-----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, H7ffTYpt4Cng27STYzXACj45LWi4Jo3aPCVNNVZkUz1E0FCI6BCTl2H1qdAuSZvm abn48BWBORXc6lFMScSoIA== 0000912057-96-010912.txt : 19960529 0000912057-96-010912.hdr.sgml : 19960529 ACCESSION NUMBER: 0000912057-96-010912 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960128 FILED AS OF DATE: 19960528 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-K405/A SEC ACT: SEC FILE NUMBER: 000-11822 FILM NUMBER: 96573256 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-K405/A 1 10-K405/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A (AMENDMENT NO. 1) (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 28, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS Common Stock, Par Value $.10 Per Share ------------------------ 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __ As of April 26, 1996, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $367,922,957, based on the closing price of the Registrant's Common Stock on such date, $18 7/8, as reported on the NASDAQ National Market System. As of April 26, 1996, 23,506,960 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 28, 1996 are incorporated by reference into Part II of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL With approximately $1.3 billion in sales, Michaels Stores, Inc. (the "Company") is the nation's largest retailer dedicated to serving the arts, crafts and decorative items marketplace. The Company's Michaels stores offer a wide selection of competitively priced items, including general crafts, home decor items, picture framing materials and services, art and hobby supplies, party supplies, silk and dried flowers, wearable art, and seasonal and holiday merchandise. The Company's primary customers in its stores are women aged 25-54 with above average median household incomes, and the Company believes that repeat customers account for a substantial portion of its sales. The average sale in the Company's Michaels stores has increased annually from approximately $12.00 in fiscal 1991 to $14.44 in fiscal 1995, due in part to increased sales of custom framing, custom floral arrangements and home decor items. In March 1995, the Company acquired Aaron Brothers, Inc. ("Aaron Brothers"), a chain of specialty framing and art supply stores operating primarily in California, that management believes both complements the Michaels store concept and further strengthens the Company's position in Southern California. The Company's Aaron Brothers stores offer professional custom framing services, photo frames, and a full line of ready made frames as well as a wide selection of art supplies. During fiscal 1995, Aaron Brothers generated sales of $53.9 million. The average sale in the Company's Aaron Brothers stores is approximately $23.94. The Company operates 446 Michaels stores and 68 Aaron Brothers stores in 44 states, Puerto Rico and Canada. The Company's Michaels stores average approximately 16,000 square feet of selling space and offer an assortment of approximately 44,000 stock keeping units ("SKUs") in a typical store during the course of a year (including seasonal product), of which approximately 31,000 SKUs are "planogrammed" SKUs offered at all times. The Company's Aaron Brothers stores average approximately 6,700 square feet of selling space and offer an assortment of approximately 6,500 SKUs. For fiscal 1995, the average sales of the Company's Michaels and Aaron Brothers stores open for the full fiscal year were $3.0 million and $0.9 million, respectively. The Company believes it is well positioned to continue to solidify its position as the dominant nationwide specialty arts, crafts and decorative items retailer and to increase its return on invested capital through its business strategies of (i) offering a broad selection of products in an appealing store environment that emphasizes superior customer service, (ii) effectively managing its investment in inventory through centralized purchasing and distribution combined with significant investment in management information systems, and (iii) continuing to expand its nationwide presence. MERCHANDISING AND MARKETING The Company's Michaels store merchandising strategy is to provide a broad selection of products in an appealing store environment which emphasizes superior customer service. PRODUCT SELECTION In general, each Michaels store offers products from a number of departments. Most of the departments offer essentially the same type of merchandise throughout the year, although the products may vary from season to season. The merchandise offered by the major departments is as follows: - General craft materials, including those for stenciling, doll making, jewelry making, woodworking, wall decor, tole painting, and plaster; - Items for personalizing home decor, including vases, containers, baskets, candles, potpourri, accent furniture, lamps, candleholders and gifts; - Picture framing materials and services, including ready-made frames and custom framing, mat boards, glass, backing materials and related supplies, framed art and photo albums; 1 - Fine art materials, representing a number of major brand lines and including items such as pastels, water colors, oil paints, acrylics, easels, brushes, paper and canvas; - Hobby items, including finished doll houses and miniature furniture, wooden and plastic model kits and related supplies, and paint-by-number kits; - Party needs, including paper party goods, gift wrap, candy making and cake decorating supplies, invitations, greeting cards, balloons and candy; - Needlecraft items, including stitchery supplies, hand-knitting yarns, needles, canvas and related supplies for needlepoint, embroidery and cross stitching, knitting, crochet, rug making kits, and quilts and afghans, which are sold separately or in kits; - Silk flowers, dried flowers and artificial plants sold separately or in ready-made and custom floral arrangements, all accessories needed for floral arranging, wedding millinery, and other floral items such as wreaths; - Wearable art, including adult's and children's garments, fabric paints, embellishments, jewels and sequins, transfers and appliques; - Ribbon, including satins, laces, florals and other styles sold both in bolts and by the yard. In addition to the basic departments described above, the Company regularly features seasonal merchandise. Seasonal merchandise is ordered for several holiday periods, including Valentine's Day, Easter, Mother's Day, Halloween and Thanksgiving, in addition to the Christmas season. For example, seasonal merchandise for the Christmas season includes trees, wreaths, candles, lights and ornaments. The Company is adding a home decor do-it-yourself fabric program in approximately 40 Michaels stores which complements the Company's core strategy. In addition, Michaels has successfully added a new wedding invitation business and a wedding equipment rental business. The following table shows Michaels' sales by department as a percent of total sales for fiscal 1995, 1994 and 1993:
