CP10-3 (Static) Comparing Companies within an Industry LO10-6 Refer to the financial statements and footnotes of American Eagle Outfitters in Appendix B. Express in Appendix C, and the Industry Ratio Report in Appendix D. Required: 1. How do American Eagle Outfitters and Express debt-to-equity ratios compare to the industry average from the Industry Ratio Report? (Round your answer to 2 decimal places.) American Eagle Express Industry Average AMERICAN EAGLE UTFITTERS, INC. Consolidated Balance Sheets (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 February 3, 2018 January 28, 2017 413,613 378,613 398,213 358,446 78,304 86,634 78,400 77,536 968,530 901,229 724,239 707,797 46,666 49,373 15,070 14,887 9,344 49,250 52,464 60,124 1,816,313 $ 1,782,660 Liabilities and Stockholders' Equity Current liabilities: Accounts payable 236,703 246,204 Accrued compensation and payroll taxes 54,324 54,184 Accrued rent 83,312 78,619 Accrued income and other taxes 12,781 12,220 Unredeemed gift cards and gift certificates 52,347 52,966 Current portion of deferred lease credits 11,203 12,780 Other liabilition and accrued expenses 24661 20.2.10 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 236,703 246,204 54,324 54,184 83,312 78,619 12,781 12.220 52,347 52,966 11,203 12,780 34,551 36,810 485,221 493,783 47,977 45,114 7,269 4.537 29,055 34,657 84,301 84,308 outstanding Common stock, $0.01 par value: 600,000 shares authorized; 249,566 shares issued: 177,316 and 181,886 shares outstanding, respectively 2,496 Contributed capital 593,770 2,496 603,890 Accumulated other comprehensive loss, net of tax (30,795) (36,462) Retained earnings: 1,883,592 1,775,775 Treasury stock, 72,250 and 67,680 shares, respectively, at cost (1,202,272) (1,141,130) Total stockholders' equity Total liabilities and stockholders' equity 1,246,791 1,204,569 S 1,816,313 $ 1,782,660 AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Operations For the Years Ended: February 3, expenses (In thousands, except per share amounts) Total net revenue Cost of sales, including certain buying, occupancy and warehousing 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 2018 January 28, 2017 January 30, 2016 $ 3,795,549 3,609,865 $ 3,521,848 2,425,044 2,242,938 2,219,114 1,370,505 1,366,927 1,302,734 879,685 857,562 834,700 20,611 21,166) 0 167,421 156,723 148,156 302,788 331,476 319,878 (15,615) 3,786 1,993 287,173 335,262 321,871 83,010 122,813 108,580 Income from continuing operations 204.163 212,449 213.291 Discontinued operations, net of tax 4,847 Net income 204,163 $ 212,449 $ 218,138 Basic income per common share: Income from continuing operations 1.15 $ 1.17 1.10 Discontinued operations 0.02 Basic net income per common share 1.15 $ 1.17 $ 1.12 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 0.02 1.15 $ 1.17 $ 1.12 1.13 $ 1.16 1.09 0.02 $ 1.13 S 1,16 $ 1.11 177,938 181,429 194,351 180,156 183.835 196.237 Refer to Notes to Consolidated Financial Statements 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 For the Years Ended February 3. 2018 204,163 January 28, 2017 January 30, 2016. 212,449 S 218,138 5,667 (6,594) (19,924) 5,667 (6,594) (19,924) 209,830 $ 205,855 $ 198,214 Refer to Notes to Consolidated Financial Statements 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) Shares Outstanding (1) 194,516 Common Stock $ 2,496 Contributed Capital $ 569.675 31,937 Retained Earnings $ 1,543,085 $ Accumulated Other Treasury Comprehensive Stock (2) Income (Loss) (965,566) $ (9.944) $ Stockholders Equity 1,139,746 31,937 (15,563)) (227,071) (227.071) (324) 1,506 (13.237) (2,332) 218,138 (5,163) 26.461 (5,163) 10,892 218,138 (19,924) (19,924) 180,135 $ 2,496 $ 2,445 590,820 $ 27,877 (99,624) (97.179) 1,659,267 $ (1.171,339) $ (29,868) $ 1,051,376 27,877 (455) (7,032) (7,032) 2,206 (17.247) (2.821) 37.241 17.173 212.449 212,449 (6.594) (6,594) 2,440 (93,120) (90,680) from employees Reissuance of treasury stock Net income Other comprehensive