-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXC4OOfkhgC5c6NQeA5A9FCXBBYylanRSRUFXc0VQuXmmfUR8ewIQOjyCNxhZJKE R6x6WptBW5jxEYqUqK0kXQ== 0000950116-99-000965.txt : 19990513 0000950116-99-000965.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950116-99-000965 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A C MOORE ARTS & CRAFTS INC CENTRAL INDEX KEY: 0001042809 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 223527763 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23157 FILM NUMBER: 99618523 BUSINESS ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 BUSINESS PHONE: 6092286700 MAIL ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 000-23157 --------- A.C. MOORE ARTS & CRAFTS, INC. ------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 22-3527763 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 University Court, Blackwood, NJ 08012 ----------------------------------------- (Address of principal executive offices) (Zip Code) (609) 228-6700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at May 7, 1999 - ----- -------------------------- Common Stock, no par value 7,405,000 A.C. MOORE ARTS & CRAFTS, INC. TABLE OF CONTENTS
Page Number ------ PART I: FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3 Consolidated Statements of Income for the three months ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 5 Notes to Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk 10 PART II: OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Pr11eeds Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matt12s to a Vote of Security Holders Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 EXHIBIT INDEX 14
2 CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited)
March 31, December 31, 1999 1998 --------- ---------- ASSETS Current assets: Cash and cash equivalents $ 3,263 $ 9,475 Marketable securities 3,877 3,894 Inventories 54,697 54,379 Prepaid expenses and other current assets 1,571 1,949 --------- ---------- 63,408 69,697 Property and equipment, net 12,227 12,059 Other assets 573 601 --------- ---------- $ 76,208 $ 82,357 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital leases $ 350 $ 350 Accounts payable to trade and others 14,811 20,176 Accrued payroll and payroll taxes 1,736 2,888 Accrued expenses 3,411 3,562 --------- ---------- 20,308 26,976 --------- ---------- Long-term liabilities: Capital leases 1,482 1,568 Deferred taxes 981 981 Other long-term liabilities 1,761 1,661 --------- ---------- 4,224 4,210 --------- ---------- 24,532 31,186 --------- ---------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares -- -- authorized, none issued Common stock, no par value, 20,000,000 shares authorized, 7,405,000 shares outstanding 43,014 42,979 Retained earnings 8,662 8,192 --------- ---------- 51,676 51,171 --------- ---------- $ 76,208 $ 82,357 ========= ==========
See accompanying notes to financial statements 3 A.C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
Three months ended March 31, 1999 1998 Net sales $ 48,135 $ 38,219 Cost of sales (including buying and distribution costs) 30,520 24,192 ----------- ----------- Gross Margin 17,615 14,027 Selling, general and administrative expenses 16,915 12,787 Pre-opening expenses -- 771 ----------- ----------- Income from operations 700 469 Net interest (income) (71) (197) ----------- ----------- Income before income taxes 771 666 Income tax expense 301 260 ----------- ----------- Net income $ 470 $ 406 =========== =========== Basic net income per share $ 0.06 $ 0.05 =========== =========== Weighted average shares outstanding 7,405,000 7,405,000 =========== =========== Diluted net income per share $ 0.06 $ 0.05 =========== =========== Weighted average shares outstanding plus impact of stock options 7,405,000 7,566,000 =========== ===========
See accompanying notes to financial statements 4 A.C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
Three months ended March 31, ------------------------ 1999 1998 --------- --------- Cash flows from operating activities: Net income $ 470 $ 406 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 673 470 Compensation expense related to stock options 35 38 Changes in assets and liabilities: Inventories (318) (4,929) Prepaid expenses and other current assets 378 32 Accounts payable and accrued expenses (3,949) (2,302) Other long-term liabilities 100 69 Other 45 (15) --------- --------- Net cash (used in) operating activities (2,566) (6,231) --------- --------- Cash flows (used in) investing activities: Capital expenditures (841) (1,255) --------- --------- Cash flows provided by (used in) financing activities: Repayment of bank overdraft (2,719) -- Proceeds from redemption of marketable securities -- 4,004 Investment in marketable securities -- (3,944) Repayment of capital leases (86) -- --------- --------- Net cash provided by (used in) financing activities (2,805) 60 --------- --------- Net (decrease) in cash (6,212) (7,426) Cash and cash equivalents at beginning of period 9,475 15,835 --------- --------- Cash and cash equivalents at end of period $ 3,263 $ 8,409 ========= =========
