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RWP12-2 (Static) Financial Analysis Continuing Case: American Eagle Outfitters, Incorporated Financial Information for American Eagle is presented in Arpendix A. Required: 1. Calculate the following risk ratios for the most recent year 2. Calculate the following profitability ratios for the most recent year. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the following risk ratios for the most recent year. (Use 365 days a year Round your intermediate calculations and final answers to 1 decimal place) Risk Ratios a. Receivables turnover ratio b. Average collection period c. Inventory tumover ratio d. Average days in inventory e. Current ratio 1. Acid-test ratio o Debt to equity ratio times days times days 90 RWP12-2 (Static) Financial Analysis Continuing Case: American Eagle Outfitters, Incorporated Financial information for American Eagle is presented in Appendix A Required: 1. Calculate the following risk ratios for the most recent year. 2. Calculate the following profitability ratios for the most recent year. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the following profitability ratios for the most recent year. (Round your intermediate calculations and final answers to 1 decimal place.) Profitability Ratios a. Gross profit ratio b. Return on assets c. Profit margin d. Asset turnover e. Return on equity % % % times % AMERICAN EAGLE OUTFITTERS, INC. Consolidated Balance Sheets February 1 2020 February 2 2019 $ 361,930 55,000 446,270 119,064 65 658 1,047,930 735,120 1,410,910 53,004 22.724 50,005 3,328.679 333,330 92,135 424 404 93,477 102.907 1,048.253 742.149 58,167 14,062 42,747 1,903 378 5 in thousands except per share amounts) Assets Current assets Cash and cash equivalents Short-term investments (available for sale) Merchandise inventory Accounts receivable, net Prepaid expenses and other Total current assets Property and equipment, at cost, net of accumulated depreciation Operating lease right-of-use assets Intangible assets, net, including goodwill Non-current deferred Income taxes Other assets Total assets Llabilities and Stockholders' Equity Current abilities Accounts payable Current portion of operating lease liabilities Accrued income and other taxes Accrued compensation and payroll taxes Unredeemed gift cards and gift certificates Other current liabilities and accrued expenses Total current liabilities Non-current liabilities Non-current operating lease liabilities Other non-current liabilities Total non-current liabilities Commitments and contingencies Stockholders' equity Preferred stock. 50.01 par value, 5,000 shares authorized: none issued and outstanding Common stock, 50 01 par value, 600,000 shares authorized, 240,566 shares issued, 166,993 and 172,436 shares outstanding, respectively Contributed capital Accumulated other comprehensive loss, net of tax Retained earnings Treasury stock, B2 573 and 77,130 shares, respectively, at cost Total stockholders' equity Total liabilities and stockholders equity 240.071 285,740 299,161 0,514 43.537 56,974 56,024 751,756 20,064 02.173 53,997 145,740 542,645 1,301,735 27,335 1.329,070 73,178 73.178 2.498 577,856 (33,168) 2,108,292 (1.407,623) 1.247,853 3.320,679 2496 574,929 (34,832) 2,054,654 (1.309,692) 1,287,555 1,903,378 Refer to Notes to Consolidated Financial Statements American Eagle Outfitters, Inc., 2020 Annual Report A-5 AMERICAN EAGLE OUTFITTERS, INC Consolidated Statements of Operations For the Year Ended February 1 February 2 2020 2019 4,308,212 5 4.035,720 5 February 2018 3,795,549 In thousands except per have 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 income (expense).net Income before income taxes Provision for income taxes Net income Basic net income per common share Diluted net income per common share Weighted average common shares outstanding basic Weighted average common shares outstanding. diluted 2,785 911 1,522,301 1,029,412 80,494 179,050 233,345 11.933 245,270 54,021 101257 2,548 082 1.487,638 980.610 1.568 168,331 337 129 7.971 345.100 83.109 201,002 2.425044 1,370,505 879,685 20,611 107421 302788 (15615) 287.173 83,010 204 103 5 $ 140 115 1.12 5 1.47 1.13 169,711 170,867 170,470 178,035 177.938 150.156 Refer to Notes to Consolidated Financial Statements A-6 APPENDIX A American Eagle Outfitters, Inc, 2020 Annual Report AMERICAN EAGLE OUTFITTERS, INC, Consolidated Statements of Comprehensive Income Feby 2000 101.25 For the Year February 2 2011 5 261.0025 Fabry 2011 204.165 Not income Other comprehensive an ou Foreign currency translation in (s) Other comprehensive gain cou) Comprehensive income 1.604 1604 192.921 14031 14.037) 