-----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, H1OzsHDCAklWKvdklqFQ0duTvhrHucjdeUw33qssTy+tmet6JS6ep5jRYFEDNZcn Q+hwoZ8E1Zd4PX/DeqYYKQ== 0000740670-95-000012.txt : 19951214 0000740670-95-000012.hdr.sgml : 19951214 ACCESSION NUMBER: 0000740670-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951029 FILED AS OF DATE: 19951213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHAELS STORES INC CENTRAL INDEX KEY: 0000740670 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [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: 95601385 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 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 October 29, 1995 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 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. Shares Outstanding as Title of December 8, 1995 ----- ------------------- Common stock, par value $.10 per share 21,482,195 MICHAELS STORES, INC. FORM 10-Q Part I - FINANCIAL INFORMATION Item 1. Financial Statements MICHAELS STORES, INC. CONSOLIDATED BALANCE SHEETS (In thousands except share data) (Unaudited)
ASSETS October 29, January 29, 1995 1995 ----------- ----------- Current assets: Cash and equivalents $ 3,685 $ 1,907 Marketable securities - 15,002 Merchandise inventories 456,429 375,096 Deferred income taxes 34,295 15,002 Prepaid expenses and other 16,332 11,525 -------- -------- Total current assets 510,741 418,532 -------- -------- Property and equipment, at cost 262,564 204,032 Less accumulated depreciation (90,942) (62,228) -------- -------- 171,622 141,804 -------- -------- Costs in excess of net assets of acquired operations, net 145,099 117,377 Other assets 8,147 8,313 153,246 125,690 -------- -------- $835,609 $686,026 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $131,462 $103,649 Short-term bank debt 70,500 - Accrued liabilities and other 77,681 82,441 -------- -------- Total current liabilities 279,643 186,090 -------- -------- Bank debt 102,200 41,100 Convertible subordinated notes 96,940 96,950 Other 26,206 5,969 -------- -------- Total long-term liabilities 225,346 144,019 -------- -------- 504,989 330,109 -------- -------- Commitments and contingencies Shareholders' equity: Common stock, 21,232,195 shares outstanding 2,135 2,135 Additional paid-in capital 243,498 244,561 Retained earnings 88,547 109,221 Treasury stock, at cost (3,560) - -------- -------- Total shareholders' equity 330,620 355,917 -------- -------- $835,609 $686,026 ======== ========
See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Quarter Ended -------------------------- October 29, October 30, 1995 1994 ----------- ----------- Net sales $312,696 $283,069 Cost of sales and occupancy expense 208,736 187,566 Selling, general and administrative expense 91,039 80,676 -------- -------- Operating income 12,921 14,827 Interest expense 4,899 2,511 Other expense and (income), net 440 (430) -------- -------- Income before income taxes 7,582 12,746 Provision for income taxes 4,576 4,933 -------- -------- Net income $ 3,006 $ 7,813 ======== ======== Earnings per common and common equivalent share $.14 $.36 ==== ==== Weighted average common and common equivalent shares outstanding 21,337 21,930 ====== ======
See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Nine Months Ended --------------------------- October 29, October 30, 1995 1994 ----------- ----------- Net sales $838,153 $617,071 Cost of sales and occupancy expense 610,912 402,314 Selling, general and administrative expense 253,873 180,709 Store closing and conversion costs (A) - 7,074 -------- -------- Operating (loss) income (26,632) 26,974 Interest expense 12,777 6,895 Other expense and (income), net 1,707 (1,911) -------- -------- (Loss) income before income taxes (41,116) 21,990 (Benefit) provision for income taxes (18,555) 8,497 -------- -------- Net (loss) income $(22,561) $ 13,493 ======== ======== (Loss) earnings per common and common equivalent share $(1.06) $.69 ====== ==== Weighted average common and common equivalent shares outstanding 21,312 19,521 ====== ======