PERCENT OF SALES ------------------------------------- DEPARTMENT 1995 1994 1993 - --------------------------------------------------------------------------------------- ----------- ----------- ----------- Silk and dried flowers and plants...................................................... 22% 22% 21% General craft materials and wearable art............................................... 17 20 21 Picture framing........................................................................ 16 15 15 Home decor, seasonal and promotional items............................................. 15 14 14 Fine art materials..................................................................... 11 10 11 Hobby, party, needlecraft, ribbon and all other........................................ 19 19 18 --- --- --- Total.............................................................................. 100% 100% 100% --- --- --- --- --- ---
During the Christmas selling season, up to 25% of floor and shelf space in a typical store is devoted to Christmas crafts, Christmas decorating and gift making merchandise. Because of the project-oriented nature of these products, the Company's peak Christmas selling season extends from October through December. Accordingly, a fully developed seasonal merchandising program, including inventory, merchandise layout and instructional ideas, is implemented in each Michaels store beginning in July of each year. This program requires additional inventory accumulation so that each store is fully stocked during the peak season. Sales of all merchandise typically increase during the Christmas selling season because of increased customer traffic. The Company believes that merchandise centered around other traditional holidays, such as Valentine's Day, Easter and Halloween, is becoming more popular and is a growing contributor to sales. 2 The Michaels selling floor strategy is developed centrally and implemented at the store level through the use of "planograms" which provide store managers with detailed descriptions and illustrations with respect to store layout and merchandise presentation. Planograms are also used to cluster various products which can be combined to create individual projects. Aaron Brothers stores offer professional custom framing services, photo frames, and a full line of ready made frames as well as a wide selection of art supplies. The Company's merchandising strategy for its Aaron Brothers stores is to provide competitively priced superior custom framing services and selection, with a five business day guarantee or the frame is free. In addition, Aaron Brothers strives to provide a fashion forward merchandise selection in an appealing environment with superior customer service. CUSTOMER SERVICE The Company believes that customer service is critically important to its merchandising strategy. Many of the craft supplies sold in Michaels stores can be assembled into unique end-products with an appropriate amount of guidance and direction. Accordingly, Michaels has hundreds of displays in every store in an effort to stimulate new project ideas, and supplies project sheets with detailed instructions on how to assemble the products. In addition, many Michaels sales associates are craft enthusiasts who are able to help customers with ideas and instructions. The Company also offers free demonstrations and inexpensive classes in stores as a means of promoting new craft ideas. Michaels believes that the in-store "how-to" demonstrations, instructional classes, knowledgeable sales associates, and customer focus groups have allowed the Company to better understand and serve its customers. ADVERTISING The Company believes that its advertising promotes art, craft, floral, framing and home decor ideas among its customers. The Company focuses on circular and newspaper advertising. The Company has found full-color circular advertising, primarily as an insert to newspapers but also through direct mail or on display within its stores, to be the most effective medium of advertising. Such circulars advertise numerous products in order to emphasize the wide selection of products available at Michaels stores. The Company believes that its ability to advertise through circulars and newspapers approximately once a week in each of its markets provides the Company with an advantage over its smaller competitors. Generally, the Company has limited television advertising to network television in those major markets in which it has clusters of Michaels stores or in which it is adding new stores. From time to time, Michaels' marketing program has included advertising campaigns on certain national cable television networks, among them The Discovery Channel-TM-, Lifetime Television, and USA Network-Registered Trademark-. A significant portion of the cost of these advertising campaigns were underwritten by vendors in 1994 and 1995. These programs have coordinated television advertising and circular advertisements together with project booklets, in-store demonstrations, and new point-of-sale techniques. PURCHASING, DISTRIBUTION AND INVENTORY MANAGEMENT To enhance its competitive positioning the Company is actively pursuing improvements throughout its supply chain. These improvements are intended to minimize the investment in inventory necessary to support the Company's sales growth objectives, maximize its stores' in-stock position, and improve the cost-effectiveness of the delivery of goods