þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended July 2, 2011 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Pennsylvania | 22-3527763 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
130 A.C. Moore Drive, Berlin, New Jersey | 08009 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Outstanding at August 1, 2011 | ||
Common Stock, no par value | 25,485,487 |
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
July 2, | January 1, | July 3, | ||||||||||
2011 | 2011 | 2010 | ||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 16,183 | $ | 39,970 | $ | 31,414 | ||||||
Inventories |
116,463 | 111,266 | 118,360 | |||||||||
Prepaid expenses and other current assets |
8,372 | 9,104 | 7,562 | |||||||||
Deferred tax assets |
1,575 | 2,153 | 2,554 | |||||||||
142,593 | 162,493 | 159,890 | ||||||||||
Non-current assets: |
||||||||||||
Property and equipment, net |
70,042 | 73,771 | 79,592 | |||||||||
Other assets |
1,106 | 1,192 | 1,717 | |||||||||
$ | 213,741 | $ | 237,456 | $ | 241,199 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Short-term debt |
$ | 19,000 | $ | 19,000 | $ | 19,000 | ||||||
Trade accounts payable |
36,620 | 43,131 | 33,096 | |||||||||
Accrued payroll and payroll taxes |
3,261 | 2,224 | 2,202 | |||||||||
Accrued expenses |
20,702 | 22,815 | 22,601 | |||||||||
Accrued lease liability |
2,030 | 2,478 | 2,030 | |||||||||
81,613 | 89,648 | 78,929 | ||||||||||
Non-current liabilities: |
||||||||||||
Deferred tax liability and other |
1,342 | 1,920 | 2,323 | |||||||||
Accrued lease liability |
13,726 | 14,475 | 16,246 | |||||||||
15,068 | 16,395 | 18,569 | ||||||||||
96,681 | 106,043 | 97,498 | ||||||||||
Commitments and contingencies |
||||||||||||
Shareholders equity: |
||||||||||||
Preferred stock, no par value, 10,000,000 shares authorized; none issued |
| | | |||||||||
Common stock, no par value, 40,000,000 shares authorized; shares
issued and outstanding 25,485,487; 25,346,412; and 25,171,764 at
July 2, 2011, January 1, 2011 and July 3, 2010, respectively |
139,060 | 138,105 | 137,438 | |||||||||
Retained earnings (deficit) |
(22,000 | ) | (6,692 | ) | 6,263 | |||||||
117,060 | 131,413 | 143,701 | ||||||||||
$ | 213,741 | $ | 237,456 | $ | 241,199 | |||||||
3
Quarter Ended | Six Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 99,008 | $ | 99,850 | $ | 201,732 | $ | 205,219 | ||||||||
Cost of sales (including buying and distribution costs) |
55,664 | 56,693 | 114,286 | 116,993 | ||||||||||||
Gross margin |
43,344 | 43,157 | 87,446 | 88,226 | ||||||||||||
Selling, general and administrative expenses |
51,023 | 51,145 | 101,684 | 103,413 | ||||||||||||
Store pre-opening and closing expenses |
306 | 970 | 935 | 1,083 | ||||||||||||
Loss from operations |
(7,985 | ) | (8,958 | ) | (15,173 | ) | (16,270 | ) | ||||||||
Interest expense |
169 | 235 | 407 | 466 | ||||||||||||
Interest (income) |
(7 | ) | (16 | ) | (15 | ) | (20 | ) | ||||||||
Loss before income taxes |
(8,147 | ) | (9,177 | ) | (15,565 | ) | (16,716 | ) | ||||||||
Provision for (benefit of) income taxes |
(277 | ) | 485 | (257 | ) | 509 | ||||||||||
Net loss |
$ | (7,870 | ) | $ | (9,662 | ) | $ | (15,308 | ) | $ | (17,225 | ) | ||||
Basic net loss per share |
$ | (0.32 | ) | $ | (0.40 | ) | $ | (0.62 | ) | $ | (0.71 | ) | ||||
Diluted net loss per share |
$ | (0.32 | ) | $ | (0.40 | ) | $ | (0.62 | ) | $ | (0.71 | ) | ||||
Basic weighted average shares outstanding |
24,651 | 24,419 | 24,615 | 24,379 | ||||||||||||
Diluted weighted average shares outstanding |
24,651 | 24,419 | 24,615 | 24,379 |
4
Six Months Ended | ||||||||
July 2, | July 3, | |||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (15,308 | ) | $ | (17,225 | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
8,192 | 7,508 | ||||||
Stock based compensation expense |
1,060 | 926 | ||||||
Changes in assets and liabilities: |
||||||||
Inventories |
(5,197 | ) | 3,698 | |||||
Prepaid expenses and other current assets |
765 | 2,149 | ||||||
Accounts payable |
(6,511 | ) | (3,951 | ) | ||||
Accrued payroll, payroll taxes and accrued expenses |
(1,109 | ) | (1,750 | ) | ||||
Accrued lease liability |
(1,197 | ) | (1,175 | ) | ||||
Other |
87 | 517 | ||||||
Net cash (used in) operating activities |