(A) $4,385 net of tax, or $.22 per share See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended ------------------------ October 29, October 30, 1995 1994 ----------- ----------- Operating activities: Net (loss) income $(22,561) $ 13,493 Adjustments: Depreciation and amortization 23,735 13,414 Change in assets and liabilities excluding the effects of acquisitions: Merchandise inventories (73,998) (127,286) Prepaid expenses and other (4,661) (14,962) Deferred income taxes and other (18,775) 5,307 Accounts payable 26,078 68,572 Income taxes payable - (8,363) Accrued liabilities and other (5,923) (6,587) -------- -------- Net change in assets and liabilities (77,279) (83,319) -------- -------- Net cash used in operating activities (76,105) (56,412) -------- -------- Investing activities: Additions to property and equipment (49,715) (51,959) Net proceeds from sales of property and equipment 1,791 - Net proceeds from sales of marketable securities 17,991 46,184 Acquisitions (24,683) (48,820) -------- -------- Net cash used in investing activities (54,616) (54,595) Financing activities: Net borrowings under bank credit facilities 131,600 36,500 Proceeds from issuance of common stock and other 899 77,736 -------- -------- Net cash provided by financing activities 132,499 114,236 -------- -------- Net increase in cash and equivalents 1,778 3,229 Cash and equivalents at beginning of period 1,907 867 -------- -------- Cash and equivalents at end of period $ 3,685 $ 4,096 ======== ======== Cash payments (refunds) for: Interest $ 10,354 $ 4,253 Income taxes (1,332) 16,506
See accompanying notes to consolidated financial statements. MICHAELS STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Months and Nine Months Ended October 29, 1995 (Unaudited) Note A - ------ The accompanying consolidated financial statements are unaudited (except for the Consolidated Balance Sheet as of January 29, 1995) 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 nine months ended October 29, 1995. 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 nine months ended October 29, 1995 are not indicative of the results to be expected for the entire year. Note B - ------ In March 1995, the Company purchased Aaron Brothers Holdings, Inc. ("Aaron Brothers"), which owned a chain of 71 framing and art supplies stores predominantly in California (the "Aaron Brothers Stores"), for a purchase price of $25 million in cash including the assumption of $19.7 million of debt. 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 $26.3 million, which will be amortized on a straight-line basis over a period of 40 years. The results of operations from April 1995 forward are included in the accompanying consolidated financial statements. Note C - ------ Certain fiscal 1994 balances included in the consolidated financial statements have been reclassified to conform to the fiscal 1995 presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - ------------------------------- The Company acquired 71 Aaron Brothers stores and opened 59 Michaels stores during the first nine months of fiscal 1995 (with 5 additional stores opening in early November 1995). Capital expenditures for these stores, and, to a lesser extent, the remodeling and expansion of existing stores, the opening of a new distribution facility, and system enhancements amounted to $49.7 million in the first nine months of fiscal 1995. The Company expects capital expenditures during the fourth quarter of fiscal 1995 to total approximately $10 million, relating primarily to costs for stores to be relocated or opened in early 1996 and for additional systems enhancements. In March 1995, the Company paid $25 million in cash, including the assumption and retirement of $19.7 million of debt, associated with the acquisition of Aaron Brothers. At October 29, 1995, the Company had working capital of $231.1 million compared to $232.4 million at January 29, 1995. The Company currently has a bank credit agreement (as amended, the "Credit Agreement") which includes an unsecured line of credit and provides for the issuance of letters of credit. As of October 29, 1995, the Company had $45.2 million in available unused credit capacity under the Credit Agreement. During the second quarter of 1995, management made a strategic decision to reduce the number of product stock keeping units ("SKUs") typically carried in the Michaels inventory assortment by embarking on an aggressive promotional and markdown program. The proceeds from this inventory reduction program are being used to pay down bank debt. The Company has also decided to reduce the number of planned store openings in 1996 from the 90 to 100 units that were being considered to approximately 30 to 40 new units. 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 Nine Months Ended ----------------------- ----------------------- October 29, October 30, October 29, October 30, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales and occupancy expense 66.8 66.3 72.9 65.2 Selling, general and administrative expense 29.1 28.5 30.3 29.3 Store closing and conversion costs - - - 1.1 ----- ----- ----- ----- Operating income (loss) 4.1 5.2 (3.2) 4.4 Interest expense 1.6 0.9 1.5 1.1 Other expense and (income), net 0.1 (0.2) 0.2 (0.3) ----- ----- ----- ----- Income (loss) before income taxes 2.4 4.5 (4.9) 3.6 Provision (benefit) for income taxes 1.4 1.7 (2.2) 1.4 ----- ----- ----- ----- Net income (loss) 1.0% 2.8% (2.7)% 2.2% ===== ===== ===== =====