from its vendors to its stores. PURCHASING AND DISTRIBUTION The Company utilizes a centralized purchasing and distribution strategy to manage its inventory. The Company's purchasing strategy is to negotiate centrally with its vendors in order to take advantage of volume purchasing discounts and improve control over product mix and inventory. In excess of 90% of the merchandise acquired by the stores is from vendors on the Company's "approved list." Of this merchandise, approximately one-half is received from the Company's distribution centers and one-half is received directly from vendors. In addition, most stores have the flexibility to purchase 3 from 2% to 5% of their merchandise directly from local vendors, which allows the store managers to tailor the products offered in their stores to local tastes and trends. District managers are responsible for monitoring store purchases on a weekly basis to further manage the stores' merchandise needs. The Company believes that its distribution capabilities allow it to maintain a high in-stock position in its stores while balancing its overall inventory position. The Company believes its distribution network is a competitive advantage and it intends to increase the flow of goods through its distribution centers and thereby reduce its supply chain costs and more effectively manage its investment in inventories. The Company currently operates four distribution centers which supply the Michaels stores with certain merchandise, including substantially all seasonal and promotional items. The Company's distribution centers are located in Texas, California, Kentucky, and Florida. The Company also utilizes a third-party warehouse in Oregon which allows the Company to store bulk purchases of seasonal and promotional merchandise prior to distribution and operates a secondary bulk storage facility in Arizona. Michaels stores receive deliveries from the distribution centers generally once a week (twice a week during the Christmas selling season) through an internal distribution network using hired trucks. To improve its capacity and efficiency, the Company is relocating its Texas distribution center within the Dallas/Fort Worth area during the summer of 1996 at a total cost of $21 million, of which $14 million is covered by an operating lease and $7 million will be paid as a capital expenditure in fiscal 1996 by the Company. (The leases on the Company's current Texas facilities expire in January 1997.) The Florida distribution center, which opened during 1995, and the new Texas facility give the Company considerable flexibility and capacity in meeting its distribution needs. Substantially all of the products sold in Michaels stores are manufactured in the United States, the Far East and Mexico. Goods manufactured in the Far East generally require long lead times and are ordered four to six months in advance of delivery. Such products are either imported directly by the Company or acquired from distributors based in the United States. In all cases, purchases are denominated in U.S. dollars (or Canadian dollars for purchases of certain items delivered directly to stores in Canada). Aaron Brothers purchases all of its merchandise centrally. Aaron Brothers operates a 126,000 square foot distribution center located in the City of Commerce, California that currently serves all of its stores. Approximately 60% of the store stock is shipped directly from the Aaron Brothers distribution center, with the remaining 40% being shipped directly from the vendors. Aaron Brothers systematically replenishes each of its stores automatically on a weekly basis. INVENTORY MANAGEMENT The Company's primary objectives for inventory management are maximizing the efficiency of the flow of product to the stores, maximizing store in-stock position, improving store efficiency, and optimizing overall investment in inventory. The Company manages its inventory in several ways, including: weekly tracking of the "open-to-buy" status for each of several sources of inventory flow to the stores; the use of planograms with "order point/order quantity" information to control the reorder for each SKU; the review of item-level sales information in order to track the sell-through of seasonal and promotional items and to plan its assortments; and the use of management incentive plans that are linked to the achievement of inventory goals. The data that the Company is obtaining from its new point-of-sale ("POS") system is an integral component in the inventory management process. In addition, inventories are verified through physical counts conducted throughout the year generally in groups of 30 to 40 stores and a complete physical count in all stores as close as practicable to year-end. STORE OPERATIONS The Company's 446 Michaels stores average approximately 16,000 square feet of selling space. The Company's 68 Aaron Brothers stores average approximately 6,700 square feet of selling space. Net sales for fiscal 1995 averaged approximately $3.0 million per store for Michaels stores open the entire fiscal year and $188 per square foot of selling space, and averaged approximately $0.9 million 4 per store for Aaron Brothers stores open the entire fiscal year and $137 per square foot of selling space. Store sites are selected based upon meeting certain economic, demographic and traffic criteria or for clustering stores in markets where certain operating efficiencies can be achieved. The Michaels and Aaron Brothers stores currently in operation are located primarily in strip shopping centers in areas with easy access and ample parking. Typically, a Michaels store is managed by a store manager and one to three assistant store managers, depending on the sales volume of the store. Michaels' field organization is headed by an executive vice president and is divided into four geographic zones. Each zone has its own vice president, operations manager, merchandise manager, and eight or nine district managers. There are a total of 35 districts. The Company believes this organizational structure enhances the communication among the individual stores and between the stores and corporate headquarters. In addition, the Company believes that the training and experience of its managers and assistant