(19,218 | ) | (9,302 | ) | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(4,464 | ) | (5,162 | ) | ||||
Net cash (used in) investing activities |
(4,464 | ) | (5,162 | ) | ||||
Cash flows from financing activities: |
||||||||
Exercise of stock options |
(105 | ) | (74 | ) | ||||
Net cash (used in) financing activities |
(105 | ) | (74 | ) | ||||
Net decrease in cash and cash equivalents |
(23,787 | ) | (14,538 | ) | ||||
Cash and cash equivalents at beginning of period |
39,970 | 45,952 | ||||||
Cash and cash equivalents at end of period |
$ | 16,183 | $ | 31,414 | ||||
5
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Fair Value Measurements Using | ||||||||||||||||||||
Significant Other | Significant | |||||||||||||||||||
Quoted Prices in | Observable | Unobservable | Total | |||||||||||||||||
Total Carrying | Active Markets | Inputs | Inputs | Gains | ||||||||||||||||
(In thousands) | Value | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||
Recurring |
||||||||||||||||||||
As of July 2, 2011 |
||||||||||||||||||||
Cash Equivalents |
$ | 16,183 | $ | 16,183 | $ | | $ | | ||||||||||||
As of January 1, 2011 |
||||||||||||||||||||
Cash Equivalents |
$ | 39,970 | $ | 39,970 | $ | | $ | | ||||||||||||
As of July 3, 2010 |
||||||||||||||||||||
Cash Equivalents |
$ | 31,414 | $ | 31,414 | $ | | $ | | ||||||||||||
Nonrecurring |
||||||||||||||||||||
As of January 1, 2011 |
||||||||||||||||||||
Long-lived assets held and used (1) |
$ | 180 | $ | | $ | | $ | 180 | $ | (905 | ) |
(1) | Represents retail store fixed assets written down to their fair value, resulting in an impairment charge which was included in earnings for the period ended January 1, 2011. |
7
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Number | Common | Retained | Comprehensive | |||||||||||||||||
(In thousands, except share data) | of Shares | Stock | Earnings | (Loss) | Total | |||||||||||||||
Balance, January 1, 2011 |
25,346,412 | $ | 138,105 | $ | (6,692 | ) | $ | | $ | 131,413 | ||||||||||
Net loss |
| | (15,308 | ) | | (15,308 | ) | |||||||||||||
Total comprehensive loss |
$ | (15,308 | ) | |||||||||||||||||
Stock-based compensation expense |
| 1,060 | | | 1,060 | |||||||||||||||
Restricted shares net |
139,075 | (105 | ) | | | (105 | ) | |||||||||||||
Balance, July 2, 2011 |
25,485,487 | $ | 139,060 | $ | (22,000 | ) | $ | | $ | 117,060 | ||||||||||
8
Quarter Ended | Six Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands, except per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net loss |
$ | (7,870 | ) | $ | (9,662 | ) | $ | (15,308 | ) | $ | (17,225 | ) | ||||
Weighted average shares: |
||||||||||||||||
Basic |
24,651 | 24,419 | 24,615 | 24,379 | ||||||||||||
Incremental
shares from assumed exercise of stock options and stock appreciation rights |
| | | | ||||||||||||
Diluted |
24,651 | 24,419 | 24,615 | 24,379 | ||||||||||||
Basic net loss per share |
$ | (0.32 | ) | $ | (0.40 | ) | $ | (0.62 | ) | $ | (0.71 | ) | ||||
Diluted net loss per share |
$ | (0.32 | ) | $ | (0.40 | ) | $ | (0.62 | ) | $ | (0.71 | ) | ||||
Stock options and stock appreciation rights excluded from
calculation because exercise price was greater than average
market price |
1,953 | 2,612 | 1,953 | 2,623 | ||||||||||||
Potentially dilutive shares excluded from the calculation as the
result would be anti-dilutive |
1,957 | 920 | 1,957 | 909 | ||||||||||||
9
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| Customer insight. Understanding our customers expectations of A.C. Moore, along with product trends and customer interests, is core to our ability to develop stronger relationships and be our customers store of choice. We primarily utilize our social networking sites and our REWARDS loyalty program to gain consumer insight, supplemented by other studies from time to time. | ||
| Differentiated merchandise assortment. We continually seek to identify new and unique product lines and merchandise assortments that differentiate us from our competitors. We regularly review our supplier base and product assortment to ensure that we are offering newness to our customers and enhancing the overall shopping experience. | ||
