-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CXMJWFFqie6OMkCvVjk5pXyEc5o3kk1MKZy2m8cm3PpqUJPCS2B7LWKtn+TWNLV1 4VZL6D/hxr9Xgiaz7LYhpg== 0000740670-94-000016.txt : 19940916 0000740670-94-000016.hdr.sgml : 19940916 ACCESSION NUMBER: 0000740670-94-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHAELS STORES INC CENTRAL INDEX KEY: 0000740670 STANDARD INDUSTRIAL CLASSIFICATION: 5945 IRS NUMBER: 751943604 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11822 FILM NUMBER: 94549026 BUSINESS ADDRESS: STREET 1: 5931 CAMPUS CIRCLE DR CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2147147000 MAIL ADDRESS: STREET 1: PO BOX 619566 CITY: DFW STATE: TX ZIP: 75261 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1994 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 0-11822 MICHAELS STORES, INC. (Exact name of registrant as specified in its charter) Delaware 75-1943604 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5931 Campus Circle Drive, Irving, Texas 75063 P.O. Box 619566, DFW, Texas 75261-9566 (Address of principal executive offices including zip code) (214) 714-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 3 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. Shares Outstanding as Title of September 13, 1994 Common stock, par value $.10 per share 21,205,034 July 31, January 30, 1994 1994 -------- ----------- Current assets: Cash and equivalents $ 9,724 $ 867 Marketable securities 19,776 67,956 Merchandise inventories 305,577 206,185 Deferred income taxes 22,752 2,952 Prepaid expenses and other 13,617 13,052 -------- -------- Total current assets 371,446 291,012 -------- -------- Property and equipment, at cost 170,256 119,555 Less accumulated depreciation (51,461) (43,683) -------- -------- 118,795 75,872 Costs in excess of net assets of acquired operations, net 101,506 23,503 Other assets 6,017 7,443 -------- -------- 107,523 30,946 -------- -------- $597,764 $397,830 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 68,276 $ 42,309 Bank debt 34,200 13,000 Income taxes payable - 7,866 Accrued liabilities and other 70,093 46,021 -------- -------- Total current liabilities 172,569 109,196 Convertible subordinated notes 96,950 97,750 Deferred income taxes and other 7,431 5,469 Total long-term liabilities 104,381 103,219 -------- -------- 276,950 212,415 Commitments and contingencies Shareholders' equity: Common stock, 21,103,694 shares outstanding 2,110 1,670 Additional paid-in capital 238,871 107,168 Retained earnings 79,833 76,577 -------- -------- Total shareholders' equity 320,814 185,415 -------- -------- $597,764 $397,830 ======== ======== See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. Consolidated Statements of Income (In thousands except per share data) (Unaudited)
Quarter Ended --------------------- July 31, August 1, 1994 1993 -------- -------- Net sales $174,204 $115,414 Cost of sales and occupancy expense 111,237 74,150 Selling, general and administrative expense 52,817 35,508 Store closing and conversion costs 7,074 - -------- -------- Operating income 3,076 5,756 Interest expense 2,358 1,591 Other income, net (450) (1,746) -------- -------- Income before income taxes 1,168 5,911 Provision for income taxes 455 2,276 -------- -------- Net income $ 713 $ 3,635 ======== ======== Earnings per common and common equivalent share $.04 $.21 ==== ==== Weighted average common and common equivalent shares 18,845 17,145
$4,385 net of tax, or $.23 per share. See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. Consolidated Statements of Income (In thousands except per share data) (Unaudited)
Six Months Ended ---------------------- July 31, August 1, 1994 1993 -------- -------- Net sales $334,002 $228,375 Cost of sales and occupancy expense 214,748 147,429 Selling, general and administrative expense 100,033 69,228 Store closing and conversion costs 7,074 - -------- -------- Operating income 12,147 11,718 Interest expense 4,384 3,113 Other income, net (1,481) (3,481) -------- -------- Income before income taxes 9,244 12,086 Provision for income taxes 3,564 4,653 -------- -------- Net income $ 5,680 $ 7,433 ======== ======== Earnings per common and common equivalent share $.31 $.43 ==== ==== Weighted average common and common equivalent shares 18,315 17,138
$4,385 net of tax, or $.24 per share. See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended ---------------------- July 31, August 1, 1994 1993 -------- -------- Operating activities: Net income $ 5,680 $ 7,433 Depreciation and amortization 8,056 5,796 Change in assets and liabilities excluding the effects of acquisitions: Merchandise inventories (51,408) (55,885) Prepaid expenses and other assets (2,017) (5,679) Accounts payable 2,381 21,279 Income taxes payable (8,363) (3,565) Accrued and other liabilities (5,896) 5,677 -------- --------- Net change in assets and liabilities (65,303) (38,173) -------- --------- Net cash used in operating activities (51,567) (24,944) -------- --------- Investing activities: Additions to property and equipment (31,268) (19,338) Net proceeds from sales of marketable securities 46,183 - Acquisitions and other (48,820) (1,322) -------- --------- Net cash used in investing activities (33,905) (20,660) -------- --------- Financing activities: Net borrowings under bank credit facilities 20,700 5,000 Proceeds from issuance of common stock and other 73,629 1,290 -------- --------- Net cash provided by financing activities 94,329 6,290 -------- --------- Net increase (decrease) in cash and equivalents 8,857 (39,314) Cash and equivalents at beginning of year 867 42,075 -------- --------- Cash and equivalents at end of period $ 9,724 $ 2,761 ======== ========= Cash payments for: Interest $ 3,498 $ 2,282 Income taxes 14,399 7,605