managers are vital to the success of its stores, and therefore conducts training programs for such personnel. STORE EXPANSION Having achieved its objective of becoming the largest national retailer in the arts, crafts and decorative items industry, the Company has shifted its focus towards achieving improved operational efficiencies, resulting in higher returns on its invested capital. Accordingly, having grown sales and store locations (excluding Aaron Brothers) at compounded annual rates of 32% and 33%, respectively, over the past four fiscal years, Michaels has moderated its internal store growth target to 15% per annum over the longer term. However, in 1996 the Company currently anticipates opening only 12 to 15 new Michaels stores and five to ten new Aaron Brothers stores. The slower growth in 1996 will allow the Company to invest its resources to complete its POS system rollout, expand its distribution capacity and enhance its inventory management systems. The Company currently anticipates opening approximately 50 to 55 new Michaels stores during fiscal 1997. The Company's expansion strategy is to give priority to adding stores in existing markets in order to enhance economies of scale associated with advertising, distribution, field supervision, and other regional expenses. Management believes that few of its existing markets are saturated and that there are attractive new markets available to the Company. The anticipated development of Michaels and Aaron Brothers stores in 1996 and the rate at which stores are developed thereafter will depend upon a number of factors, including the success of existing Michaels and Aaron Brothers stores, the availability and the cost of capital for expansion, the availability of suitable store sites, the availability of suitable acquisition candidates, and the ability to hire and train qualified managers. The Company intends to continue to review acquisition opportunities in existing and new markets. The Company has no arrangements or understandings pending with respect to any acquisitions. Michaels has developed a standardized procedure which allows for the efficient opening of new stores and their integration into the Company's information and distribution systems. Michaels develops the floor plan and inventory layout, and organizes the advertising and promotions in connection with the opening of each new store. In addition, Michaels maintains a qualified store opening staff to provide new store personnel with in-store training. Accordingly, Michaels generally opens new stores during the period from February through October because new store personnel require significant in-store training prior to entering the Christmas selling season. The Company anticipates developing a similar process for opening new Aaron Brothers stores. Costs for opening stores at particular locations depend upon the type of building and general cost levels in the area. In fiscal 1995, the average net cost to the Company of opening a new Michaels store was approximately $530,000, which included leasehold improvements, furniture, fixtures and equipment, and pre-opening expenses. The initial inventory investment associated with each new Michaels store in fiscal 1995 was approximately $450,000 to $650,000 depending on the store size, operating format and the time of year in which the store was opened. The initial inventory investment in new Michaels stores is offset, in part, by extended vendor terms and allowances. 5 INVESTMENT IN INFORMATION TECHNOLOGY Recognizing the increasingly competitive nature of retailing in general and the need for productivity improvements through technology, the Company decided to accelerate its POS system rollout and to implement item level scanning for the majority of the Company's product. The Company believes that the extent of its investment in POS technology is unique in the arts and crafts industry, and that this initiative is likely to provide it with a competitive advantage in the future. The Company expects the POS system, which is presently installed in more than 240 stores, to be in substantially all Michaels stores by the end of July 1996. The Company believes the information obtained from item level scanning through the new POS system will enable it to identify important trends to assist it in managing its inventory by facilitating the elimination of less profitable SKUs, increasing the in-stock level of more popular SKUs, assisting in the analysis of product margins, and generating data for advertising cost/benefit evaluations. The Company believes that the POS system will also allow Michaels to provide better customer service by increasing the speed and accuracy of register check out, enabling the more rapid restocking of items, and enabling the seamless repricing of sale items. The Company will finance this new POS system through a $25 million capital lease with IBM Credit Corporation at an interest rate of approximately 8%. COMPETITION Michaels is the largest nationwide retailer dedicated to serving the arts and crafts marketplace. The specialty arts, crafts and decorative item retail business is highly competitive. Michaels competes primarily with regional and local merchants that tend to specialize in particular aspects of arts and crafts, and mass merchandisers that typically dedicate a portion of their selling space to a limited selection of arts, crafts, picture framing and seasonal products. The Company believes that its Michaels stores compete based on quality and variety of merchandise assortment, customer service, such as instructional demonstrations, and competitive pricing where appropriate. The Company believes the combination of its broad selection of products, emphasis on customer service, loyal customer base, and capacity to advertise frequently in all of its markets provides the Company with a competitive advantage. The U.S. arts, crafts and decorative items retailing industry, which is estimated by trade publications to have exceeded $10.8 billion in sales in fiscal 1995, has increased in size each year since 1990 when industry sales totaled $6.0 billion. The industry is highly fragmented and Michaels is the only nationwide independent arts and crafts retailer. Management believes that