| Improved in-stock position. A high in-stock position is critical to maximizing our sales potential and enhancing customer loyalty. Since 2007, we have invested significant resources in supply chain and inventory management systems. We continue to refine our inventory management processes to ensure we maintain high in-stock levels, especially on basic craft components that are meaningful to our customers. | ||
| Integrated marketing/advertising program. We continue to enhance and diversify our marketing and advertising mix based on our customer and craft consumer preferences. Our marketing mix is designed to allow us to reach both current and prospective customers in an efficient manner. Diversified vehicles allow us to market more efficiently based on our customer product preferences. Through these different vehicles, we can target our marketing of promotional items, along with new products and programs, creating both sales and margin enhancement opportunities. | ||
| Promotional strategies. We continue to test new advertising and marketing vehicles to enhance both sales and margin. While print advertising remains an important vehicle for us, we continue to build our direct marketing capabilities to drive profitable sales and traffic from both existing and prospective customers. We also continue to test other vehicles based on insight on how our customers and crafters use media. |
11
| A.C. Moore Rewards program. Our REWARDS customer loyalty program is a key component of our marketing mix throughout the chain. We utilize this valuable tool to interact with our customers based on their purchase history and product preferences, delivering targeted product information and promotions. We believe this program assists us in increasing our share of wallet with our existing customers and enables us to differentiate ourselves from our competition. |
| Real estate portfolio strategy. During 2011, we expect to open two new stores, and remodel four stores. Management continually reviews opportunities to open stores in new and existing markets and to relocate or remodel existing stores where strategically prudent and economically viable. Existing stores are reviewed on a periodic basis to identify underperforming locations for potential relocation, remodeling or closure. We also continue to renegotiate existing leases with the goal of lowering the cost of occupancy in our stores, with a focus on underperforming locations. | ||
| Store operations leadership. In fiscal 2010, we reorganized our store operations leadership team to provide more training and development capabilities within our field organization. We believe this structure will enhance our ability to improve store profitability. |
| Category management. The category management process leverages merchandise assortment planning tools, the use of a merchandise planning calendar and an open-to-buy process focused on sales and inventory productivity. | ||
| Price optimization. We believe we continue to have opportunities to increase our gross margin by optimizing our regular shelf prices and employing our market basket tools to improve the profitability and sales of promotional products. We employ market price checks to ensure that we offer competitive pricing. We continue to identify opportunities to strategically improve margins. | ||
| Supply chain optimization. In addition to our ongoing supply chain initiatives, which include improving in-stock positions, optimizing inventory levels, increasing merchandise turns and improving distribution efficiencies, in fiscal 2010 we completed two significant projects: automated replenishment and cross-docking. |
12
Quarter Ended | Six Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales |
56.2 | 56.8 | 56.7 | 57.0 | ||||||||||||
Gross margin |
43.8 | 43.2 | 43.3 | 43.0 | ||||||||||||
Selling, general and administrative expenses |
51.5 | 51.2 | 50.4 | 50.4 | ||||||||||||
Store pre-opening and closing expenses |
0.3 | 1.0 | 0.5 | 0.5 | ||||||||||||
Loss from operations |
(8.0 | ) | (9.0 | ) | (7.6 | ) | (7.9 | ) | ||||||||
Interest expense (income), net |
0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
Loss before income taxes |
(8.2 | ) | (9.2 | ) | (7.8 | ) | (8.1 | ) | ||||||||
Provision for (benefit of) income taxes |
(0.3 | ) | 0.5 | (0.1 | ) | 0.2 | ||||||||||
Net loss |
(7.9 | )% | (9.7 | )% | (7.7 | )% | (8.4 | )% | ||||||||