loss Cash dividends and dividend equivalents ($0.50 per (455) 2.206 (7,032) (7.032) (17,247) (2.821) 37.241 17.173 212.449 212,449 (6.594) (6.594) share) Balance at January 28, 2017 181,886 $ 2,496 $ 2,440 603,890 $ 1,775,775 (93.120) (90,680) $ (1,141,130) $ (36,462) $ 1,204,569 Stock awards 17.202 17.202 Repurchase of common stock as part of publicly announced programs (6,000) (87.672) Repurchase of common stock from employees (871) Reissuance of treasury stock 2,301 (29.632) Net income Other comprehensive loss Cash dividends and dividend equivalents ($0.50 per share) (5.488) 204,163 (12,513) 39.043 (87.672) (12,513) 3,923 204,1631 5,667 5,667 2,310 (90.858) Balance at February 3, 2018 (1) (2) 177,316 $ 2,496 $ 593,770 $ 1,883,592 $ (1.202.272) $ (88,548) (30,795) $ 1,246,791 600,000 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. 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, were reissued from treasury stock for the issuance of share-based payments. AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Cash Flows For the Years Ended February 3, (In thousands) Operating activities Net income 2018 January 28, 2017 January 30. 2016 $ 204,163 $ 212,449 $ 218,138 Gain from discontinued operations, net of tax (4.847) Income from continuing operations $ 204,163 $ 212.449 $ 213,291 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 148,858 Share-based compensation 34,977 Deferred income taxes Foreign currency transaction (gain) loss 169,473 158,174 16.890 29,137 44,312 14.838 4,680 (5.616)) (835) 2.977 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: 20,576 (9,422) (35,912). (53,613) (22.259) 8,837 (7.705) (10,093) (399) (332) (7.027) 5,317 (6,705) (10,017) (16,663) 52.347 (3,189) Unredeemed gift cards and gift certificates (874) 4.465 755 Deferred lease credits 984 (5.229) (4,099) Accrued compensation and payroll taxes 1,289 (25,809) 34,234 Accrued income and other taxes 565 (10.695) (17,615) Accrued liabilities 2,060 (15.467) (14.133) Total adjustments 190,263 153.147 128,627 Net cash provided by operating activities from continuing operations 394,426 365,596 341,918 Investinn activities Investing activities: Capital expenditures for property and equipment (169.469) (161.494) (153,256) Acquisitions and purchase of long-lived assets in business combination (10.442) Proceeds from sale of assets 12,579 Acquisition of intangible assets (2.681) (1,528) (2,382) Net cash used for investing activities from continuing operations (172,150) (163,022) (153,501) Financing activities: Payments on capital leases and other (3.384) (4.375) Repurchase of common stock as part of publicly announced programs: (87.682) (7,635) (227,071) Repurchase of common stock from employees (12,513) (7,032) (5.163) Net proceeds from stock options exercised 3,355 16,260 Excess tax benefit from share-based payments 763 Cash dividends paid Net cash used for financing activities from continuing operations (88,548) (188,772) (90 680) (85,064) 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 1.496 1,036 7.283 657 (97 237) (329,166) (3.076) (6,805) (6.805) Cash and cash equivalents beginning of period Cash and cash equivalents end of period 35,000 118,546 (150.630) 378.613 413,613 $ 260,067 378,613 $ 410,697 260,067 Refer to Notes to Consolidated Financial Statements EXPRESS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except Per Share Amounts) ASSETS CURRENT ASSETS: Cash and cash equivalents Receivables, net Inventories Prepaid minimum rent Other Total current assets PROPERTY AND EQUIPMENT Less: accumulated depreciation Property and equipment, net TRADENAME/DOMAIN NAMES/TRADEMARKS DEFERRED TAX ASSETS OTHER ASSETS Total assets LIABILITIES AND STOCKHOLDERS EQUITY February 3, 2018 January 28, 2017 236,222 207,373 12,084 15,787 266,271 241,424 30,779 31,626 19,780 17,923 565,136 514,133 1,047,447 1,029,176 (642,434) (577,890) 405,013 451,286 197,618 197,618 7,025 7,926 12,815 14,226 1,187,607 1.185.189 