257.665 Oy 5,667 209 350 3 Refer to Noles to consolidated Financial Statements APPENDIX A American Eagle Outfitters, Inc., 2020 Annual Report A-7 AMERICAN EAGLE OUTFITTERS, INC Consolidated Statements of Stockholders' Equity Other TII III Acumulated Shares Common Contributed Retained Treasury en fousands, except parere amount Stockholders Oligt Comprehensive Stock Capital Fan Stock Income Balance at January 28, 2017 161.55 2,496 603,890 51.775 775 510141,130) 3 G462) 31204,569 Stockwards 17.202 17.202 Repurchase of common stock as part of publicly announced programe (8,000) 107,672) (87.672) Repurchase of common stock from employees (871) 112.513) (12.513 Resource of treasury stock 2.301 120.032) (488) 30.043 3.923 Net income 204,163 204.103 Other comprehensive low 5.667 5,667 Cashdvidends and dividend equivalent (500 per sh) 2310 (90.358 S40 Balance at February 3, 2018 177 216 2,496 W3TTO 518532 31 202 272) (2979551240791 Stock awards 27057 27057 Repurchase of common lock as part of publey unced programs (7.300) (144405 (144.405) Repurchase of common stock from employees 0943 (19,655) (19.668) Resource of reasury stock 3.363 (40,022) 8.407 56,650 17.038 Net income 261.902 261.002 Other comprehensive los 14.037) (4,037) Cath dividends and dividend equivalent (10 55 per 24124 09247) 1974123 Balance at February 2, 2019 1727434 2,466 3674.920 32,054,654 3,309,483) 34.002) $1,217,685 Block awards 22707 4 Rapurchase of common wock por el publicly 10.336 (112,361) (112.361) 1451) (0.087 10.07 144435) 146435) 1324 (22.175) 1.950 2321 Natincome 101257 191,257 Omer comprehensive los Cuh dividends and dividend equivalents (10 55 per ware) 20 195.142) 02-783 Blanet Fobruary 12020 164,093 37434 77M 1:100202 11140726733 133.16) 1.127,053 000,000 authored, 249,506 issued and 166,993 outstanding, 5001 por value common stock at February 1, 2020,000,000 authorized 249 506 wowed and 172436 outstanding, 5001 par value common stock at February 2 2019,000,000 autorized, 240, 506 issued and 177,316 outstanding, 30.01 par value common stock at February 3, 2018, 000,000 authorized, 249,506ssued and 101,880 outstanding $0,01 par value common stock at January 28, 2017. The Company has 5,000 authorized, with none issued or outstanding, 5001 par valve preferred stock for all periods presented (2) 62,573 shares, 77,130 shares and 72.250 shares at February 1, 2020 February 2, 2010 and February 3, 2018 respectively During Fiscal 2010, FS 2016, and Fiscal 2017 1,324 shares, 3,363 shares, and 2.301 shares, respectively, were reissued from treasury stock for the Issuance of share based payments Refer to Notes to Consolidated Financial Statements A-8 APPENDIX A American Eagle Outfitters, Inc., 2020 Annual Report AMERICAN EAGLE OUTFITTERS, INC. Consolidated Statements of Cash Flows February For the Year End February 2010 2011 191 257 $ 2010025 204.163 Operating active Net income Adjustments to recordile net neome to not can provided by operating advies Depreciation and on Sed congestion Duterned come to 101.370 23.030 6541 66252 170.504 27.500 14301 54 100473 18.690 44312 28.400) 35 912 ow 21615) 201303 171.519) 12.845) 44,00 30.003) 5279 415416 13.155 (16.063) (22.2015) 4,320 20043 TES 416, 120 200 3944 (100409) (210.300) (65.000) 122.195 Operatings Accounts payable Altre compensation and payroll Accrue defe Net cath provided by operating activities Investing Cappendures for property and quant Purchase of available for investments Sale of available for sale Ovesting Nel cash used for testing activities Finanong attes Reuse of common stock sporto publicly once programa Reports of common from employees Nel proceeds from stock options exerced Cashierds paid Onancing activities Net cash used for financing activities Effect of exchange rates on cash Nel change in cash and cash equivalente Cash and cash equivalent beginning period Cash and the end of period (10.000 202.912 109.770 672) 2021 (GDN) 26) 100 112,301) BOAT 2.119 (92.7633 IN (164400) 10.668 18.405 17.25) 303 20301 3702 12,513 3355 135481 0.564 772 20.000 333330 201.030 080.2001 400013 SEO 38.000 376813 Refer to Notes to Consolidated Financial Statements Sales Return Reserve 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 using historical average return percentages For the Years Ended February 1, February 2 February 3 in thousandal 2020 2010 2018 Beginning balance 4,620 $ 4,717 5 3.639 Returns (121,513) (113,805) (103,393 Provisions 122,718 113,700 104,471 Ending balance 5.825$ 4 620 $ 4.717 The presentation on a gross basis consists of a separate right of return asset and liability. These amounts are recorded within prepaid expenses and other and other