Three months ended October 29, 1995 compared to the - --------------------------------------------------- three months ended October 30, 1994 ----------------------------------- Net sales for the three months ended October 29, 1995 were $312.7 million, an increase of $29.6 million, or 10.5%, compared to the same period of the prior year. The results for the third quarter of fiscal 1995 included sales of 59 Michaels stores that were added during the previous twelve months, 23 of which were added during the third quarter of fiscal 1995, and 69 (net of two closures) Aaron Brothers Stores which were included since April 1995. Sales of newer stores accounted for $42.7 million of the increase. Comparable store sales decreased 4% from the same period last year. Although the Company achieved an increase in comparable store sales of 5% in November, 1995, it cannot predict with any certainty that an increase in comparable store sales will be achieved for the fourth quarter of fiscal 1995. Cost of sales and occupancy expense increased as a percentage of sales by 0.5% compared to the same period last year principally due to higher occupancy costs resulting from both a higher proportion in the current year of newer and acquired stores, which have a relatively low sales base over which fixed occupancy costs can be spread, and to the decline in sales at mature stores. Selling, general and administrative expense increased by 0.6%, as a percentage of sales, in the third quarter of fiscal 1995 compared to the same period of the prior year due principally to the reduced leveraging of costs resulting from the decline in comparable store sales. Had comparable store sales been even with last year, selling, general and administrative expenses would have declined by 0.6% as a percentage of sales, not withstanding the increase in goodwill amortization due to the Aaron Brothers acquisition. The increase in interest expense for the third quarter of fiscal 1995 to $4.9 million from $2.5 million for the same period a year ago was due primarily to increased bank borrowings to finance new stores and seasonal inventory growth. The increase in other expense over other income was due principally to losses recognized in liquidating the investment portfolio this year compared to investment income recorded in the prior year period. The Company's effective tax rate increased to 60.4% from 38.7% for the same period last year due to a change in the Company's estimated annual effective tax rate due, in part, to lower expectations as to the Company's earnings outlook for fiscal 1995. Nine months ended October 29, 1995 compared to the - -------------------------------------------------- nine months ended October 30, 1994 ---------------------------------- Net sales for the nine months ended October 29, 1995 were $838.2 million, an increase of $221.1 million, or 35.8%, compared to the same period of the prior year. The results for the nine months of fiscal 1995 included sales of 59 Michaels stores that were added during the previous twelve months, all of which were added during fiscal 1995, and 69 (net of two closures) Aaron Brothers stores which were included since April 1995. Sales of newer stores accounted for $216.6 million of the increase. Comparable store sales increased 4% over the same period last year. Although the Company achieved an increase in comparable store sales of 5% in November 1995, it cannot predict with any certainty that an increase in comparable store sales will be achieved for the fourth quarter of fiscal 1995. Cost of sales and occupancy expense increased by 7.7% compared to the same period last year, as a percentage of sales, principally due to $57.5 million of unusual costs which were recorded in the second quarter of fiscal 1995 associated with the retail markdown of inventory. This markdown action was initiated as a result of the Company's strategic decision to reduce the number of product SKUs typically carried in the Michaels inventory assortment. Management believes that its efforts to reduce the overall SKU base will result