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Deferred revenue Accrued expenses Total current liabilities DEFERRED LEASE CREDITS OTHER LONG-TERM LIABILITIES Total liabilities COMMITMENTS AND CONTINGENCIES (Note 13) STOCKHOLDERS' EQUITY: Preferred stock-50.01 par value; 10,000 shares authorized; no shares issued or outstanding Common stock $0.01 par value; 500,000 shares authorized; 92,647 shares and 92,063 shares issued at February 3, 2018 and January 28, 2017, respectively, and 76,724 shares and 78,422 shares outstanding at February 3, 2018 and January 28, 2017, respectively Additional paid-in capital 145,589 28,920 172,668 29,428 116,355 80,301 290,864 282,397 137,618 146,328 105,125 120,777 533,607 549,502 9261 921 199,099 185,097 Accumulated other comprehensive loss (3,803) Retained carnings 710,081 690,715 Treasury stock at average cost; 15.923 shares and 13,641 shares at February 3, 2018 and January 28, 2017, respectively (256,106) (237,243) issued at February 3, 2018 and January 28, 2017, respectively, and 76,724 shares and 78,422 shares outstanding at February 3, 2018 and January 28, 2017, respectively 926 921 Additional paid-in capital 199,099 185,097 Accumulated other comprehensive loss (3,803) Retained eamings 710,081 690,715 Treasury stock at average cost; 15,923 shares and 13,641 shares at February 3, 2018 and January 28, 2017, respectively (256,106) (237,243) Total stockholders' equity 654,000 635,687 Total liabilities and stockholders' equity 1,187,607 1,185,189 See notes to consolidated financial statements, EXPRESS, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Amounts in Thousands, Except Per Share Amounts) NET SALES COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS Gross profit OPERATING EXPENSES: Selling, general, and administrative expenses Restructuring costs Other operating expense, net Total operating expenses OPERATING INCOME 2017 2016 2015 S 2,138,030 $ 2,192,547 5 2,350,129 1,522,797 1,529,343 1,554,852 615,233 663,204 795,277 562,088) 559,541 587.747 22.869 536 292 585,493 559,603 588,0391 29.740 103,601 207.238 INTEREST EXPENSE, NET 2,242 13,468 15,882 OTHER (INCOME) EXPENSE, NET (537) (484) 672 INCOME BEFORE INFOME TAVER INTEREST EXPENSE, NET 2.242 13,468 15,882 OTHER (INCOME) EXPENSE, NET (537) (484) 672 INCOME BEFORE INCOME TAXES 28.035 90,617 190,684 INCOME TAX EXPENSE 8,669 33,200 74,171 NET INCOME 19.366 S $7,417 S 116,513 OTHER COMPREHENSIVE INCOME: Foreign currency translation gain (loss) Amount reclassified to camnings COMPREHENSIVE INCOME EARNINGS PER SHARE Basic Diluted (402) S 862 $ (1,608) 4.205 23,169 $ 58,279 S 114,905 0.25 S 0.73 S 1.39 0.25 S 0.73 S 1.38 EXPRESS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Thousands) Common Stock Treasury Stock Additional Shares Outstanding Par Value BALANCE, January 31, 2015 84,298 5 904 Paid-in- Capital $ 149,789 Retained Accumulated Other Comprehensive At Average Earnings Loss $ 516,785 $ Net income 116,513 Shares Cost Total (3,057) 6.102 $ (108,082) $ 556,339 116,513 Issuance of common stock 727 7 1.269 1,276 Share-based compensation 18,457 Repurchase of common stock Foreign currency translation (4,111)) 18,457 4,111 (73,024) (73,024) (1,608) (1,608) BALANCE, January 30, 2016 80,914 5 911 $ 169,515 $ 633,298 (4,665) 10,213 S (181,106) S 617,953 Net income $7.417 57,417 Issuance of common stock 936 10 2,724 2,734 Share-based compensation 12,858 12,858 Net income $7,417 Issuance of common stock 936 10 2,724 Share-based compensation 12,858 Repurchase of common stock Foreign currency translation (3,428) 57,417 2,734 12,858 3,428 (56,137) (56,137) 862 862 BALANCE, January 28, 2017 78,422 S 921 $ 185,097 $ 690,715 S (3.803) 13,641 $ (237,243) $ 635,687 Net income 19.366 19,366 Issuance of common stock 584 (6) (1) Share-based compensation 14,008- 14,008 Repurchase of common (2.282) 2.282 stock (18,863) (18,863) Foreign currency translation (402) (402) Amount reclassified to 4,205 4.205 earnings BALANCE, February 3, 2018) 76,724 $ 926 $ 199,099 $710,081 $ - 15,923 $ (256,106) $ 654,000) See notes to consolidated financial statements. EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) 2017 2016 2015. CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,366 $ 57,417 S 116,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Loss on disposal of property and equipment Impairment charge Loss on deconsolidation of Canada Amortization of lease financing obligation discount Excess tax benefit from share-based compensation Share-based compensation Non-cash loss on extinguishment of debt Deferred taxes Landlord allowance amortization Other non-cash adjustments 90,221 82,144 74,904 2,891 942 1,561 9,850 5,108 2,657 10,672 11.354 (347 14,008 12,858 18,438 5,314 (912) 20,065 (10,700) (13,183) (11.280) (12,730) (500) Payment of original issue discount (2.812) Changes in operating assets and liabilities: Receivables, net 3.279 6,371 1,097 Inventories (28,954) 14,144 (14,625) Accounts payable, deferred revenue, and accrued expenses (12.862) (15,857) 17,705 Other assets and liabilities - 24.691 3,442 32,628 Net cash provided by operating activities 118.567 186,708 229,603 Other assets and liabilities Net cash provided by operating activities 24,691 3.442 118.567 186,708 32,628 229,603 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (57,435) (98,712) (115,343) Decrease in cash and cash equivalents resulting from deconsolidation of Canada (9,232) Purchase of intangible assets (21) (35) Investment in equity interests (10,133) Net cash used in investing activities (66,667) (108,866) (115,378 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (198,038) Costs incurred in connection with debt arrangements (1,006) Payments on lease financing obligations (1,710) (1.595) (1,552) Repayments of financing arrangements (2,040) (3,274) Excess tax benefit from share-based compensation 347 Proceeds from exercise of stock options 2,735 1,276 Repurchase of common stock under share repurchase programs (see Note 9) (17,264) (51,538) (68,574) Repurchase of common stock for tax withholding obligations (1,599) (4.599) (4,450) Net cash used in financing activities (22,613) (58,271) (271,997) EFFECT OF EXCHANGE RATE ON CASH (438) 899 (1,484) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, Beginning of period CASH AND CASH EQUIVALENTS, End of period 28,849 207,373 20,470 186,903 (159,256) 346,159 S 236,222 S 207,373 S 186,903 Repurchase of common stock under share repurchase programs Lice Note 9) Repurchase of common stock for tax withholding obligations (17,204) (1,599) (4,599) Net cash used in financing activities (22,613) (58,271) (4,450) (271,997) EFFECT OF EXCHANGE RATE ON CASH NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, Beginning of period CASH AND CASH EQUIVALENTS, End of period (438) 8991 (1,484) 28,849 20,470 (159,256 207.373 186,903 346,159 236,222 207,373 $ 186,903 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest Cash paid to taxing authorities See notes to consolidated financial statements. S $ S 8,787 $ 6,142 S 40,413 S 71,686 APPENDIX D INDUSTRY RATIO REPORT Retail Family Clothing Stores COMPANIES USED IN INDUSTRY ANALYSIS Liquidity Current Ratio 2.43 Company Name Ticker Symbol Quick Ratio 1.52 American Eagle Outfitters, Inc. AEO Buckle, Inc. BKE Activity The Cato Corporation CATO Inventory Turnover Total Asset Turnover Days to Sell Inventory Receivables Turnover Average Collection Period Fixed Asset Turnover Accounts Payable Tumover 6.36 57.39 days 106.12 Chico's FAS, Inc. CHS Express, Inc. EXPR Francesca's Holdings Corporation FRAN 3.44 days The Gap, Inc. GPS 5.79 Tilly's, Inc. TLYS 1.93 Urban Outfitters, Inc. URBN 14.60 Zumiez, Inc. ZUMZ Profitability Gross Profit Percentage 34.94% Net Profit Margin 3.85% Return on Equity 12.57% Return on Assets 7.44% Quality of Income Ratio 2.61 Leverage Debt-to-Equity 0.70 Dividends Dividend Yield 2.59% Other Capital Acquisitions Ratio 3.13 Price/Earnings 20.85