Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1-a. Calculate the current ratio for the past two years. (Round your answers to 2 decimal places.) 2018 2017 Current Ratio 1-b. Did the current ratio improve or weaken in the more recent year? Improve Weaken 2-a. Calculate the acid-test (quick) ratio for the past two years. (Round your answers to 2 decimal places.) 2018 2017 Acid-Test Ratio 2-b. Did the acid-test ratio improve or weaken in the more recent year? Improve Weaken 3. If American Eagle used $100 million in cash to pay $100 million in accounts payable, how would its current ratio and acid-test change? (Round your answers to 2 decimal places.) Before After Current Ratio Acid-Test Ratio -4 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report MERICAN EAGLE OUTFITTERS, INC. Consolidated Balance Sheets February 3, 2018 January 28, 2017 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 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 $ Accrued inco 236,703 54,324 83,312 12.781 52,347 11,203 34,551 246,204 54,184 78,619 12,220 52,966 12,780 36,810 493,783 485,221 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued compensation and payroll taxes Accrued rent 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 outstanding Common stock, S0.01 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 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 Refer to Notes to Consolidated Financial Statements ACC (5-8) ... rupicy . Masterin... Keeping an eye on... A-5 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report 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 $ 2,219,114 1,302,734 834,700 (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 3,786 335,262 122,813 212,449 148,156 319,878 1,993 321,871 108,580 213,291 4,847 218,138 204,163 $ 212,449 1.15 $ 1.17 $ Basic income per common share: Income from continuing operations Discontinued operations Basic net income per common share 1.10 0.02 1.12 1.15 1.17 Diluted income per common share: Income from continuing operations Discontinued operations Diluted net income per common share 1.13 1.16 $ 1.09 0.02 1.11 1.13 1.16 Weighted average common shares outstanding - basic Weighted average common shares outstanding - diluted 177,938 180, 156 181,429 183,835 194,351 196,237 Refer to Notes to Consolidated Financial Statements mect_Production/bne/accounting/spiceland_fin5e/spiceland_fin5e_app_a.pdf Keeping an eye on... Lab & Masterin... Q ACC (5-8) 07... S. In bankruptcy, Sho... Q Logic Chapter 1 A-6 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Comprehensive Income February 3, 2018 204,163 For the Years Ended January 28, 2017 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 roduction/bne/accounting/spiceland_fin5e/spiceland_fin5e_app_a.pdf Masterin... Keeping an eye on... Q ACC (5-8) ... S. In bankruptcy, Sho... Q Logic Chapter 1 ... A-7 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Stockholders' Equity Shares Outstanding Common (1) Stock 194,516 $ 2,496 Contributed Retained Treasury Capital Earnings Stock (2) $ 569,675 $ 1,543,085 $ (965,566 31,937 Accumulated Other Comprehensive Stockholders' Income (Loss) Equity (9.944) $ 1,139,746 31.937 (15,563) (324) 1,506 (227,071) (5,163) 26,461 (13,237) (2.332) 218,138 (227,071) (5,163) 10.892 218,138 (19,924) (19,924) 180,135 $ 2,445 2.496 $ 590,820 27,877 (99,624) $ 1,659 267 $(1,171,339) (29,868 (97 179 $1,051,376 27,877 (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 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 (455) 2,206 (17.247) (2,821) 212,449 (7,032) 37,241 (7.032) 17.173 212.449 (6.594) (6,594) 181,886 $ 2.496 2,440 603,890 17,202 (93.120) $ 1,775,775 $(1,141,130 (90,680) (36,462) $ 1.204,569 17,202 (6.000) (871) 2,301 (87.672) (12,513 39,043 (29,632) (5.488) 204,163 (87.672) (12,513) 3,923 204,163 5,667 5,667 (90.858) 177 316 $ 2,310 2,496 $ 593,770 $ 1,883,592 $(1,202,272) $ (88,548) $ 1,246,791 (30,795 (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. 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. (2) Refer to Notes to Consolidated Financial Statements ct_Production/bne/accounting/spiceland_fin5e/spiceland_fin5e_app_a.pdf b & Masterin... Keeping an eye on... Q ACC (5-8) 497 7... S. In bankruptcy, Sho... Q Logic Chapter 1 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 $ 158,174 169,473 16,890 44,312 (5,616) 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 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 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 2,060 190,263 394,426 (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) (14,133 128,627 341,918 (169,469) (161,494) (153.256) (10,442) 12.579 (2.382) (153,501) (2.681) (172.150) (1,528 (163,022 (4,375) (3,384) (87.682) (12,513 3,355 (7,635) (227,071) (5,163 7.283 657 (97,237) (329,166) (3,076 (7,032) 16.260 763 (90,680) (85,064 1,036 (88,548) (188,772) 1,496 (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 B Masterin... Keeping an eye on... ACC (5-8) ... In bankruptcy, Sho... Q Logic Chapte A-14 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report (In thousands) Depreciation expense February 3, 2018 158,969 For the Years Ended January 28 2017 $ 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. February 3, 2018 and January 28, 2017: The following table represents intangible assets as of (In thousands) Trademarks, at cost Less: Accumulated amortization Intangible assets, net February 3 2018 70,322 (23,656) 46,666 January 28, 2017 68,978 (19,605 49,373 $ Amortization expense is summarized as follows: (In thousands) Amortization expense February 3, 2018 4,551 For the Years Ended January 28, 2017 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: (In thousands) 2018 2019 2020 2021 2022 Future 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 reyalying credit facilities the credit _Production/bne/accounting/spiceland_fin5e/spiceland_fin5e_app_a.pdf & Masterin... Keeping an eye on... ACC (5-8) ... S. In bankruptcy, Sho... Logic Chapter 1 APPENDIX A American Eagle Outfitters, Inc., 2017 Annual Report A-1 A summary of fixed minimum and contingent rent expense for all operating leases follows: February 3, 2018 For the Years Ended January 28, 2017 January 30, 2016 $ 298,458 $ 9,566 286,850 $ 8,519 282,300 9,035 (In thousands) Store rent: Fixed minimum Contingent Total store rent, excluding common area maintenance charges, real estate taxes and certain other expenses Offices, distribution facilities, equipment and other Total rent expense $ $ 308,025 $ 26,960 334,985 295,369 18,172 313,541 291,335 16,063 307,398 $ 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 Future Minimum Lease Obligations $ 286,300 $ 252.150 S 229,056 $ 202,605 $ 168,993 $ 435,616 $ 1,574,720 Total