,205,948 444 6,503,486 40,400 (1) Except for the fiscal year ended February 3, 2018, which includes 53 weeks, all fiscal years presented include 52 weeks. (2) All amounts presented are from continuing operations for all periods presented. Refer to Note 16 to the accompanying Consolidated Financial Statements for additional information regarding the discontinued operations of 77kids. (3) The comparable sales increase for Fiscal 2017 ended February 3, 2018 is compared to the corresponding 53-week period in Fiscal 2016. Additionally, comparable sales for all periods include AEO Direct sales. (4) Total net revenue per average square foot is calculated using retail store sales for the year divided by the straight average of the beginning and ending square footage for the year. (5) Average return on stockholders' equity is calculated by using the annual reported net income divided by the straight- average of the beginning and ending stockholders' equity balances from the consolidated balance sheets. To the Stockholders and the Board of Directors of American Eagle Outfitters, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of American Eagle Outfitters, Inc. (the Company) as of February 3, 2018 and January 28, 2017, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended February 3, 2018, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 3, 2018 and January 28, 2017, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 3, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) Framework) and our report dated March 16, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements! whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. // Ernst & Young LLP We have served as the Company's auditor since 1993. (In thousands, except per share amounts) Assets Current assets: Cash and cash equivalents Merchandise inventory Accounts receivable, net Prepaid expenses and other Total current assets Property and equipment, net of accumulated depreciation Intangible assets, net of accumulated amortization Goodwill Deferred income taxes Other assets Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued compensation and payroll taxes Accrued rent Accrued income and other taxes Unredeemed gift cards and gift certificates Current portion of deferred lease credits Other liabilities and accrued expenses Total current liabilities Non-current liabilities: Deferred lease credits Non-current accrued income taxes Other non-current liabilities Total non-current liabilities Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and $ February 3, 2018 413,613 398,213 78,304 78,400 968,530 724,239 46,666 15,070 9,344 52,464 1,816,313 236,703 54,324 83,312 12,781 52,347 11,203 34,551 485,221 47,977 7,269 29,055 84,301 LA $ January 28, 2017 378,613 358,446 86,634 77,536 901,229 707,797 49,373 14,887 49,250 60,124 1,782,660 246,204 54,184 78,619 12,220 52,966 12,780 36,810 493,783 45,114 4,537 34,657 84,308 Unredeemed gift cards and gift certificates Current portion of deferred lease credits Other liabilities and accrued expenses Total current liabilities Non-current liabilities: Deferred lease credits Non-current accrued income taxes Other non-current liabilities Total non-current liabilities Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding Common stock, $0.01 par value; 600,000 shares authorized; 249,566 shares issued; 177,316 and 181,886 shares outstanding, respectively Contributed capital Accumulated other comprehensive loss, net of tax Retained earnings Treasury stock, 72,250 and 67,680 shares, respectively, at cost Total stockholders' equity Total liabilities and stockholders' equity Refer to Notes to Consolidated Financial Statements 52,347 11,203 34,551 485,221 47,977 7,269 29,055 84,301 2,496 593,770 (30,795) 1,883,592 (1,202,272) 1,246,791 1,816,313 $ 52,966 12,780 36,810 493,783 45,114 4,537 34,657 84,308 2,496 603,890 (36,462) 1,775,775 (1.141,130) 1,204,569 1,782,660 ERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Operations (in thousands, except per share amounts) Total net revenue Cost of sales, including certain buying, occupancy and warehousing expenses Gross profit Selling, general and administrative expenses Impairment and restructuring charges Depreciation and amortization expense Operating income Other (expense) income, net Income before income taxes Provision for income taxes Income