there are only a few competitors with arts and crafts sales that exceed $200 million annually, and that the Company's arts and crafts sales are more than four times larger than those of its largest direct competitor. The Company believes that its significant size relative to its competitors provides it with several advantages including (i) superior purchasing power,(ii) critical mass to support a cost efficient nationwide distribution network, and (iii) the financial resources to support an annual advertising budget of approximately 5% of sales ($63 million in fiscal 1995), and significant ongoing capital investments in information technology. Michaels' primary competitors include Hobby Lobby, a chain based in Oklahoma City which operates approximately 100 stores primarily in the southwestern United States; MJ Designs, a chain which operates approximately 62 stores in Dallas/Fort Worth, Baltimore/Washington, D.C. and selected other east coast markets; and A.C. Moore, a chain which operates approximately 20 stores in the Philadelphia and New York markets. The Company also competes, to a lesser degree, with Frank's Nursery (owned by General Host), Old America Stores and Garden Ridge Pottery. Aaron Brothers' competition is composed primarily of local independent custom frame shops, and mass merchandisers. Aaron Brothers believes it remains competitive due to its five day guarantee on custom frame orders, its pricing structure, its fashion forward merchandising assortments, and its customer service. 6 SERVICE AND TRADE MARKS The name "Michaels" and the Michaels logo are both federally registered service marks held by an affiliate of the Company. The name "Aaron Brothers" and the Aaron Brothers logo are federally registered trademarks. FRANCHISES The Company had previously granted to Dupey Management Corporation ("DMC") the right to open royalty-free, licensed Michaels stores in an eight-county area in north Texas which includes the Dallas-Fort Worth area. As a result of a recent agreement between the Company and DMC, DMC will relinquish its right to use the Michaels name after March 31, 1997. EMPLOYEES As of April 15, 1996, approximately 19,330 persons were employed by the Company, approximately 10,330 of whom were employed on a part-time basis. The number of part-time employees is substantially increased during the Christmas selling season. Of the Company's full-time employees, approximately 1,310 are engaged in various executive, operating, training and administrative functions in the Company's corporate office and distribution centers, and the remainder are engaged in store operations. EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION - --------------------------------- --- ---------------------------------------------------------------------- Sam Wyly 61 Chairman of the Board of Directors Charles J. Wyly, Jr. 62 Vice Chairman of the Board of Directors R. Michael Rouleau 57 Chief Executive Officer Douglas B. Sullivan 45 President and Chief Operating Officer R. Don Morris 56 Executive Vice President and Chief Financial Officer David E. Bolen 44 Executive Vice President Evan A. Wyly 34 Vice President Rex A. Rambo 54 Executive Vice President-Merchandising/Marketing Kristen L. Magnuson 40 Vice President-Finance and Business Planning Donald R. Miller, Jr. 41 Vice President-Market Development John H. Rittenhouse 39 Vice President-Distribution Colby H. Springer 48 Vice President-Information Services
Mr. Sam Wyly has served as Chairman of the Board since 1984. In 1963, Mr. Wyly founded University Computing Company, a computer software and services company, and served as President or Chairman from 1963 until February 1979. Mr. Wyly co-founded Earth Resources Company, an oil refining and silver and gold mining company, and served as its Executive Committee Chairman from 1968 to 1980. Mr. Wyly and his brother, Charles J. Wyly, Jr., bought the 20 restaurant Bonanza Steakhouse chain in 1967. While he served as Chairman, the restaurant chain grew to approximately 600 restaurants by 1989. Mr. Wyly co-founded Sterling Software, Inc. in 1981 and since that time has served as Chairman of the Board and a director. Mr Wyly serves as Chairman of Maverick Capital, Ltd., an investment fund management company, and has served as a director of Sterling Commerce, Inc. since December 1995. Sam Wyly is the father of Evan A. Wyly, a director and officer of the Company. Mr. Charles J. Wyly, Jr. became a director of the Company in October 1984 and Vice Chairman in February 1985. He co-founded Sterling Software, Inc. in 1981 and since such time has served as a director and (since November 1984) as Vice Chairman of Sterling Software, Inc. Mr. Wyly served as an officer and director of University Computing Company from 1964 to 1975, including President from 1969 to 1973. From 1968 to 1980, Mr. Wyly served as Chairman of the Board of Earth Resources 7 Company, an oil refining and silver and gold mining company which he co-founded with his brother, Sam Wyly. Mr. Wyly served as Vice Chairman of the Bonanza Steakhouse chain from 1967 to 1989. Mr. Wyly has served as a director of Sterling Commerce, Inc. since December 1995. Charles J. Wyly, Jr. is the father-in-law of Donald R. Miller, Jr., a director and Vice President-Market Development of the Company. Mr. Rouleau became Chief Executive Officer of the Company in April 1996. Prior to joining the Company, Mr. Rouleau had served as Executive Vice President of store operations for Lowe's Companies, Inc. since May 1992 and additionally as President of Lowe's Contractor Yard Division since February 1995. Prior to joining Lowe's, Mr. Rouleau was a co-founder and President of Office Warehouse which subsequently merged into Office Max. Mr. Sullivan became President and Chief Operating Officer of the Company in August 1995. He joined the Company in 1988 and has served in a variety of capacities, including overseeing the Company's store operations, distribution, store opening, real estate, legal and personnel functions. Prior to his joining the Company, Mr. Sullivan had served with Family Dollar Stores, Inc. for 11 years, most recently as Vice President-Real Estate. Mr. Morris became Executive Vice President and Chief Financial Officer of the Company in