See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. Notes to Consolidated Financial Statements For the Three Months and Six Months ended July 31, 1994 (Unaudited) Note A The accompanying consolidated financial statements are unaudited (except for the Consolidated Balance Sheet as of January 30, 1994) and, in the opinion of management, reflect all adjustments that are necessary for a fair presentation of financial position and results of operations for the three months and six months ended July 31, 1994. All of such adjustments are of a normal and recurring nature. Because of the seasonal nature of the Company's business, the results of operations for the three months and six months ended July 31, 1994 are not indicative of the results to be expected for the entire year. Note B In February 1994, the Company acquired Treasure House Stores, Inc. ("THSI"), a chain of nine arts and crafts stores operating primarily in the Seattle market, for 280,000 shares of Michaels common stock in a transaction accounted for as a pooling-of-interests. In April 1994, the Company acquired the affiliated arts and crafts store chains of Oregon Craft & Floral Supply Co. ("OCF"), with eight stores located primarily in the Portland, Oregon area, and H&H Craft & Floral Supply Co. ("H&H"), with eight stores located in southern California, for a total of 455,000 shares of Michaels common stock in a transaction accounted for as a purchase. This transaction resulted in the Company recording an addition to goodwill in the amount of $22.7 million. Note C Effective July 10, 1994, Michaels acquired Leewards Creative Crafts, Inc. ("Leewards"), an arts and crafts retailer with 98 stores located primarily in the midwestern and northeastern United States. The acquisition consideration consisted of $7.9 million in cash and 1,257,279 shares of Michaels common stock valued at $39.9 million. Upon consummation of the Leewards acquisition, Michaels also repaid $39.6 million of Leewards' indebtedness. The transaction was accounted for as a purchase; accordingly, the purchase price has been preliminarily allocated to assets and liabilities based on estimated values as of the acquisition date. The cost in excess of the estimated fair value of net assets acquired was recorded as goodwill in the amount of $57.9 million, which will be amortized on a straight-line basis over a period of 40 years. The results of operations since the acquisition date are included in the accompanying consolidated financial statements. The following pro forma combined net sales, net income and earnings per share data summarize the results of operations for the six months ended July 31, 1994 and August 1, 1993 as if Leewards had been acquired as of the beginning of fiscal 1993.
Pro Forma ----------------------------- Six Months Ended ----------------------------- July 31, 1994 August 1, 1993 ------------- -------------- Net sales $396,355 $286,378 ======== ======== Net income $ 6,716 $ 5,559 ======== ======== Earnings per share $.35 $.30 ==== ====
The pro forma combined financial results do not purport to represent the results of operations which would have occurred had such transactions been consummated at the beginning of the period indicated or the Company's results of operations for any future period. Anticipated operational efficiencies from the integration of the acquisition are not reflected in the above pro forma data. The above pro forma data include adjustments to: eliminate net sales and related expenses of overlapping Leewards stores that will be closed; eliminate the duplicate occupancy costs of Leewards' distribution center and duplicate purchasing costs; amortize goodwill; expense pre-opening costs in the year incurred; reduce interest expense to Michaels' average borrowing rate; and reflect the tax effects of the above adjustments. The pro forma data for the six-month period ended July 31, 1994 exclude a $7.1 million charge ($4.4 million after tax or $.24 per share) for closure or relocation of approximately ten Michaels stores that compete with certain acquired locations, and conversion and training costs associated with the Leewards acquisition. The above pro forma data do not include THSI, OCF or H&H prior to their respective acquisition dates in February 1994 and April 1994, since the acquisitions are not considered material, individually or in the aggregate, to the operating results of the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company acquired 123 stores and opened 29 stores during the first six months of fiscal 1994. Capital expenditures for these stores, and, to a lesser extent, the remodeling and expansion of existing stores, the expansion of two distribution facilities, and system enhancements, amounted to $31.3 million in the first six months of fiscal 1994. The Company expects capital expenditures during the remainder of fiscal 1994 to be at least $36 million, relating primarily to the opening of new stores during the third quarter. In