from continuing operations Discontinued operations, net of tax Net income Basic income per common share: Income from continuing operations Discontinued operations Basic net income per common share Diluted income per common share: Income from continuing operations Discontinued operations Diluted net income per common share Weighted average common shares outstanding basic Weinhted averane common shares outstanding-diluted $ $ February 3, 2018 3,795,549 2,425,044 1,370,505 879,685 20,611 167,421 302,788 (15,615) 287,173 83,010 204,163 204,163 1.15 1.15 $ $ For the Years Ended January 28, 2017 $ 3,609,865 1.13 1.13. $ $ 177,938 180 156 2,242,938 1,366,927 857,562 21,166 156,723 331,476 3.786 $ 212,449 $ 335,262 122,813 212,449 1.17 1.17 1.16 $ 1.16 $ $ 181,429 182 835 $ $ January 30, 2016 3,521,848 2,219,114 1,302,734 834,700 0 148,156 319,878 1,993 321,871 108,580 213,291 4,847 218,138 1.10 0.02 1.12 1.09 0.02 1.11 194,351 196 227 I Basic income per common share: Income from continuing operations Discontinued operations Basic net income per common share Diluted income per common share: Income from continuing operations Discontinued operations Diluted net income per common share Weighted average common shares outstanding - basic Weighted average common shares outstanding-diluted S $ $ 1.15 1.15 $ 1.13 $ 1.13 $ 177,938 180,156 Refer to Notes to Consolidated Financial Statements 1.17 $ - 1.17 $ 1.16 $ 1.16 $ 181,429 183,835 1.10 0.02 1.12 1.09 0.02 1.11 194,351 196,237 AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Comprehensive Income (In thousands) Net income Other comprehensive gain (loss): Foreign currency translation gain (loss) Other comprehensive gain (loss) Comprehensive income February 3, 2018 204,163 5,667 5,667 For the Years Ended January 28, 2017 Refer to Notes to Consolidated Financial Statements $ (6,594) (6.594) 209,830 $ 205,855 212,449 I $ January 30, 2016 218,138 (19,924) (19,924) 198,214 AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Stockholders' Equity (In thousands, except per share amounts) Balance at January 31, 2015 Stock awards Repurchase of common stock as part of publicly announced programs Repurchase of common stock from employees Reissuance of treasury stock Net income Other comprehensive loss Cash dividends and dividend equivalents ($0.50 per share) Balance at January 30, 2016 Stock awards Repurchase of common stock as part of publicly announced programs Repurchase of common stock from employees Reissuance of treasury stock Net income Other comprehensive loss Cash dividends and dividend equivalents ($0.50 per share) Balance at January 28, 2017 Stock awards Repurchase of common stock as part of publicly announced programs Shares Outstanding (1) 194,516 (15,563) (324) 1,506 181 180,135 (455) 2,206 181,886 (6.000) Common Contributed Stock Capital $ 2,496 $ 569,675 31,937 11111 181 $ 2,496 11111 $ 2,496 $ $ (13.237) 1 1511 Retained Earnings $1,543,085 (17,247) (2,332) 218,138 2,445 (99,624) 590,820 $1,659,267 $(1.171,339) $ 27,877 (2,821) 212,449 Treasury Stock (2) $ (965,566) 2,440 (93.120) 603,890 $ 1,775,775 17,202 (227,071) (5,163) 26,461 (7,032) 37,241 $(1.141.130) $ (87,672) Accumulated Other Comprehensive Income (Loss) $ (9.944) 2111 (19,924) (29,868) $ (6,594) $ (36.462) S Stockholders Equity 1.139.746 31,937 (227,071) (5,163) 10,892 218,138 (19.924) (97-179) 1,051,376 27,877 (7,032) 17.173 212,449 (6.594) (90,680) 1,204,569 17,202 (87.672) Keissuance of treasury sick Net income Other comprehensive loss Cash dividends and dividend ($0.50 per equivalents share) Balance at January 28, 2017 Stock awards Repurchase of common stock as part of publicly announced programs Repurchase of common stock from employees Reissuance of treasury stock Net income Other comprehensive loss Cash dividends and dividend equivalents ($0.50 per share) Balance at February 3, 2018 118 181 181,886 (6,000) (871) 2,301 ||| 181 $ 2,496 1 1111 $ (2,04)) (29,632) 212,449 2,440 (93,120) 603,890 $ 1,775,775 $(1.141.130) $ 17,202 II (5,488) 204,163 (87,672) (12,513) 39,043 2,310 (90,858) 177,316 $ 2,496 $ 593,770 $ 1,883,592 $ (1,202,272) $ (6.594) (36,462) $ 5,667 212,449 (6,594) (90,680) 1,204,569 17,202 (87.672) (12,513) 3,923 204,163 5,667 (88,548) (30,795) $ 1,246,791 (1) 600,000 authorized, 249,566 issued and 177,316 outstanding, $0.01 par value common stock at February 