Number of stores open at end of period |
135 | 135 |
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31.1
|
Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). | |
31.2
|
Certification pursuant to Rule 13a-14(a) promulgated under the Exchange Act. | |
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
18
A.C. MOORE ARTS & CRAFTS, INC. |
||||
Date: August 3, 2011 | By: | /s/ Joseph A. Jeffries | ||
Joseph A. Jeffries | ||||
Chief Executive Officer (Principal Executive Officer) |
||||
Date: August 3, 2011 | By: | /s/ Rodney Schriver | ||
Rodney Schriver | ||||
Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
19
Exhibit No. | Description | |
31.1
|
Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). | |
31.2
|
Certification pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). | |
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
20
Date: August 3, 2011 | /s/ Joseph A. Jeffries | |||
Joseph A. Jeffries | ||||
Chief Executive Officer (Principal Executive Officer) |
||||
Date: August 3, 2011 | /s/ David R. Stern | |||
David R. Stern | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
||||
Date: August 3, 2011 | /s/ Joseph A. Jeffries | |||
Joseph A. Jeffries | ||||
Chief Executive Officer (Principal Executive Officer) |
Date: August 3, 2011 | /s/ David R. Stern | |||
David R. Stern | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
|
Jul. 02, 2011
|
Jan. 01, 2011
|
Jul. 03, 2010
|
---|---|---|---|
Shareholders' equity: | Â | Â | Â |
Preferred stock, par value | $ 0 | $ 0 | $ 0 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 | 0 |
Common stock, par value | $ 0 | $ 0 | $ 0 |
Common stock, shares authorized | 40,000,000 | 40,000,000 | 40,000,000 |
Common stock, shares issued | 25,485,487 | 25,346,412 | 25,171,764 |
Common stock, shares outstanding | 25,485,487 | 25,346,412 | 25,171,764 |
Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 02, 2011
|
Jul. 03, 2010
|
Jul. 02, 2011
|
Jul. 03, 2010
|
|
Consolidated Statements of Operations [Abstract] | Â | Â | Â | Â |
Net sales | $ 99,008 | $ 99,850 | $ 201,732 | $ 205,219 |
Cost of sales (including buying and distribution costs) | 55,664 | 56,693 | 114,286 | 116,993 |
Gross margin | 43,344 | 43,157 | 87,446 | 88,226 |
Selling, general and administrative expenses | 51,023 | 51,145 | 101,684 | 103,413 |
Store pre-opening and closing expenses | 306 | 970 | 935 | 1,083 |
Loss from operations | (7,985) | (8,958) | (15,173) | (16,270) |
Interest expense | 169 | 235 | 407 | 466 |
Interest (income) | (7) | (16) | (15) | (20) |
Loss before income taxes | (8,147) | (9,177) | (15,565) | (16,716) |
Provision for (benefit of) income taxes | (277) | 485 | (257) | 509 |
Net loss | $ (7,870) | $ (9,662) | $ (15,308) | $ (17,225) |
Basic net loss per share | $ (0.32) | $ (0.40) | $ (0.62) | $ (0.71) |
Diluted net loss per share | $ (0.32) | $ (0.40) | $ (0.62) | $ (0.71) |
Basic weighted average shares outstanding | 24,651 | 24,419 | 24,615 | 24,379 |
Diluted weighted average shares outstanding | 24,651 | 24,419 | 24,615 | 24,379 |
Document and Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jul. 02, 2011
|
Aug. 01, 2011
|
Jul. 02, 2010
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | A.C. Moore Arts & Crafts, Inc. | Â | Â |
Entity Central Index Key | 0001042809 | Â | Â |
Document Type | 10-Q | Â | Â |
Document Period End Date | Jul. 02, 2011 | ||
Amendment Flag | false | Â | Â |
Document Fiscal Year Focus | 2011 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Current Fiscal Year End Date | --12-31 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 40,868,379 |
Entity Common Stock, Shares Outstanding | Â | 25,485,487 | Â |
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Earnings Per Share
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2011
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Earnings Per Share [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
(7) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
Inventories
|
6 Months Ended |
---|---|
Jul. 02, 2011
|
|
Inventories [Abstract] | Â |
Inventories |
(3) Inventories
The Company values its inventory at the lower of cost or market, with cost determined using a
weighted average method based upon the purchase order cost of the merchandise at time of receipt.