in a more efficient deployment of capital going forward. Excluding the inventory charge, cost of sales and occupancy expense increased 0.8%, as a percentage of sales, compared to last year's comparable period. The increase was due principally to higher occupancy expense, as a percentage of sales, resulting from a higher proportion in the current year of newer and acquired stores having a relatively low sales base over which fixed occupancy costs can be spread. Selling, general and administrative expense increased by 1.0%, as a percentage of sales, for the first nine months of fiscal 1995 compared to the same period of the prior year. The largest item causing the increase was increased amortization of goodwill resulting from the Company's acquisition activity during 1994 and early 1995. As a percentage of sales, an increase in payroll and related expenses due principally to the higher proportion of newer stores in the current year was offset by a reduction in advertising expenses as additional economies of scale were achieved. The increase in interest expense for the first nine months of fiscal 1995 to $12.8 million from $6.9 million for the same period a year ago was due primarily to increased bank borrowings to finance new stores and seasonal inventory growth. The increase in other expense over other income was due principally to losses recognized in liquidating the investment portfolio this year compared to investment income recorded in the prior year period. The Company's effective tax rate shifted to a 45.1% benefit rate from a 38.6% provision rate for the same period last year. The rate difference is due to the effect of the increased goodwill amortization on the lower earnings outlook for the year. MICHAELS STORES, INC. FORM 10-Q Part II - Other Information Item 1. Legal Proceedings On August 28, 1995, two lawsuits were filed against Michaels and certain of its officers and directors in the United States District Court for the Northern District of Texas, Dallas Division (the "Class Action Suits"). Each of the Class Action Suits is purportedly a class action lawsuit on behalf of Michaels' stockholders alleging violations of Sections 10 (b) and 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rule 10b-5 under the Exchange Act and related common law. The alleged factual basis underlying the Class Action Suits and the relief sought therein is the plaintiff's allegations that Michaels and the individual defendants misrepresented or failed to disclose material information concerning the financial condition of Michaels, its operations and prospects and that the value of Michaels Common Stock was artificially inflated as a result of such misrepresentations or failures to disclose. Each of the Class Action Suits seeks compensatory damages and reimbursement for the plaintiffs' fees and expenses. The Company believes the Class Action Suits are without merit and intends to vigorously defend this litigation. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 11 - Computation of Earnings Per Common Share for the Three Months Ended October 29, 1995. Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the period covered by this report. 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: December 13, 1995 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION PAGE 11 Computation of Earnings Per Common Share for The Three Months Ended October 29, 1995. 27 Financial Data Schedule EXHIBIT 11 MICHAELS STORES, INC. Computation of Earnings Per Common Share Three Months Ended October 29, 1995 (Unaudited)
Weighted Average Outstanding Equivalent Shares --------------------- Total Fully Outstanding Primary Diluted ----------- ------- ------- Outstanding at beginning of quarter 21,293,759 21,293,759 21,293,759 Shares issued (cancelled) during quarter (61,564) (20,036) (20,036) ---------- ---------- Weighted average outstanding shares 21,273,723 21,273,723 Common Equivalent Shares: Dilutive shares attributable to stock options (computed by the treasury stock method) 63,140 63,140 ---------- ---------- ---------- Total outstanding shares 21,232,195 21,336,863 21,336,863 ========== ========== ========== Earnings per common and common equivalent share $.14 $.14 ==== ====
EX-27 2
5 0000740670 MICHAELS STORES, INC. 1,000 9-MOS JAN-28-1996 OCT-29-1995 3,685 0 0 0 456,429 510,741 262,564 90,942 835,609 279,643 0 2,135 0 0 328,485 835,609 838,153 838,153 610,912 864,785 1,707 0 12,777 (41,116) (18,555) (22,561) 0 0 0 (22,561) (1.06) (1.06)
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