See accompanying notes to financial statements 5 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The consolidated financial statements included herein include the accounts of A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively the "Company"). The Company is a chain of 37 retail superstores selling arts and crafts merchandise. The stores are located in the mid-Atlantic and northeast regions. These financial statements have been prepared by management without audit and should be read in conjunction with the consolidated financial statements and notes thereto for the year 1998. Due to the seasonality of the Company's business, the results for the interim periods are not necessarily indicative of the results for the year. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. In the opinion of management, all such adjustments are of a normal and recurring nature. (2) Management Estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported period and related disclosures. Significant estimates made as of and for the three month period ended March 31, 1999 and March 31, 1998 include provisions for shrinkage, capitalized buying, warehousing and distribution costs related to inventory and markdowns of merchandise inventories. Actual results could differ from those estimates. (3) Earnings Per Share The weighted average shares outstanding plus impact of stock options for the three month period ended March 31, 1999 excludes potentially dilutive shares as the result would be antidilutive. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis contains certain forward-looking statements. These forward-looking statements do not constitute historical facts and involve risks and uncertainties. Actual results could differ materially from those referred to in the forward-looking statements due to a number of factors, including, but not limited to, the following: ability to open and operate new stores; weather and economic conditions; dependence on key personnel; competition; ability to anticipate merchandise trends and consumer demands; ability to maintain relationships with suppliers; successful implementation of systems; and ability to meet future capital needs. For additional information concerning factors that could cause actual results to differ materially from the information contained herein, reference is made to the information under the heading "Cautionary Statement Relating to Forward Looking Statements" in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Due to the importance of the fall selling season, the fourth quarter has historically contributed, and the Company expects it will continue to contribute, disproportionately to the Company's profitability for the entire year. As a result, the Company's quarterly results of operations may fluctuate. In addition, results of a period shorter than a full year may not be indicative of results expected for the entire year. Results of Operations The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of net sales and the number of stores open at the end of each such period: Three months ended March 31, ------------------------ 1999 1998 ------- ------- Net sales 100.0 % 100.0 % Cost of sales 63.4 % 63.3 % ------- ------- Gross margin 36.6 % 36.7 % Selling, general and administrative expenses 35.1 % 33.5 % Pre-opening expenses 0.0 % 2.0 % ------- ------- Income from operations 1.5 % 1.2 % Net interest (income) (0.1)% (0.5)% ------- ------- Income before income taxes 1.6 % 1.7 % Income tax expense 0.6 % 0.6 % ------- ------- Net income 1.0 % 1.1 % ======= ======= Number of stores open at end of period 37 29 7 Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Net Sales. Net sales increased $9.9 million, or 25.9%, to $48.1 million in the three months ended March 31, 1999 from $38.2 million in the comparable 1998 period. This increase resulted from (i) net sales of $9.1 million from superstores opened in 1998 not included in the comparable store base, and (ii) a comparable store sales increase of $800,000, or 2%. Stores are added to the comparable store base at the beginning of the fourteenth full month of operation. Gross Margin. Cost of sales includes the cost of merchandise, plus certain distribution and purchasing costs. Cost of sales increased $6.3 million, or 26.2%, to $30.5 million in the three months ended March 31, 1999 from $24.2 million in the three months ended March 31, 1998. The gross margin increased $3.6 million, or 25.6%, to $17.6 million in the three months ended March 31, 1999 from $14.0 million in the three months ended March 31, 1998. The gross margin decreased to 36.6% of net sales in the three months ended March 31, 1999 from 36.7% in the three months ended March 31, 1998. Selling, General and