July 1994, the Company paid $7.9 million in cash as part of the total consideration provided to acquire Leewards, and repaid $39.6 million of Leewards' outstanding debt. Also in July 1994, the Company completed a public offering of 2,353,432 shares of Michaels common stock. The $72.9 million of net proceeds from the sale were used to reduce outstanding bank debt. At July 31, 1994 the Company had working capital of $198.9 million, compared to $181.8 million at January 30, 1994. The Company currently has a bank credit agreement ("Credit Agreement") which includes an unsecured line of credit and provides for the issuance of letters of credit. Borrowings under the Credit Agreement, which expires June 16, 1997, are limited to the lesser of $150 million or the Company's borrowing base (as defined in the Credit Agreement), in either case minus the aggregate amount of letters of credit. As of July 31, 1994, the Company had $81.7 million in available unused credit capacity under the Credit Agreement. Management believes that the Company has sufficient working capital, cash flow from operating activities, and available unused credit capacity to sustain current growth plans. Results of Operations The following table shows the percentage of net sales that each item in the Consolidated Statements of Income represents. This table should be read in conjunction with the following discussion and with the Company's financial statements, including the notes:
For the For the Quarter Ended Six Months Ended ------------------- ------------------- July 31, August 1, July 31, August 1, 1994 1993 1994 1993 -------- --------- -------- --------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales and occupancy expense 63.8 64.2 64.3 64.6 Selling, general and administrative expense 30.3 30.8 30.0 30.3 Store closing and conversion costs 4.1 - 2.1 - ----- ----- ----- ----- Operating income 1.8 5.0 3.6 5.1 Interest expense 1.4 1.4 1.3 1.3 Other income, net (.3) (1.5) (.5) (1.5) ----- ----- ----- ----- Income before income taxes .7 5.1 2.8 5.3 Provision for income taxes .3 2.0 1.1 2.0 ----- ----- ----- ----- Net income .4% 3.1% 1.7% 3.3% ===== ===== ===== =====
Three months ended July 31, 1994 compared to the three months ended August 1, 1993 Net sales for the three months ended July 31, 1994, increased $58.8 million or 51%, compared to the same period of the prior year. The results for the second quarter of fiscal 1994 included sales of 176 stores (net of two closures) that were added during the previous twelve months, 13 of which were added during the second quarter of fiscal 1994, 98 Leewards stores (sales from which are included from July 10, 1994), and 16 stores acquired at the beginning of the quarter. In the second quarter of fiscal 1994, sales of newer stores (not included in comparable store sales) accounted for $53.7 million of the increase. Comparable store sales increased 7% over the second quarter of last year. Cost of sales and occupancy expense decreased by 0.4%, as a percentage of sales, for the second quarter of fiscal 1994 compared to the same period of the prior year. The improvement was primarily due to increases in sales of higher margin products and services, and lower product costs (including volume discounts) from vendors, partially offset by an increase in occupancy expenses. Selling, general and administrative expense decreased by 0.5%, as a percentage of sales, in the second quarter of fiscal 1994 compared to the same period of the prior year. The decrease was due primarily to lower corporate and administrative expenses, as a percentage of sales, which were spread over a larger revenue base in the current period. The $7.1 million ($4.4 million net of tax, or $.23 per share) of store closure and conversion costs includes a charge for estimated net costs for closure or relocation of approximately ten Michaels stores that compete with certain acquired locations, as well as certain conversion and training costs related to the recently acquired Leewards stores. The increase in interest expense for the second quarter of fiscal 1994 to $2.4 million from $1.6 million for the same period a year ago was due primarily to interest expense incurred on bank borrowings. This year's decrease in other income was due principally to a decline in the average investment portfolio this year compared to the prior year period. The Company's effective tax rate increased due to the effect of additional amortization of goodwill, which is not deductible for tax purposes, related primarily to the Company's recent acquisitions. Six months ended July 31, 1994 compared to the six months ended August 1, 1993 Net sales for the six months ended July 31, 1994, increased $105.6 million or 46% over the same period of the prior year. The results for the first six months of fiscal 1994 included sales of 176 stores (net of two closures) that were added during the previous twelve months, 27 of which were added during the first six months of this year, 98 Leewards stores (sales from which are included from July 10, 1994), and 25 stores acquired earlier in fiscal 1994. In the first six months of fiscal 1994, sales of newer stores (not included in comparable store sales) accounted for $88.8 million of the increase. Comparable store sales increased 9% over the same period of last year. Cost of sales and occupancy expense decreased