August 1990. From January 1990 until August 1990 he was Senior Vice President-Finance and Chief Financial Officer. From April 1988 until January 1990, Mr. Morris was a director, President and Chief Executive Officer of Frostcollection, Inc. Prior to April 1988, Mr. Morris was Partner-In-Charge of the Accounting and Audit and the Merger and Acquisition Departments of the Dallas, Texas office of Arthur Young & Company. Mr. Bolen joined the Company as Executive Vice President in July 1994. From January 1987 until July 1994, he held the positions of Vice President of Stores and more recently Executive Vice President and Chief Operating Officer with Leewards Creative Crafts, Inc. Prior to Leewards, Mr. Bolen held various positions with Gemco and Zayre Corporation, principally in store operations. Mr. Rambo has been Executive Vice President Merchandising/Marketing, with responsibility for all merchandising and marketing functions, since November 1995. Mr. Rambo joined the Company most recently from Lechmere, Inc., a retail chain, where he served as President. Prior to that he ran the Electric Avenue division for Montgomery Wards. He also worked approximately 25 years with Sears, Roebuck and Company. Mr. Evan A. Wyly became a director of the Company in September 1992 and has served as Vice President of the Company since December 1991. In June 1988, Mr. Wyly founded Premier Partners Incorporated, a private investment firm, and served as President prior to joining the Company. Mr. Wyly serves as the President of Maverick Capital Ltd., an investment fund management company. He serves as a director and Vice President of Sterling Software, Inc. Mr. Wyly serves as a director of Xscribe Corp., a high-technology information management company, and as a director of Sterling Commerce, Inc. Ms. Magnuson became Vice President-Finance and Business Planning for the Company in August 1990. She was Senior Vice President-Controller, Financial and Strategic Planning, Mergers and Acquisitions, Treasury and Investments for MeraBank from March 1987 to August 1990. Prior to March 1987, Ms. Magnuson was a Senior Manager/Principal at Arthur Young & Company. Mr. Miller has served as Vice President-Marketing Development of the Company since November 1990 and as a director of the Company since September 1992. From September 1984 to November 1990, he was Director of Real Estate. Prior to joining the Company, Mr. Miller served in various real estate positions with Bonanza and Peoples Restaurants. Mr. Miller has served as a director of Sterling Software, Inc. since September 1993. He also serves on the Board of Directors of Xscribe Corp. 8 Mr. Rittenhouse joined the Company as Vice President-Distribution in January 1995. For the previous eight years he had served with Target Stores, a division of Dayton Hudson Corporation, as Director of Distribution. Prior to that he held various positions with Southland Corporation. Mr. Springer has been Vice President-Information Services since November 1995. From 1993 to November 1995 he was Vice President-Information Services with Blockbuster Entertainment Corporation. Prior to that he was Vice President of Management Information Systems with Pearle Vision, Incorporated. ITEM 2. PROPERTIES. The Company's Michaels stores generally are situated in strip shopping centers located near malls and on well-traveled roads. Almost all stores are in leased premises with lease terms generally ranging from five to ten years. The base rental rates generally range from $85,000 to $235,000 per year. Rental expense for stores open during the full 12-month period of fiscal 1995 averaged $156,000. The leases are generally renewable, with increases in lease rental rates. A majority of the existing leases contain provisions pursuant to which the lessor has provided leasehold improvements to prepare for opening. However, the Company has been paying and anticipates continuing to pay for a larger portion of future improvements directly as opposed to financing them through the lessor. The Company's Aaron Brothers stores are generally located in high visibility strip shopping centers in trade areas having a high density of population and above average discretionary income. The locations typically contain high profile and/or complementary anchor stores. As of this date, all current stores are located in leased properties with lease terms generally ranging from five to ten years with options to renew. Rental expense for stores opened the full 12-month period of fiscal 1995 averaged approximately $105,000. The following table indicates the number of the Company's stores located in each state or province as of April 25, 1996:
STATE NUMBER OF STORES - ------------------------------------ ------------------- Alabama............................. 5 Alaska.............................. 1 Arizona............................. 17* Arkansas............................ 3 British Columbia.................... 1 California.......................... 144* Colorado............................ 9 Connecticut......................... 1 Florida............................. 22 Georgia............................. 19 Idaho............................... 2 Illinois............................ 22 Indiana............................. 9 Iowa................................ 6 Kansas.............................. 4 Kentucky............................ 3 Louisiana........................... 4 Maine............................... 2 Maryland............................ 1 Massachusetts....................... 10 Michigan............................ 16 Minnesota........................... 9 Mississippi......................... 1 Missouri............................ 11 STATE NUMBER OF STORES - ------------------------------------ ------------------- Nebraska............................ 1 Nevada.............................. 6* New Hampshire....................... 2 New Jersey.......................... 7 New Mexico.......................... 3 New York............................ 11 North Carolina...................... 14 North Dakota........................ 1 Ohio................................ 21 Oklahoma............................ 7 Ontario............................. 15 Oregon.............................. 10 Pennsylvania........................ 9 Puerto Rico......................... 3 Rhode Island........................ 1 South Carolina...................... 4 Tennessee........................... 9 Texas............................... 35 Utah................................ 4 Virginia............................ 8 Washington.......................... 13 West Virginia....................... 1 Wisconsin........................... 7 --- Total........................... 514