3, 2018; 600,000 authorized, 249,566 issued and 181,886 outstanding, $0.01 par value common stock at January 28, 2017; 600,000 authorized, 249,566 issued and 180,135 outstanding, $0.01 par value common stock at January 30, 2016; 600,000 authorized, 249,566 issued and 194,516 outstanding, $0.01 par value common stock at January 31, 2015. The Company has 5,000 authorized, with none issued or outstanding, $0.01 par value preferred stock for all periods presented. (2) 72,250 shares, 67,680 shares and 69,431 shares at February 3, 2018, January 28, 2017 and January 30, 2016 respectively. During Fiscal 2017, Fiscal 2016, and Fiscal 2015, 2,301 shares, 2,206 shares, and 1,506 shares, respectively.I were reissued from treasury stock for the issuance of share-based payments. Refer to Notes to Consolidated Financial Statements (In thousands) Operating activities: Net income Gain from discontinued operations, net of tax Income from continuing operations Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Share-based compensation Deferred income taxes Foreign currency transaction (gain) loss Loss on impairment of assets Gain on sale of assets Changes in assets and liabilities: Merchandise inventory Accounts receivable Prepaid expenses and other Other assets Accounts payable Unredeemed gift cards and gift certificates Deferred lease credits Accrued compensation and payroll taxes Accrued income and other taxes Accrued liabilities Total adjustments Net cash provided by operating activities from continuing operations Investing activities: Capital expenditures for property and equipment Acquisitions and purchase of long-lived assets in business combination Proceeds from sale of assets Acquisition of intangible assets Net cash used for investing activities from continuing operations Financing activities: Payments on capital leases and other Repurchase of common stock as part of publicly announced programs Repurchase of common stock from employees Net proceeds from stock options exercised Excess tax benefit from share-based payments Cash dividends paid February 3, 2018 204,163 $ 204,163 169,473 16,890 44,312 (5,616) (35,912) 8,837 (399) 5,317 (16,663) (874) 984 1,289 565 2,060 190,263 394,426 (169,469) (2,681) (172,150) (3,384) (87.682) (12,513) 3,355 For the Years Ended January 28, 2017 (88.548) $ 212,449 $ 212,449 $ 158,174 29.137 14,838 (835) 20,576 (53,613) (7,705) (332) (6,705) 52,347 4,465 (5,229) (25,809) (10,695) (15,467) 153,147 365,596 (161,494) (1,528) (163,022) (4,375) (7,032) 16,260 763 (90.680) January 30, 2016 218,138 (4,847) 213,291 148,858 34,977 4,680 2,977 (9,422) (22,259) (10,093) (7,027) (10,017) (3,189) 755 (4,099) 34,234 (17,615) (14,133) 128,627 341,918 (153,256) (10,442) 12,579 (2.382) (153,501) (7,635) (227,071) (5,163) 7,283 657 (97.237) unrevenou you vervan yo Deferred lease credits Accrued compensation and payroll taxes Accrued income and other taxes Accrued liabilities Total adjustments Net cash provided by operating activities from continuing operations Investing activities: Capital expenditures for property and equipment Acquisitions and purchase of long-lived assets in business combination Proceeds from sale of assets Acquisition of intangible assets Net cash used for investing activities from continuing operations Financing activities: Payments on capital leases and other Repurchase of common stock as part of publicly announced programs Repurchase of common stock from employees Net proceeds from stock options exercised Excess tax benefit from share-based payments Cash dividends paid Net cash used for financing activities from continuing operations Effect of exchange rates on cash Cash flows of discontinued operations Net cash used for operating activities Net cash used for investing activities Net cash used for financing activities Effect of exchange rates on cash Net cash used for discontinued operations Net increase (decrease) in cash and cash equivalents Cash and cash equivalents-beginning of period Cash and cash equivalents-end of period $ query 984 1,289 565 2,060 190,263 394,426 (169,469) (2.681) (172.150) (3,384) (87,682) (12,513) 3,355 88811111 561 (88,540) (188,772) 1,496 35,000 378.613 413.613 Refer to Notes to Consolidated Financial Statements S 7,7 (5,229) (25,809) (10,695) (15.467) 153,147 365,596 (161,494) (1.528) (163,022) (4.375) (7,032) 16,260 763 (90,680) (85,064) 1,036 118,546 260.067 378.613 $ Q A4 Fou (4,099) 34,234 (17,615) (14,133) 128,627 341,918 (153,256) (10,442) 12.579 (2,382) (153,501) (7.635) (227,071) (5,163) 7,283 657 (97,237) (329,166) (3.076) (6,805) (6.805) (150,630) 410.697 260,067 AMERICAN EAGLE OUTFITTERS, INC. Notes to Consolidated Financial Statements (partial-for full 10-K, go to sec.gov or ae.com) For the Year Ended February 3, 2018 1. Business Operations American Eagle Outfitters, Inc. (the "Company" or "AEO, Inc."), a Delaware corporation, operates under the American Eagle Outfitters ("AEO") and Aerie by American Eagle Outfitters ("Aerie") brands. Founded in 1977, AEO, Inc. is a leading multi-brand specialty retailer that operates more than 1,000 retail stores in the U.S. and internationally, online at www.ae.com and www.aerie.com and international store locations managed by third-party operators. Through its portfolio of brands, the Company offers high quality, on-trend clothing, accessories and personal care products at affordable prices. The Company's online business, AEO Direct, ships to 81 countries worldwide. In Fiscal 2015, AEO Inc. acquired Tailgate Clothing Company ("Tailgate"), which owns and operates Tailgate, a vintage, sports- inspired apparel brand with a college town store concept, and Todd Snyder New York, a premium menswear brand. Merchandise Mix The following table sets forth the approximate consolidated percentage of total net revenue from continuing operations attributable to each merchandise group for each of the periods indicated: Men's apparel and accessories. Women's apparel and accessories (excluding Aerie) Aerie Total 2. Summary of Significant Accounting Policies Principles of Consolidation February 3, 2018 34% 53% 13% 100% For the Years Ended January 28, 2017 35% 54% 11% 100% January 30, 2816 37% 54% 9% 100% 2. Summary of Significant Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At February 3, 2018, the Company operated in one reportable segment. The Company exited its 77kids brand in 2012. These Consolidated Financial Statements reflect the results of 77kids as discontinued operations for all periods presented. Fiscal Year Our fiscal year ends on the Saturday nearest to January 31. As used herein, "Fiscal 2018" refers to the 52-week period ending February 2, 2019. "Fiscal 2017" refers to the 53-week period ended February 3, 2018. "Fiscal 2016" and "Fiscal 2015" refer to the 52-week periods ended January 28, 2017 and January 30, 2016, respectively. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. As of February 3, 2018 and January 28, 2017, the Company held no short-term investments. Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents and investments. Merchandise Inventory Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time which both title and risk of loss for the merchandise transfers to the Company. Q The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends. Property and Equipment Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the I assets' estimated useful lives. The useful lives of our major classes of assets are as follows: Buildings Leasehold improvements Fixtures and equipment Information technology 25 years Lesser of 10 years or the term of the lease 5 years 3-5 years e 670 Property and Equipment Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets' estimated useful lives. The useful lives of our major classes of assets are as follows: Buildings 25 years Leasehold improvements Fixtures and equipment Lesser of 10 years or the term of the lease 5 years 3-5 years Information technology As of February 3, 2018, the weighted average remaining useful life of our assets is approximately 8.1 years. In accordance with ASC 360, Property, Plant, and Equipment, the Company's management evaluates the value of leasehold improvements and store fixtures associated with retail stores, which have been open for a period of time sufficient to reach maturity. The Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of the assets. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under loss on impairment of assets. During Fiscal 2017 and Fiscal 2015, the Company recorded no asset impairment charges. During Fiscal 2016, the Company recorded pre-tax asset impairment charges of $20.6 million that included $7.2 million for the impairment of all Company owned retail stores in the United Kingdom, Hong Kong and China. This amount is included within impairment and restructuring charges in the Consolidated Statements of Operations. These charges were the result of business performance and exploring an initiative to convert these markets to licensed partnerships. Retail stores in these markets no longer are able to generate sufficient cash flow over the expected remaining lease term to recover the carrying value of the respective stores' assets. Additionally, the Company recorded $10.8 million of impairment charges related to non-store corporate assets that support the United Kingdom, Hong Kong and China Company owned retail store and e-commerce operations and $2.5 I million of goodwill impairment for the China and Hong Kong retail operations. When the Company closes, remodels or relocates a store prior to the end of its lease term, the remaining net book value of the assets related to the store is recorded as a write-off of assets within depreciation and amortization expense. Refer to Note 7 to the Consolidated Financial Statements for additional information regarding property and equipment and Note 15 for additional information regarding impairment charges. Goodwill The Company's goodwill is primarily related to the acquisition of its importing operations, Canadian, Hong Kong and Chinal businesses and the acquisition of Tailgate and Todd Snyder. In accordance with ASC 350, Intangibles-Goodwill and Other ("ASC 350"), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of February 3, 2018. As a result, there were no impairments recorded during Fiscal 2017. During Fiscal 2016, the Company concluded the goodwill was impaired for the Hong Kong and China businesses, resulting in a $2.5 million charge included within impairment and restructuring charges in the Consolidated Statements of Operations as a result of the Company's plans to convert these markets to licensed partnerships. All other goodwill for the Company was not impaired as a result of the annual goodwill impairment test. Intangible Assets Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets estimated useful lives. The Company's intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years. The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows is less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded for all periods presented. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding intangible assets. Customer Loyalty Program The Company recently launched a new, highly digitized loyalty program called AEO Connected TM (the "Program"). This Program integrates the current credit card rewards program and the AEREWARDS loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds, and when reached, rewards are distributed. Customers earn rewards in the form of discount savings certificates. Refer to Note 8 to the Consolidated Financial Statements for additional information regarding intangible assets. Customer Loyalty Program The Company recently launched a new, highly digitized loyalty program called AEO Connected TM (the "Program"). This Program integrates the current credit card rewards program and the AEREWARDS loyalty program into one combined customer offering. Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds, and when reached, rewards are distributed. Customers earn rewards in the form of discount savings certificates. Rewards earned are valid through the stated expiration date, which is 45 days from the issuance date of the reward. Additional rewards are also given for key items such as jeans and bras. Rewards not redeemed during the 45-day redemption period are forfeited. Points earned under the Program on purchases at AE and Aerie are accounted for in accordance with ASC 605-25, Revenue Recognition, Multiple Element Arrangements ("ASC 605-25"). The Company believes that points earned under the Program represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, reward points earned using the Co-branded credit card on non-AEO or Aerie purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales. Revenue Recognition Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company's e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in total net revenue. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company's Consolidated Balance Sheets. Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within total net revenue and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages. (In thousands) Beginning balance Returns Provisions Ending balance $ $ February 3, 2018 For the Years Ended January 28, 2017 3,639 $ (103,393) 104.471 4,717 $ January 30, 2016 3,349 $ (97,126) 97,416 3,639 $ 3,249 (90,719) 90,819 3,349 Supplemental Disclosures of Cash Flow Information The table below shows supplemental cash flow information for cash amounts paid during the respective periods: (In thousands) Cash paid during the periods for: Income taxes Interest (In thousands) Cash and cash equivalents: Cash Interest bearing deposits February 3, 2018 Commercial paper Total cash and cash equivalents For the Years Ended January 28, 2017 47,094 $ 1,098 $ 126,592 3. Cash and Cash Equivalents The following table summarizes the fair market value of our cash and marketable securities, which are recorded on the Consolidated Balance Sheets: February 3, 2018 1,155 $ January 30, 2016 184,107 S 174,577 54,929 413,613 $ 116,765 1,173 January 28, 2017 265,332 83,281 30,000 378,613 4. Fair Value Measurements ASC 820, Fair Value Measurement Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. 4. Fair Value Measurements ASC 820, Fair Value Measurement Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Financial Instruments Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes this three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: . Level 1- Quoted prices in active markets. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In accordance with ASC 820, the following tables represent the fair value hierarchy for the Company's financial assets (cash equivalents) measured at fair value on a recurring basis as of February 3, 2018 and January 28, 2017: (In thousands) Cash and cash equivalents Cash Interest bearing deposits Commercial paper Total cash and cash equivalents. Percent to total Carrying Amount 184,107 174,577 54,929 413,613 100.0% Fair Value Measurements at February 3, 2018 Quoted Market Prices in Active Markets for Identical Assets (Level 1) 184,107 174,577 54,929 413,613 100.0% Significant Other Observable Inputs (Level 2) I 111 Significant Unobservable Inputs (Level 3) (In thousands) Cash and cash equivalents Cash Interest bearing deposits Commercial paper Total cash and cash equivalents Percent to total Carrying Amount 265,332 83,281 30,000 378,613 $ 100.0% Fair Value Measurements at January 28, 2017 Quoted Market Prices in Active Markets for Identical Assets (Level 1) 265,332 $ 83,281 30,000 378,613 $ 100.0% Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) In the event the Company holds Level 3 investments, a discounted cash flow model is used to value those investments. There were no Level 3 investments at February 3, 2018 or January 28, 2017. Non-Financial Assets The Company's non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. During Fiscal 2016, the Company concluded the goodwill was impaired for the Hong Kong and China businesses, resulting in a $2.5 million charge included within impairment and restructuring charges in the Consolidated Statements of Operations as a result of the performance of those businesses and the Company's exploration of alternatives, including the licensing of these markets to third-party operators. All other goodwill for the Company was not impaired as a result of the annual goodwill impairment test. Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During Fiscal 2017, the Company recorded no asset impairment charges. During Fiscal 2016, certain long-lived assets related to the Company's retail stores, goodwill and corporate assets were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in a loss of $20.6 million, which is recorded within impairment and restructuring charges within the Consolidated Statements of Operations. The fair value of the impaired assets after the recorded exploration of alternatives, including the licensing of these markets to third-party operators. All other goodwill for the Company was not impaired as a result of the annual goodwill impairment test. Certain long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in ASC 820. During Fiscal 2017, the Company recorded no asset impairment charges. During Fiscal 2016, certain long-lived assets related to the Company's retail stores, goodwill and corporate assets were determined to be unable to recover their respective carrying values and were written down to their fair value, resulting in a loss of $20,6 million, which is recorded within impairment and restructuring charges within the Consolidated Statements of Operations. The fair value of the impaired assets after the recorded loss is an immaterial amount. The fair value of the Company's stores was determined by estimating the amount and timing of net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. 