Administrative Expenses. Selling, general and administrative expenses include (a) direct store level expenses, including rent and related operating costs, payroll, advertising, depreciation and other direct costs, and (b) corporate level costs not directly associated with or allocable to cost of sales including executive salaries, accounting and finance, corporate information systems, office facilities and other corporate expenses. Selling, general and administrative expenses increased $4.1 million, or 32.3%, in the three months ended March 31, 1999 to $16.9 million from $12.8 million in the three months ended March 31, 1998. Of the increase, $4.0 million was attributable to the 12 superstores open in 1999 which were not in the comparable store base. The remaining $100,000 of the increase is attributable to operating expenses in the comparable superstores. As a percentage of sales, selling, general and administrative costs increased to 35.1% of net sales in the three months ended March 31, 1999 from 33.5% of net sales in the three months ended March 31, 1998. This increase is primarily due to the newer stores, which, on average, have higher operating costs as a percent of sales than older stores. Pre-Opening Expense. The Company expenses store pre-opening expense as incurred. In the first quarter of 1999, the Company did not open any superstores and incurred no pre-opening expense. Pre-opening expense for the four new superstores opened in the first quarter of 1998 amounted to $771,000. Net Interest (Income). In the first quarter of 1999 the Company had net interest income of $71,000 compared with interest income of $197,000 in 1998. The reduction is due to lower cash balances resulting from the use of cash to fund the new stores added in 1998. Income Taxes. The Company's effective income tax rate was 39% for both the first quarters ended March 31, 1999 and March 31, 1998. Liquidity and Capital Resources. The Company's cash needs are primarily for working capital to support its inventory requirements and capital expenditures, pre-opening costs and beginning inventory for new superstores. In October 1997 the Company completed an initial public offering of 3,105,000 shares of its common stock, including shares issued upon exercise of an underwriters' overallotment option in November 1997. Net proceeds to the Company, after deducting underwriting commissions and discounts and expenses, was 8 $42.6 million. Approximately $28.0 million of the proceeds were used to retire long-term debt, borrowings under the line of credit and the loans from shareholders. At March 31, 1999 and December 31, 1998 the Company's working capital was $43.1 million and $42.7 million, respectively. Cash used in operations was $2.6 million for the three months ended March 31, 1999 as a result of the seasonal reduction of accounts payable and accrued payroll in the amount of $3.9 million. Net cash used in investing activities during the three months ended March 31, 1999 was $.8 million. In 1999, the Company expects to spend approximately $5.2 million on capital expenditures, which includes approximately $2.1 million for new store openings, $2.0 million for remodeling and systems in existing stores, and the remainder for warehouse equipment and systems development. There are no other material commitments for capital expenditures other than new store openings in the next 12 months. Net cash used in financing activities includes a $2.7 million repayment of book overdrafts. The overdrafts represented outstanding checks at certain banks in excess of funds on deposit at those banks. These accounts are maintained as zero balance accounts and are covered as required from funds available at other banks. On March 11, 1998 the Company entered into a new four year financing agreement with a bank which provides a $25 million revolving credit facility, $15 million of which is available immediately with the remainder available in $5 million increments in 1999 and 2000, provided the Company is in compliance with the agreement's covenants. A portion of the credit facility was used to finance the acquisition of equipment totaling $1.9 million through a series of five year capital leases. The Company believes the proceeds from the public offering, together with cash generated from operations during the year and available borrowings under the financing agreement will be sufficient to finance its working capital and capital expenditure requirements for at least the next 12 months. Year 2000 The Company's computer systems operate on a PC-based local area network ("LAN"). Each superstore has personal computers linked to the main office LAN by modem. Management has evaluated the issues relating to the Year 2000 (Y2K) as it may affect (a) the Company's operating and financial systems and other systems such as its telephone system, and (b) future operating results, and has determined that in most instances, the Company's