- ------------------------ *Of the store counts indicated in Arizona, California and Nevada, Aaron Brothers accounts for 3, 63 and 2 stores, respectively. 9 The Company leases a 210,000 square foot building in Irving, Texas for use as a distribution center and as the Company's corporate headquarters. In addition it leases four nearby facilities for supplemental warehouse and office space. During 1995 the Company entered into lease agreements to relocate its Irving distribution center and office space. A lease was entered into and construction was started on a 426,000 square foot distribution facility at the Alliance Airport in Tarrant County, Texas. In addition, a lease was entered into for a 136,000 square foot building in Irving, Texas, to which the Company will relocate its corporate offices. The move of the distribution center and corporate offices is scheduled for mid 1996. Michaels also leases a 400,000 square foot building in Buena Park, California, a 350,000 square foot building in Lexington, Kentucky, and a 500,000 square foot facility in Jacksonville, Florida, all of which are used as distribution centers. Aaron Brothers leases a 126,000 square foot building in City of Commerce, California, for use as a distribution center and office facility. ITEM 3. LEGAL PROCEEDINGS. In August 1995, two lawsuits were filed by certain security holders against the Company and certain present and former officers and directors seeking class action status on behalf of purchasers of the Company's Common Stock between February 1, 1995 and August 23, 1995. Among other things, the plaintiffs allege that misstatements and omissions by defendants relating to projected and historical operating results, inventory and other matters involving future plans resulted in an inflation of the prices of the Company's Common Stock. The plaintiffs seek on behalf of the purported class an unspecified amount of compensatory damages and reimbursement for the plaintiffs' fees and expenses. The United States District Court for the Northern District of Texas consolidated the two lawsuits on November 16, 1995. The Company and the individual defendants have filed a motion to dismiss the consolidated, amended complaint. The court has not yet ruled on this motion. Discovery related to both class certification issues and the merits of plaintiffs' claims has been stayed pending resolution of defendants' motion to dismiss. The Company believes the claims are without merit and intends to vigorously defend this action. The Company is a defendant from time to time in lawsuits incidental to its business. Based on currently available information, the Company believes that resolution of all known contingencies, including the security holder litigation described above, would not have a material adverse impact on the Company's financial position. However, there can be no assurance that future costs would not be material to results of operations of the Company for a particular future period. In addition, the Company's estimates of future costs are subject to change as events evolve and additional information becomes available during the course of litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. Since September 3, 1991, the Common Stock has been quoted through the NASDAQ National Market System under the symbol "MIKE". From December 10, 1986 until September 3, 1991, the Common Stock was traded on the American Stock Exchange. The Company's Common Stock began trading in the over-the-counter market in May 1984 and was quoted through the NASDAQ National Market System from May 21, 1985 until December 10, 1986. 10 The following table sets forth the high and low sales prices of the Company's Common Stock for each quarterly period within the two most recent fiscal years.
FISCAL 1995 HIGH LOW - ------------------------------------------------------------------ --------- --------- First............................................................. $ 37 1/2 $ 27 3/4 Second............................................................ 32 3/4 20 3/4 Third............................................................. 25 3/4 11 Fourth............................................................ 18 11 3/8 FISCAL 1994 HIGH LOW - ------------------------------------------------------------------ --------- --------- First............................................................. $ 44 3/4 $ 31 Second............................................................ 46 1/2 30 1/2 Third............................................................. 45 29 1/2 Fourth............................................................ 45 3/4 32 1/4
On April 26, 1996, the last reported sale price of the Common Stock on the NASDAQ National Market System was $18 7/8, and as of such date there were approximately 1,232 holders of record of the Common Stock. The Company's present plan is to retain earnings for the foreseeable future for use in the Company's business and the financing of its growth. The Company did not pay any dividends on its Common Stock during fiscal 1994 and 1995. ITEM 6. SELECTED FINANCIAL DATA. The selected financial information required by this item is included in the Company's 1995 Annual Report to Shareholders (the "1995 Annual Report") under the heading "Financial Highlights." Such information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is included in the Company's 1995 Annual Report on pages 9 through 11 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Such information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this item are included in the Annual Report on Form 10-K that was filed on April 29, 1996, or are included in the Company's 1995 Annual Report and are incorporated herein by reference, as indicated in the following Index to Financial Statements.