In addition, management includes the cost of purchasing, warehousing, and transportation in the
cost of inventory. Vendor allowances, which primarily represent volume discounts and cooperative
advertising funds, are recorded as a reduction in the cost of merchandise inventories. For
merchandise where we are the direct importer, ocean freight and duty are included as inventory
costs. These additional costs and cost adjustments are not assigned to specific units of
inventory. Management uses all available information to determine the appropriate amount of net
inventory costs to be recognized and deferred in each reporting period.
Perpetual inventory records are used to value store and warehouse inventories. A full physical
inventory is taken at every location at least once per year and the perpetual records are adjusted
to the physical counts. Estimates for inventory shrinkage from the date of the most recent
physical inventory through the end of each reporting period are based on results from physical
inventories and shrink trends. These estimates are updated to actual at the time of the physical
inventory. Our inventory valuation methodology also requires other management estimates and
judgments, such as the net realizable value of merchandise designated for clearance or slow-moving
merchandise. Our adjustments to inventory cost for clearance and slow-moving merchandise is based
on several factors including the quantity of merchandise on hand, sales trends and future
advertising and merchandising plans. The accuracy of these estimates can be impacted by many
factors, some of which are outside of management’s control, including
changes in economic conditions and consumer buying trends. Based on prior experience we do not
believe the assumptions used in these estimates will change significantly.
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Commitments and Contingencies
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6 Months Ended |
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Jul. 02, 2011
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Commitments and Contingencies [Abstract] | Â |
Commitments and Contingencies |
(8) Commitments and Contingencies
The Company is involved in legal proceedings from time to time in the ordinary course of
business. Management believes that none of these legal proceedings will have a materially adverse
effect on the Company’s financial condition or results of operations. However, there can be no
assurance that future costs of such legal proceedings would not be material to the Company’s
financial condition, results of operations or cash flows.
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Basis of Presentation
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6 Months Ended |
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Jul. 02, 2011
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Basis of Presentation [Abstract] | Â |
Basis of Presentation |
(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. As used herein, unless the context otherwise
requires, all references to “A.C. Moore,” “the Company,” “we,” “our,” “us” and similar terms in
this report refer to A.C. Moore Arts & Crafts, Inc. together with its subsidiaries. The Company is
a specialty retailer of arts, crafts and floral merchandise for a wide range of customers. As of
July 2, 2011, the Company operated a chain of 135 stores. The stores are located in the Eastern
United States. The Company also serves customers nationally via its e-commerce site,
www.acmoore.com.
The preparation of these consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America 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 and six month periods ended July 2, 2011 and
July 3, 2010 include, among others, provisions for shrinkage, capitalized buying, freight,
warehousing and distribution costs related to inventory, the net realizable value of merchandise
designated for clearance or slow-moving merchandise, the future rental obligations and carrying
costs of closed stores and the liability for workers compensation, general liability and health
insurance claims. Actual results could differ materially from those estimates. Certain prior year
amounts have been reclassified to correspond to current year presentation.
These financial statements have been prepared by management without audit and should be read in
conjunction with the consolidated financial statements and notes thereto included in the Company’s
annual report on Form 10-K for the year ended January 1, 2011 (“fiscal 2010”). The current fiscal
year will end on December 31, 2011 (“fiscal 2011”). 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 Company has included its balance sheet as of July 3, 2010 to assist in viewing the
Company on a full-year basis. The accompanying consolidated financial statements reflect, in the
opinion of management, all adjustments necessary for a fair statement of the interim financial
statements. In the opinion of management, all such adjustments are of a normal and recurring
nature.
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Shareholders' Equity
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Jul. 02, 2011
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Shareholders' Equity [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity |
(4) Shareholders’ Equity
During the six months ended July 2, 2011, shareholders’ equity changed as follows:
|
Financing Agreement
|
6 Months Ended |
---|---|
Jul. 02, 2011
|
|
Financing Agreement [Abstract] | Â |
Financing Agreement |
(5) Financing Agreement
On March 4, 2011, the Company amended (the “WFRF amendment”) its credit agreement (the “WFRF
loan agreement”) with Wells Fargo Retail Finance, LLC (“WFRF”) for an additional five-year term
through March 4, 2016.