systems are compliant with Year 2000 requirements. In those instances where hardware or software is not compliant, the Company has determined a course of action which should be complete by the end of the second quarter of 1999. The Company has determined the cost of addressing the Y2K issue is immaterial and the changes required in the Company's systems to become Y2K compliant are of a magnitude which is unlikely to impact future operating performance. The Company does not separately track internal direct costs associated with the utilization of its officers and employees in its Year 2000 readiness efforts. The Company has surveyed all of its significant vendors and has ascertained that in most cases those vendors are already in compliance or have plans to be compliant by the middle of 1999. 9 In evaluating the risks to the Company, the most serious risk would be if a vendor does not become compliant with the Y2K requirements and, as a result, is unable to ship needed inventory to the Company. Should this occur, the Company does have the ability to source product from other vendors. The Company is in the intermediate stage of developing contingency plans to mitigate the potential disruptions that may result from the Y2K issue. These plans may include identifying and securing alternate suppliers, stockpiling of select products and other measures considered appropriate by management. The Company expects to complete these plans by the middle of 1999. Once developed and approved, contingency plans, and the related cost estimates, if any, will be continually refined as additional information becomes available. Despite the Company's efforts to make its systems and facilities Year 2000 compliant, the ability of third party service providers, vendors and certain other third parties, including governmental entities and utility companies, to be Year 2000 compliant is beyond the Company's control. Accordingly, the Company can give no assurances that the systems of other parties on which the Company's systems or operations rely will be timely converted or compatible with the Company's systems. The failure of these entities to comply on a timely basis could have a material adverse effect on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. 10 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission (Commission file number 333-32859) for the sale of Common Stock in the Company's initial public offering (the "Offering"). The Company registered 3,105,000 shares of Common Stock, including 405,000 shares of Common Stock for sale upon exercise of an option granted to the underwriters to cover over-allotments. The effective date of the Registration Statement was October 8, 1997. The Offering commenced on October 9, 1997 and was terminated after the sale of all securities registered. The managing underwriters for the Offering were BT Alex. Brown Incorporated and Janney Montgomery Scott Inc. The aggregate price to the public of the 3,105,000 shares of Common Stock registered was $46,575,000. The Company completed the Offering, selling all 3,105,000 shares of Common Stock registered for the aggregate offering price of $46,575,000. The Company incurred the following expenses in connection with the issuance and distribution of its Common Stock in the Offering: Underwriting Discounts and Commissions .......... $3,260,250 Expenses paid to or for Underwriters ............ -- Other Expenses .................................. 724,375 ------------ Total Expenses ............. $3,984,625 ============ All payments of expenses were direct or indirect payments to persons other than directors or officers of the Company or their associates, persons owning ten percent or more of any class of equity securities of the Company, or affiliates of the Company. The Company used the net proceeds of the Offering ($42,590,375 after deducting total expenses set forth above) for the following purposes: Repayment of outstanding bank indebtedness ...... $13,198,902 Repayment of subordinated shareholder loans ..... 14,800,000 Payment of S Corporation Distribution ........... 256,000 Working capital ................................. 10,458,473 Temporary investment in marketable securities ... 3,877,000 ----------- Net Proceeds .................. $42,590,375 =========== ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) There were no reports on Form 8-K filed during the quarter ended March 31, 1998. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.C. MOORE ARTS & CRAFTS, INC. Date: May 11, 1999 By: /s/ Leslie H. Gordon --------------------------- Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 13 EXHIBIT INDEX 27.1 Financial Data Schedule 14 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,263 3,877 0 0 54,697 63,408 19,673 (7,445) 76,209 20,308 0 0 0 43,014 8,663 76,209 48,135 48,135 30,520 16,915 0 0 (71) 771 301 470 0 0 0 470 .06 .06
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