by 0.3%, as a percentage of sales, for the first six months of fiscal 1994 compared to the same period of the prior year. The improvement was primarily due to increases in sales of higher margin products and services, and lower product costs (including volume discounts) from vendors, partially offset by an increase in occupancy expenses. Selling, general and administrative expense decreased by 0.3%, as a percentage of sales, for the first six months of fiscal 1994 compared to the same period of the prior year. The decrease was due primarily to lower corporate and administrative expenses, as a percentage of sales, which were spread over a larger revenue base in the current period. The $7.1 million ($4.4 million net of tax, or $.24 per share) of store closure and conversion costs includes a charge for estimated net costs for closure or relocation of approximately ten Michaels stores that compete with certain acquired locations, as well as certain conversion and training costs related to the recently acquired Leewards stores. Interest expense for the first six months of fiscal 1994 increased to $4.4 million from $3.1 million for the same period a year ago. The increase was due primarily to interest expense incurred on bank borrowings. This year's decrease in other income was due principally to a decline in the average investment portfolio this year compared to the prior year period. MICHAELS STORES, INC. FORM 10-Q Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11.1 - Computation of Earnings Per Common Share for the three months ended July 31, 1994. Exhibit 11.2 - Computation of Earnings Per Common Share for the six months ended July 31, 1994. (b) Reports on Form 8-K A report on Form 8-K was filed by the Company on May 23, 1994 and included unaudited combined pro forma financial statements of the Company and Leewards for the years ended January 30, 1994 and January 31, 1993 and historical financial statements of Leewards for the same periods. A report on Form 8-K/A (Amendment No. 1) was filed by the Company on June 21, 1994 and included audited financial statements of Leewards for the years ended January 30, 1994 and January 31, 1993 and unaudited financial statements for the quarters ended May 1, 1994 and May 2, 1993. A report on Form 8-K/A (Amendment No. 2) was filed by the Company on June 30, 1994 and included unaudited Pro Forma Combined Statements of Income for the Company and Leewards for the year ended January 30, 1994 and quarter ended May 1, 1994, an unaudited Pro Forma Combined Balance Sheet at May 1, 1994 and historical comparative Balance Sheets of Leewards at January 31, 1993, January 30, 1994 and May 1, 1994. A report on Form 8-K/A (Amendment No. 3) was filed by the Company on July 14, 1994 and included unaudited Pro Forma Combined Statements of Income for the Company and Leewards for the year ended January 30, 1994 and quarter ended May 1, 1994, an unaudited Pro Forma Combined Balance Sheet at May 1, 1994 and historical comparative Balance Sheets of Leewards at January 31, 1993, January 30, 1994 and May 1, 1994. 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. MICHAELS STORES, INC. By: /s/ R. Don Morris R. Don Morris Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated: September 14, 1994 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION PAGE 11.1 Computation of Earnings Per Common Share for the three months ended July 31, 1994. 11.2 Computation of Earnings Per Common Share for the six months ended July 31, 1994. EXHIBIT 11.1 MICHAELS STORES, INC. Computation of Earnings Per Common Share Three Months Ended July 31, 1994 (Unaudited)
Weighted Average Outstanding Equivalent Shares ------------------------- Total Fully Outstanding Primary Diluted ----------- ---------- ---------- Outstanding at beginning of quarter 17,462,331 17,462,331 17,462,331 Shares issued during quarter 3,641,363 657,511 657,511 ---------- ---------- Weighted average outstanding shares 18,119,842 18,119,842 Common Equivalent Shares: Dilutive shares attributable to stock options (computed by the treasury stock method) 724,877 724,888 ---------- ---------- ---------- Total outstanding shares 21,103,694 18,844,719 18,844,730 ========== ========== ========== Earnings per common and common equivalent share $.04 $.04 ==== ====
EXHIBIT 11.2 MICHAELS STORES, INC. Computation of Earnings Per Common Share Six Months Ended July 31, 1994 (Unaudited)
Weighted Average Outstanding Equivalent Shares ----------------------- Total Fully Outstanding Primary Diluted ----------- ---------- ---------- Outstanding at January 31, 1994 16,697,357 16,697,357 16,697,357 Shares issued during period 4,406,337 862,003 862,003 ---------- ---------- Weighted average outstanding shares 17,559,360 17,559,360 Common Equivalent Shares: Dilutive shares attributable to stock options (computed by the treasury stock method) 756,121 756,356 ---------- ---------- ---------- Total outstanding shares 21,103,694 18,315,481 18,315,716 ========== ========== ========== Earnings per common and common equivalent share $.31 $.31 ==== ====
EX-27 2
5 0000740670 MICHAELS STORES, INC. 1,000 QTR-2 JAN-29-1995 JUL-31-1994 9,724 19,776 0 0 305,577 371,446 170,256 51,461 597,764 172,569 0 2,110 0 0 318,704 597,764 174,204 174,204 111,237 59,891 0 0 1,908 1,168 455 713 0 0 0 713 .04 .04
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