The WFRF loan agreement, as amended, is an asset-based senior secured revolving credit facility in
an aggregate principal amount of up to $60.0 million, with a $15.0 million sub-limit for letters of
credit. Interest is calculated at either adjusted LIBOR or WFRF’s base rate plus a margin of
between 2.25 and 2.75 percent per annum, depending upon the level of excess availability, and
WFRF’s base rate has a “floor” equal to the adjusted LIBOR rate plus 1.00 percent per annum. In
addition, the Company will pay an annual fee between 0.375 and 0.50 percent per annum on the amount
of unused availability, also dependent on the level of excess availability. At closing the Company
paid or incurred deferred financing costs of approximately $0.4 million that will be amortized over
the term of the facility.
The agreement contains customary terms and conditions which, among other things, restrict the
Company’s ability to incur additional indebtedness or guaranty obligations, create liens or other
encumbrances, pay dividends, redeem or issue certain equity securities or change the nature of the
business. In addition, there are limitations on the type of investments, acquisitions, or
dispositions the Company can make. The WFRF loan agreement defines various events of default which
include, without limitation, a material adverse effect (as defined in the agreement), failure to
pay amounts when due, cross-default provisions, material liens or judgments, insolvency, bankruptcy
or a change of control. The WFRF amendment modified certain provisions of the agreement in order to
permit the Company to enter into, and perform its obligations under, contracts to effect a
strategic alternatives transaction (as defined in the WFRF amendment). However, in order to
consummate a strategic alternatives transaction, the Company will need to either payoff and
terminate the credit facility or obtain WFRF’s consent.
As of July 2, 2011, there was $19.0 million borrowed under the line of credit, $3.2 million of
outstanding stand-by letters of credit and availability of $37.8 million. As defined in the
agreement, the Company is also required to maintain greater than $90.0 million in book value of
inventory and have excess availability of more than 10 percent of the borrowing base or $6.0
million, whichever is less. There are no other debt service requirements during the term of this
agreement.
|
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Income Taxes
|
6 Months Ended |
---|---|
Jul. 02, 2011
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|
Income Taxes [Abstract] | Â |
Income Taxes |
(6) Income Taxes
The Company uses the asset and liability method of accounting for income taxes. The Company
does business in various jurisdictions that impose income taxes. Management determines the
aggregate amount of income tax expense to accrue and the amount currently payable based upon the
tax statutes of each jurisdiction. This process includes adjusting income determined using
generally accepted accounting principles for items that are treated differently by the applicable
taxing authorities. Deferred taxes are reflected on the Company’s balance sheet for temporary
differences that will reverse in subsequent years. A change in tax rates is recognized as income
or expense in the period in which the change becomes effective.
Valuation allowances are recorded to reduce the carrying amount of deferred tax assets when it is
more likely than not that such assets will not be realized. The Company has determined that it is
necessary to record a valuation allowance against its net deferred tax assets due to, among other
factors, the Company’s cumulative three-year loss position. Based on its historical and continuing
operating losses, the Company has recorded a 100% valuation allowance against its net deferred tax
assets and expects to continue to do so during fiscal 2011. As of July 2, 2011, the valuation
allowance was $38.1 million. The closing of audits in the second quarter of fiscal 2011 reduced
the amount of unrecognized tax benefits, which resulted in a current tax benefit of $0.3 million
being recorded in the second quarter of 2011.
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Fair Value Measurements
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Jul. 02, 2011
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Fair Value Measurements [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
(2) Fair Value Measurements
Accounting standards require disclosure of the fair value of certain assets and liabilities
including information about how their fair value was determined. The determination of fair value
has been grouped into three broad categories referred to as levels 1, 2 and 3. The fair market
value of level 1 can be determined from quoted market prices for identical assets on an active
market, level 2 from quoted prices for similar assets on an active market and for level 3 from
assumptions that management makes based on the best available information.
The following table provides the assets and liabilities carried at fair value measured on a
recurring basis as of July 2, 2011, January 1, 2011 and July 3, 2010:
Cash and cash equivalents, principally money market mutual funds, are measured at fair value
using quoted market prices and are classified within Level 1 of the valuation hierarchy. The
nonrecurring remeasurement of long-lived assets represents store assets written down to fair value
using a discounted cash flow model. The loss is the amount by which the carrying amount of the
assets exceeds its fair value. Key management judgments and estimates used in the valuation
include sales and profitability for current and future years, and rates at which to discount
projected future cash flows. The fair value measurement is classified within Level 3 of the
valuation hierarchy as the valuation model inputs are not observable based on readily available
market data.
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