5. Earnings per Share The following is a reconciliation between basic and diluted weighted average shares outstanding: (In thousands, except per share amounts) Weighted average common shares outstanding: Basic number of common shares outstanding Dilutive effect of stock options and non-vested restricted stock Dilutive number of common shares outstanding February 3, 2018 177,938 2,218 180,156 For the Years Ended January 28, 2017 181,429 2,406 183,835 January 30, 2016 194,351 1,886 196,237 Stock option awards to purchase approximately 2.2 million, 2.2 million and 13,000 shares of common stock during the Fiscal 2017, Fiscal 2016 and Fiscal 2015, respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive. Additionally, approximately 0.9 million, 0.1 million, and 0.7 million of performance-based restricted stock awards for Fiscal 2017, Fiscal 2016, and Fiscal 2015, respectively, wen not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on the Company's performance compared to pre- established performance goals. Refer to Note 12 to the Consolidated Financial Statements for additional information regarding share-based compensation. 6. Accounts Receivable, net Accounts receivable, net are comprised of the following: (In thousands) Franchise and license receivable Merchandise sell-offs and vendor receivables Credit card program receivable Tax refunds Landlord construction allowances Gift card receivable Other items Total 7. Property and Equipment Property and equipment consists of the following: (In thousands) Land Buildings Leasehold improvements Fixtures and equipment Construction in progress Property and equipment, at cost Less: Accumulated depreciation Property and equipment, net Depreciation expense is summarized as follows: February 3, 2018 $ $ 32,930 15,742 9,544 8,271 5,605 1,799 4,413 $ 78,304 $ Allowance for uncollectible receivables of $20.4 million and $4.2 million are included within Accounts receivable, net as of February 3, 2018 and January 28, 2017, respectively. February 3, 2018 $ 17,910 206,505 630,725 1,143,140 25,595 $ 2,023,875 (1,299,636) 724,239 $ January 28, 2017 35,983 20,089 11,869 4,731 2,412 6,567 4,983 86,634 January 28, 2017 17,910 204,890 606,522 1,028,117 26,858 1,884,297 (1.176,500) 707,797 Property and equipment consists of the following: (In thousands) Land Buildings Leasehold improvements Fixtures and equipment Construction in progress Property and equipment, at cost Less: Accumulated depreciation Property and equipment, net Depreciation expense is summarized as follows: (In thousands) Depreciation expense $ $ $ $ February 3, 2018 17,910 206,505 630,725 1,143,140 25,595 $ 2,023,875 $ (1,299,636) 724,239 $ January 28, 2017 17,910 204,890 606,522 1,028,117 26,858 1,884,297 (1.176,500) 707,797 For the Years Ended January 28, 2017 February 3, 2018 158,969 $ 152,644 $ January 30, 2016 140,616 Additionally, during Fiscal 2017, Fiscal 2016 and Fiscal 2015, the Company recorded $6.0 million, $1.5 million and $4.8 million, respectively, related to asset write-offs within depreciation and amortization expense. 8. Intangible Assets Intangible assets include costs to acquire and register the Company's trademark assets. intangible assets as of February 3, 2018 and January 28, 2017: (In thousands) Trademarks, at cost Less: Accumulated amortization Intangible assets, net Amortization expense is summarized as follows: (In thousands) Amortization expense $ $ February 3, 2018 $ 70,322 (23,656) 46,666 $ The following table represents January 28, 2017 68,978 (19,605) 49,373 For the Years Ended February 3, January 28, 2018 2017 4,551 $ 4,007 $ January 30, 2016 3,483 The table below summarizes the estimated future amortization expense for intangible assets existing as of February 3, 2018 for the next five Fiscal Years: Amortization expense The table below summarizes the estimated