current liabilities and accrued expenses, respectively, on the Consolidated Balance Sheets 2 APPENDIX A American Eagle Outfitters, Inc., 2020 Annual Report Legal Proceedings and Claims The Company is subject to certain legal proceedings and claims arising out of the conduct of its business in accordance with ASC 450 Contingencies (ASC 450), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves it anticipates that the time outcome of any matter currently pending against the Company will not materially affect the consolidated financial position results of operations or cash flows of the Company. However, our assessment of any itigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact that are not in accord with management's evaluation of the possible by or outcome of such litigation or claims Supplemental Disclosures of Cash Flow Information The table below shows supplemental cash flow information for cash amounts paid during the respective periods For the Year End February February 2 February hthousands 2019 2010 Cash paid during the periods for Income taxes 89.6895 81 2485 47,094 Interest 8285 1.2075 1,098 3. Cash, Cash Equivalents, and Short-term Investments The following table summarizes the fair market value of our cash and short-term investments, which are recorded on the Consolidated Balance Sheets February February 2 I thousands Cash and cash equivalents Cash $ 1260875 108,216 Interest beaning deposits 235,843 165.274 Commercial paper 59, 840 Total cash and cash equivalents $ 361 9305 30330 Short-term investments Certificates of deposits 55.000 70,000 Commercial paper 22 135 Total short-term investments 55.000 92.35 Total cash and short-term investments 416 930 $ 425 455 4. Fair Value Measurements ASC 820, Fair Value Measurement Disclosure (ASC 820"), defines far value establishes atramework for measuring far value in accordance with GAAP and expands disclosures about fair value measurements Far value is defined under ASC 820 as the price associated with the sale of an asset or transfer of alability in an orderly transaction between market participants at the measurement date Financial Instruments Valuation techniques used to measure far vale under ASC 820 must made the use of observable inputs and mine the use of observable inputsIn addition ASC 820 establishes a three-tier fair value Hierarchy, which proses the inputs used in measuring far value. These tiers include Level 1 Quoted prices in active markets Level 2 - Inputs other than Level 1 that are observatiether director indirectly Level 3 - Unobservable inputs that are supported by le or no market activity and that are wgnificant to the far value of the assets or abilities The Company's cash equivalents and short-term investments we Level 1 financial assets and we measured at forvave on a recurring basa, for at penos presented. Refer to Note 3 to the Consolidated Financial Statements for additional Information regarding cash equivalents and short-term investments The Company had no other financial instruments that required for valve merement for any of the periods presented Non-Financial Assets The Company's on financial assets, which include intangible assets and property and entered to be measured at tale ona recurring basis. However, if certain triggering events occur and the Company rere to ve the confinancial a formarment mm 5. Earnings per Share The following is a reconciliation between basic and diluted weighted average shares outstanding February 2020 For the Year Ended February 2 2012 February (In thousands creat per the amounts Weighted average common shares outstanding Banic number of common shares outstanding Dilutive effect of stock options and non-vested restricted stock Diluted number of common shares outstanding 160,711 176.470 177938 1156 170 367 1550 178005 2218 160.156 Potentially issuable common shares excluded due to anti-dilutive effect 700 393 3.082 Dilutive and art Glutive shares relate to share based compensation Refer to Note 12 to the Consolidated Financial Statements for additional information regarding share-based compensation 6. Accounts Receivable, net Accounts receivable, net is comprised of the following Franchise and license receivable Merchandise sell-offs and vendor receivables Credit card program receivable Tax refunds Landlord construction allowances G card receivable Other items Total 7. Property and Equipment, net Property and equipment, net consists of the following February 2020 36.000 $ 24,474 30,578 4,068 12,038 1,794 9252 119064 Fabwy 2010 31,474 12,943 21.129 7483 0,001 3514 7,933 93,477 As thousand Land Buildings Leasehold improvements Factures and equipment Construction in progres Property and equipment at cost Less Accumulated depreciation Property and equipment net February February 2 2020 2019 17.910 $ 17.910 211,814 209.407 721 514 698029 1.316.198 1.221.200 48.992 34 221 2,314.429 $ 2,100 850 (1 570 308) 149701 735120 72,140 Depreciation expense is as follow Foby Forway Fun Depreciation expense 170,038 1642051 150 900 Additionally, during Fiscal 2019, Fiscal 2018, and Fiscal 2017, the Company recorded 43 milion 520 milion and 160 million pectively related to asset write offs within depreciation and amortization expense B. Intangible Assets, net, including Goodwill Intangible set, net including goodwill consists of the following Ft Fy 200 Goodwil gros 17353 17.30 Accueipomenit) 0.190 04484 Goodwin 13157 14800 8. Intangible Assets, net including Goodwill Inang beses ne doing goodwill consists of the following 5 5 20 Goode 22 Acumulated 17355 173383 1410 2/41 Goodwin 13.157 14899 Trademas cost Accumulated to 71.805 70004 1033 720 Trademarinat $ 5045 Intang including good 507 t ce moment cubes 125 to recorded in Pas 2018 and 917-ben recorded in 2010 Amortuoso Fee F 2000 2011 2014 Amortion 27 550 The wewe umanos e estrated expense for tablety a Petrary, 2020 ore ne te A 14 APPENDIX A American Eagle Outfitters, Inc. 2020 Annual Report 2020 302 2022 2033 2004 5 1 3433 2100 2.104 3110 2002 . 9. Other Credit Arrangements 2010, the Company entered into an ended and read regem Crowd revolving credit the Cred) The Age overed over to loans of 5400 oson bonowing in the Creative financiera favorable to unde eiwenly wed by cert The color of the Citta ved by your ang car and many of 10. Leases The Company leases at store premises, some of its office space and certain Wormation technology and office equipment There leases are generally classified as operating leases Store leases generally provide for a combination of bone rentals and contingent rent based on store sales Additionally, most lenses include fessor incentives such construction allowances and rent holidays The Company is typically responsible for tenant occupancy costs including maintenance cost common area charges real estate taxes, and certain other expenses Most cases include one or more options to renew. The exercise of lease renewal options is at the Company's discretion and is not reasonably certain at lease commencement. When measuring operating lease ROU assets and operating lease liabilities after the date of adoption of ASC 842 (February 3, 2019), the Company only includes cash flows related to options to extend or terminate leases once the options are excited Some loses have variable payments. However, because they are not based on an index of rate, they are not included in the measurement of operating lase ROU assets and operating tease abilities When determining the present value of future payments for an operating lease that does not have readily determinable mplot rate, the Company uses is incremental borrowing rate as of the date of initial posesion of the latest For later that quality for the short-terminate exemption, the Company does not record an operating ate labelty or operating and ROU Short term lease payments are recognized on a straight line bass over the late form of 12 months or less The following table surmares expense categories and cash payments for operating teases during the period. It also includes the total non cath transaction activity for new operating lase ROUses and related operating tease tabtes entered into dunng the period For the Year Ended Fabry 1.2020 I had Lease costs Operating lease costo $ 349.420 Variable lease cont 102,707 Short-term leases and other coats 37293 Total lease costs 5 409519 Other information Cash paid for operating lease by New operating cose ROU se entered into during the period 5 (328.825) 277.562 The following table contains the average remaining lease term and countrale weighted by outstanding operating lase ability as of the end of the period Lease term and discount rate Weighted average remaning lease temperating teases 2 years Weighted average discount rate - operating feases 515 The table below is a maturty analysis of the operating leates in effects of the end of the period. Undiscounted cash lows for trance leases and shomases are not material for the period reported and are excluded from the table below Undiscounted cash flow February 1, 2020 thousands Fiscal years 2020 374 810 331578 2022 277,054 2003 256.695 184501 Theater 71,00 Total discounted cashows 16707 Les discount on att 94001 Toutes bily 800 000 2021 2024 The Company adopted ASC 542 of February 3, 2010 through the modified retrospective method. Prior to have not been and continue to be reported in accordance with our historical counting treatment in accordance with the transion Guidance with ASC the tohowing table provides the discorrelated to a Year 2018 and 2017 required under ASC 340. Les texto Nole for Information about the Company's action of ASC 642 For the Year Ended February 2 February 2019 2010 $ (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 Totalrent expense 303,1235 13,883 298,458 9,566 $ 317006 $ 18,636 335 642 308,025 26,960 334 985 14. Income Taxes On December 22, 2017, the US government enacted comprehensive tax legislation in the form of the Tax Act. The Tax Act made broad and complex changes to the US tax code including reducing the US federal corporate tax rate from 35% to 21% effective January 1, 2010, and implementing a one time transition tax on undistributed earnings of foreign subsidiaries. During the fourth quarter of Fiscal 2018, the Company completed its accounting for the tax effects of the Tax Act with no material net changes to the provisional amounts recorded for the one time transition tax and the re- measurement of deferred tax assets and Babies Additionally, the Tax Act included a provision designed to currently tax global intangible low taxed Income (GIL Teamed by non US corporate subsidiaries of large US shareholders starting in 2018 The Company has elected as permitted in FASB Staff OSA. Topic 740 - No 5 to treat any future GILTI tax liabilities as period costs and will expense those abilities in the period incurred. The Company therefore will not record deferred taxes oled with the GIL TI provision of the Tax Act. The Company has no changes to this election for Fiscal 2019 The components of income before income taxes from continuing operations were (n) US Foreign Total FOLY February Fry2 2020 2009 220.0005 308 4243 15312 36.670 249270 345 100 wy 2018 255,621 31.552 2874173 15. Impairment and Restructuring Charges The following table represents impairment and restructung charges. All amounts were recorded within impairment and restructuring charges on the Consolidated Statements of Operations, unless otherwise noted For in modo Fay February Forway Asset impairment charges 1929 2012 2011 55.2525 Severance and related employee costs 5,091 1,560 Joint business venture et charges (2) 10.600 4.194 Japan market transton costs 1.814 China restructuring 1,543 Lease termination and storeclosure costs 2851 Inventory charges 14 Total paiment and restructuring 1.000 charges 0404 1.5685 30244 Focal 2019 asset impairment charges of 5645 milion on the assets of 20 retail stores. Of the total 305 milion related to the moment of leasehold improvements and stores and 5250 million related to the impairment of operating as ROU . The Company also concluded that certain goodwill was impared resulting in a $1 milion change in Fiscal 2010 Fiscal 2017 joint business venture exit charges were recorded within the expense) Income, net on the Consolidated States of Operations Pre tax corporate restructuring charges of $15 milion primary consisting of severance and closure costs for our company owned and operated stores in China recorded in the first quarter of Fiscal 2010 10 (1) (2) (3) arges $ 80,494 $ 1,568 $ 30 244 (1) Fiscal 2019 asset impairment charges of $64.5 million on the assets of 20 retail stores. Of the total, $39.5 million related to the impairment of leasehold improvements and store fixtures, and $25.0 million related to the impairment of operating lease ROU assets. The Company also concluded that certain goodwill was impaired resulting in a $1.7 million charge in Fiscal 2019 (2) Fiscal 2017 joint business venture exit charges were recorded within other (expense) income, net on the Consolidated Statements of Operations (3) Pre-tax corporate restructuring charges of $1.5 million primarily consisting of severance and closure costs for our company-owned and operated stores in China recorded in the first quarter of Fiscal 2019 (4) Fiscal 2017 inventory charges were recorded within cost of sales, including certain buying, occupancy, and warehousing expenses on the Consolidated Statements of Operations A rollforward of the restructuring liabilities recognized in the Consolidated Balance Sheet is as follows February 1 (in thousanda) 2020 Accrued liability as of February 2, 2010 6,629 Add Costs incurred, excluding non-cash charges 10,686 Less Cash payments and adjustments (13.128) Accrued ability as of February 1, 2020 4.187 The accrued liability as of February 2, 2019 relates to previous restructuring activities disclosed in the Company's Fiscal 2018 Form 10-K, which remained unpaid at the beginning of Fiscal 2019