Memo based on American Eagle Company

Introduction:

This Financial Statement Analysis Project (“FSAP”) will be completed in phases throughout the entire semester.  The project is worth up to 100 of the 440 total points available for the semester as indicated in the course syllabus.  Phases 1 and 2 will be completed individually.  The remainder of the project will be completed in teams of not less than three or more than four students.  Please play nicely with others.  Teams can be comprised of students from either class section.  Accepting a grade for work done by others is stealing.  Providing a grade to students who do not participate in the project is lying and just stupid.

Project Scenario:

You are working for the Center for Quality Analytical Data (CQAD, pronounced see-kwad).  The mission of CQAD is to provide useful financial information and meaningful objective analysis of such information to a variety of users including, colleges and universities, investors, potential investors, creditors, customers, suppliers and employees.   In order for the CQAD to be profitable now and in the future, we are committed to providing the highest quality product to our clients.  When working in teams, anything less than professional quality work is simply unacceptable and will be graded accordingly.

Phases:

The CQAD and has been doing this type of analysis for several years and has developed a systematic approach which involves nine distinct phases:

Phase 1 – Understanding the Company and the Industry

                1a – Company selection

Phase 1

1) Obtain the most recently filed report on Form 10-K for BOTH:

American Eagle Outfitters, filed on 3/12/20

                AND

                                Urban Outfitters Inc., filed on 3/31/20

Phase 1a

2) Read Item 1 – Business, Item 1A – Risk Factors and Item 1B – Unresolved Staff Comments, of BOTH 10-Ks

3) Prepare a summary of the relevant information contained in Items 1, 1A and 1B for both companies.  Include this summary with your Phase 1b submission.

4) Based solely on your reading of Items 1, 1A and 1B, select one of the two companies as your primary company for the semester.

5) Prepare a CQAD memorandum (see page 4) identifying the company that you will be using as your primary company and explaining the factors that led to your selection based solely on the disclosure provided by each company in Items 1, 1A and 1B.  Did one company give the impression of being more or less forthcoming than the other company?  Did this impression impact your decision as to which company you will use as your primary company during the semester?

Example of the opening of a business memorandum(the purpose and scope of your memos will be different than the purpose and scope of this memo which was prepared in a graduate class in 2010.)

Adding Value Since 1999  

Memorandum                                                              CQAD

To:      Frank DeGeorge

From:  Tinkers, Evers and Chance

Date:  June 1, 2010

Re:      McKesson Inc.

The purpose of this memorandum is to summarize the opportunities and risks, facing McKesson Inc. (“MCK” or “the Company”) specifically, and the wholesale pharmaceutical distribution industry in general, to summarize the information provided in Parts 1 and 2 of the annual report on Form 10-K (excluding Items 6, 7 and 8) filed by the company yesterday and to summarize the stock price and dividend activity for the Companies stock over the past five years.   Information provided in this memorandum resulted examinations of the Value Line Industry Review dated February 5, 2010,  and the MCK annual report on Form 10-K for the fiscal year ended March 31, 2010 which was filed with the SEC yesterday.  Closing stock price and dividend information was obtained from Yahoo Finance.

McKesson’s common stock closed at $70.00 per share yesterday up 70.1% from the closing price one year earlier at a time when the entire stock market was depressed as a result of the housing market collapse.  The following chart shows the closing stock price on or about May 31 for each of the last 6 years.  The five year CAGR for the stock was 11.7%.

On May 26, 2010 the Company announced an increase in its’ quarterly cash dividend from $0.12 per share to $0.18 per share.  The dividend will be paid on 7/1/10 to shareholders of record on 6/10/10.  The forward annualized dividend represents a 1% dividend yield.

The Company paid the $0.12 per share cash dividend in each of the past 8 quarters.  Prior to that point the Company paid a $0.06 per share quarterly cash dividend each quarter since 1999.  With dividends, the internal rate of return over the past five years was 11.83%.  The Company last split its stock (2 for 1) in January of 1998 when the stock was trading at $110.00 per share.

Item 1

McKesson is a Fortune 50 corporation “that delivers medicines, pharmaceutical supplies, information and care management products and services designed to reduce costs and improve quality across the healthcare industry.” (10-K, Item 1) . . . . . . .

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