future amortization expense for intangible assets existing as of February 3, 2018 for the next five Fiscal Years: (In thousands) 2018 2019 2020 2021 2022 4,551 $ 4,007 $ $ $ $ Future Amortization 3,732 3,732 3,059 2,732 2,730 3,483 5 9. Other Credit Arrangements In Fiscal 2014, the Company entered into a new Credit Agreement ("Credit Agreement") for a five-year, syndicated, asset-based revolving credit facilities (the "Credit Facilities"). The Credit Agreement provides senior secured revolving credit for loans and letters of credit up to $400 million, subject to customary borrowing base limitations. The Credit Facilities provide increased financial flexibility and take advantage of a favorable credit environment. All obligations under the Credit Facilities are unconditionally guaranteed by certain subsidiaries. The obligations under the Credit Agreement are secured by a first-priority security interest in certain working capital assets of the borrowers and guarantors, consisting primarily of cash, receivables, inventory and certain other assets, and will be further secured by first-priority mortgages on certain real property. As of February 3, 2018, the Company was in compliance with the terms of the Credit Agreement and had $8.1 million outstanding in stand-by letters of credit. No loans were outstanding under the Credit Agreement on February 3, 2018. Additionally, the Company has a borrowing agreement with one financial institution under which it may borrow an aggregate of $5.0 million USD for the purposes of trade letter of credit issuances. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions. As of February 3, 2018, the Company had no outstanding trade letters of credit. { 676 65 17. Quarterly Financial Information - Unaudited The sum of the quarterly EPS amounts may not equal the full year amount as the computations of the weighted average shares outstanding for each quarter and the full year are calculated independently. (in thousands, except per share amounts) Total net revenue Gross profit Income from continuing operations Gain from discontinued operations, net of tax Net income Basic per common share amounts: Basic net income per common share Diluted per common share amounts: Diluted net income per common share (In thousands, except per share amounts) Total net revenue Gross profit Income from continuing operations Net income Basic per common share amounts: Basic net income per common share $ $ $ $ April 29, 2017 761,836 277,822 25,236 $ 25,236 $ 0.14 $ $ 844,557 $ 292,649 21,236 0.14 $ April 30, 2016 $749,416 $293,452 40,476 40,476 S 0.22 Fiscal 2017 Quarters Ended July 29, 2017 0.12 October 28, 2017 21,236 $ 63,733 $ $ 960,433 $ 1,228,723 $ 374,913 $ 425,120 63,733 93,957 93,957 0.12 $ Fiscal 2016 Quarters Ended 0.36 $ 0.36 $ July 30, 2016 October 29, 2016 $ 822,594 $ 940,609 $ 307,095 $ 377,816 $ 41,592 75,760 41,592 $ 75,760 $ February 3, 2018 0.23 $ 0.41 $ 0.53 0.52 January 28, 2017 $ 1,097,246 388,502 54,621 54,621 0.30 5 I Basic per common share amounts: Basic net income per common share Diluted per common share amounts: Diluted net income per common share (In thousands, except per share amounts) Total net revenue Gross profit Income from continuing operations Net income Basic per common share amounts: Basic net income per common share Diluted per common share amounts: Diluted net income per common share $ 0.14 0.14 $ $ 0.22 $ 0.12 $ 0.22 $ 0.12 $ April 30, 2016 $749,416 $ 822,594 $ $ 293,452 $ 307,095 $ 40,476 40,476 $ $ Fiscal 2016 Quarters Ended July 30, 2016 41,592 41,592 $ 0.23 S 0.23 $ 0.36 $ 0.36 October 29, 2016 940,609 377,816 $ 75,760 75,760 $ 0.41 $ 0.41 0.53 0.52 January 28, 2017 $ 1,097,246 388,502 54,621 54,621 0.30 0.30 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Partial 10-K report for teaching purposes. For complete 10-K, go to sec.gov or express.com. Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 2018 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-34742 EXPRESS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 1 Express Drive Columbus, Ohio (Address of principal executive offices) 26-2828128 (LR.S. Employer Identification No.) 43230 (Zip Code) Registrant's telephone number, including area code: (614) 474-4001 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $0.01 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned