Financial information for American Eagle is presented in Appendix A. Required: 1. Calculate the following risk ratios for the year ended February 3, 2018. (Use 365 days a year. Round your intermediate calculations and final answers to 1 decimal place.) times days Risk Ratios a Receivables turnover ratio b. Average collection period c. Inventory tumover ratio d. Average days in inventory e Current ratio f. Acid-test ratio g Debt to equity ratio times days 2. Calculate the following profitability ratios for the year ended February 3, 2018. (Round your intermediate calculations and final answers to 1 decimal place.) a b Profitability Ratios Gross profit ratio Return on assets Profit margin Asset turnover Return on equity 96 96 C 96 times % A-4 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Balance Sheets February 3, 2018 January 28, 2017 $ 413,613 398,213 78,304 78,400 968,530 724,239 46,666 15,070 9,344 52,464 1,816,313 378,613 358,446 86,634 77,536 901,229 707,797 49,373 14,887 49,250 60.124 1,782,660 $ 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, 30.01 par value; 5,000 shares authorized: none issued and outstanding Common stock 50.01 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 236,703 54,324 83,312 12,781 52,347 11,203 34,551 485,221 246,204 54,184 78,619 12,220 52,966 12,780 36,810 493,783 47,977 7.269 29,055 84,301 45,114 4,537 34,657 84,308 2.496 593,770 (30,795) 1,883,592 (1,202,272) 1,246,791 1,816,313 2,496 603,890 (36.462) 1,775,775 (1.141,130) 1,204,569 1,782,660 S Refer to Notes to Consolidated Financial Statements APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report A-5 AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Operations February 3, 2018 3,795,549 For the Years Ended January 28, 2017 3,609,865 January 30 2016 3,521,848 $ (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 2,425,044 1,370,505 879,685 20,611 167,421 302.788 (15,615) 287,173 83,010 204,163 2,242,938 1,366,927 857,562 21,166 156,723 331,476 3,786 335,262 122,813 212,449 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 $ 204,163 $ 212,449 $ 1.15 S 1.17 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 1.10 0.02 1.12 1.15 $ 1.17 1.13 1.16 1.09 0.02 1.11 1.13 1.16 Weighted average common shares outstanding - basic 177,938 Weighted average common shares outstanding - diluted 180,156 Refer to Notes to Consolidated Financial Statements 181,429 183,835 194,351 196,237 A-6 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Comprehensive Income For the Years Ended February 3, January 28, 2018 2017 204,163 $ 212,449 January 30 2016 218,138 $ (in thousands) Net income Other comprehensive gain (loss): Foreign currency translation gain (loss) Other comprehensive gain (loss) Comprehensive income 5,667 5,667 209,830 (6,594) (6,594) 205,855 (19,924) (19,924) 198,214 Refer to Notes to Consolidated Financial Statements A-8 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Cash Flows February 3, 2018 For the Years Ended January 28, 2017 January 30, 2016 204,163 212,449 218,138 (4.847) 213,291 204,163 $ 212,449 169,473 16.890 44,312 (5,616) 158,174 29,137 14,838 (835) 20,576 148,858 34,977 4.680 2,977 (9.422) In thousands) Operating activities: Net income Gain from discontinued operations, net of tax Income from continuing operations Adjustments to reconcile not 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 Unredeomed gift cards and gift certificates Deferred loose 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 assots 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 empicyeos 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 (35,912) 8,837 (399) 5,317 (16,663) (874) 984 1.289 565 2060 190,263 394.426 (53,613) (7.705) (332) (6,705) 52,347 4,465 (5.229) (25,809) (10.695) (15,467 153 147 365,596 (22.259 (10,093) (7,027) (10,017) (3,189 755 (4.099) 34,234 (17.615) (14.133) 128,827 341,918 (169,469) (161.494) (153.256) (10,442) 12,579 (2.382) (153,501) 12.681 (172.150 (1528) (163,022) (4,375) (3,384) (87.682) (12,513) 3,355 (7.635) (227,071) (5,163) 7.283 657 97,237) (329166) (3.076 (7,032) 16,260 763 (90.680) (85,064) 1,036 (88,548) (188,772) 1496 (6.805) 35,000 378,613 413 613 118,546 260,067 378,613 (6,805 (150,630) 410,697 260.067 Refer to Notes to Consolidated Financial Statements February 3. 2018 January 28, 2017 (In thousands) Cash and cash equivalents: Cash Interest bearing deposits Commercial paper Total cash and cash equivalents 184,107 $ 174,577 54,929 413,613 $ 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. 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: Fair Value Measurements at February 3, 2018 Quoted Market Prices in Active Markets for Significant Significant Other Unobservable Assets Observable Inputs Inputs (In thousands) Carrying Amount (Level 1 Level 2) (Level 3) Cash and cash equivalents Cash 184, 107 $ 184,107 Interest bearing deposits 174,577 174,577 Commercial paper 54,929 54,929 Total cash and cash equivalents 413,613 413,613 Percent to total 100.0% 100.0% Identical $ Fair Value Measurements at January 28, 2017 Quoted Market Prices in Active Markets for Identical Significant Other Assets Observable Inputs Level 1) (Level 2) Significant Unobservable Inputs (Lovel 3 Carrying Amount (In thousands) Cash and cash equivalents Cash Interest bearing deposits Commercial paper Total cash and cash equivalents Percent to total 265,332 83,281 30,000 378 613 100.0% 265,332 83,281 30,000 378,613 100.0% $ 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 5. Earnings per Share The following is a reconciliation between basic and diluted weighted average shares outstanding: For the Years Ended February 3 January 28, January 30, (In thousands, except per share amounts) 2018 2017 2016 Weighted average common shares outstanding: Basic number of common shares outstanding 177,938 181,429 194,351 Dilutive effect of stock options and non-vested restricted stock 2,218 2,406 1,886 Dilutive number of common shares outstanding 180,156 183,835 196,237 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, a nd Fiscal 2015, respectively, were 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: S (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 February 3, January 28, 2018 2017 32.930 $ 35,983 15,742 20,089 9,544 11,869 8,271 4,731 5,605 2,412 1,799 6,567 4,413 4,983 78,304 $ 86,634 Total 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. 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 February 3 January 28, 2018 2017 17,910 $ 17.910 206,505 204.890 630.725 606,522 1,143,140 1,028, 117 25,595 26.858 2,023,875 $ 1,884,297 (1.299,636) (1.176,500 724,239 $ 707 797 $ $ A-14 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report For the Years Ended February 3, January 28, January 30, 2018 2017 2016 158,969 $ 152,644 $ 140,616 (In thousands) Depreciation expense 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. The following table represents intangible assets as of February 3, 2018 and January 28, 2017: (In thousands) Trademarks, at cost Less: Accumulated amortization Intangible assets, net February 3, January 28, 2018 2017 S 70,322 $ 68,978 (23,656) (19,605) $ 46,666 $ 49,373 Amortization expense is summarized as follows: For the Years Ended February 3, January 28 January 30. 2018 2017 2016 4,551 $ 4,007 $ 3,483 (In thousands) 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: GA (in thousands) 2018 2019 2020 2021 2022 Futuro Amortization 3,732 3,732 3,059 2,732 2.730 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. A-15 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report A summary of fixed minimum and contingent rent expense for all operating leases follows: For the Years Ended February 3, January 28, January 30, (In thousands) 2018 2017 2016 Store rent: Fixed minimum 298,458 $ 286,850 $ 282,300 Contingent 9,566 8,519 9,035 Total store rent, excluding common area maintenance charges, real estate taxes and certain other expenses 308,025 $ 295,369 $ 291,335 Offices, distribution facilities, equipment and other 26,960 18,172 16,063 Total rent expense 334,985 $ 313,541 $ 307,398 In addition, the Company is typically responsible under its store, office and distribution center leases for tenant occupancy costs, including maintenance costs, common area charges, real estate taxes and certain other expenses. The table below summarizes future minimum lease obligations, consisting of fixed minimum rent, under operating leases in effect at February 3, 2018: (In thousands) Fiscal years: 2018 2019 2020 2021 2022 Thereafter Total Future Minimum Lease Obligations $ 286,300 $ 252,150 229,056 $ 202,605 168,993 435,616 $ 1,574,720 olu