INDEX TO FINANCIAL STATEMENTS AND 1995 ANNUAL FINANCIAL STATEMENT SCHEDULES REPORT PAGE - ---------------------------------------------------------------------------------------------------- ------------- Report of Independent Auditors 19 Consolidated Balance Sheets at January 28, 1996 and January 29, 1995 12 Consolidated Statements of Operations for the fiscal years ended January 28, 1996, January 29, 1995 and January 30, 1994 13 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1996, January 29, 1995 and January 30, 1994 14 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 28, 1996, January 29, 1995 and January 30, 1994 15 Notes to Consolidated Financial Statements 16-18
All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. DIRECTORS OF THE COMPANY The Board is presently comprised of seven members. The Board is divided into three classes, with two classes consisting of three directors and one class consisting of one director. Members of each class of directors serve for a term of three years. Each director shall serve until the Annual Meeting of Shareholders in the year in which his term expires or until his successor is elected and qualified. The following sets forth information as to each of the directors of the Company, including their ages, present principal occupations, other business experience during the last five years, and directorships in other publicly-held companies.
YEAR TERM NAME AGE POSITION EXPIRES - ------------------------- --- ------------------------------------------------------------- ----------- Dr. F. Jay Taylor 72 Director 1996 Richard E. Hanlon 48 Director 1996 Evan A. Wyly 34 Director and Vice President 1996 Sam Wyly 61 Chairman of the Board of Directors 1997 Michael C. French 53 Director 1997 Donald R. Miller, Jr. 41 Director and Vice President - Market Development 1997 Charles J. Wyly, Jr. 62 Vice Chairman of the Board of Directors 1998
Dr. Taylor became a director of the Company in June 1989. Dr. Taylor was President of Louisiana Tech University from 1962 until 1987, and has served as President - Emeritus of Louisiana Tech since 1987. Dr. Taylor also currently serves as a director of Illinois Central Railroad Corporation and Pizza Inn, Inc. and performs mediation and arbitration services as a member of The American Arbitration Association and The Federal Mediation and Conciliation Service. Mr. Hanlon became a director of the Company in April 1990. Since February 1995, Mr. Hanlon has been Vice President - Investor Relations of America Online, Inc., a provider of online computer services. From March 1993 until February 1995, Mr. Hanlon was President of Hanlon & Co. He was Vice President - Corporate Communications and Secretary from 1988 to 1993 for LEGENT Corporation and its predecessor. From 1987 to 1988, Mr. Hanlon served as a consultant to Sam Wyly, Chairman. From 1983 through 1987, Mr. Hanlon was Director of Investor & Corporate Communications, UCCEL Corporation. Mr. Evan A. Wyly became a director of the Company in September 1992 and has served as Vice President of the Company since December 1991. In June 1988, Mr. Wyly founded Premier Partners Incorporated, a private investment firm, and served as President prior to joining the Company. Mr. Wyly serves as the President of Maverick Capital Ltd, an investment fund management company. He serves as a director and Vice President of Sterling Software, Inc. Mr. Wyly serves as a director of Xscribe Corp., a high-technology information management company, and as a director of Sterling Commerce, Inc. Evan Wyly is the son of Sam Wyly, a director and officer of the Company. Sam Wyly has served as Chairman of the Board of the Company since 1984. In 1963, Mr. Wyly founded University Computing Company, a computer software and services company, and served as President or Chairman from 1963 until February 1979. Mr. Wyly co-founded Earth Resources Company, an oil refining and silver and gold mining company, and served as its Executive Committee Chairman from 1968 to 1980. Mr. Wyly and his brother, Charles J. Wyly, Jr., bought the 20-restaurant Bonanza Steakhouse chain in 1967. While he served as Chairman, the restaurant chain grew to approximately 600 restaurants by 1989. Mr. Wyly co-founded Sterling Software, Inc. in 1981 and since that time has served as Chairman of the Board and a director. Mr. Wyly serves as Chairman of Maverick Capital Ltd., an investment fund management company and has served as a director of Sterling Commerce, Inc. since December 1995. 12 Mr. French has served as a director of the Company since September 1992. He has been a Managing Director of Maverick Capital Ltd., an investment fund management company, since 1992 and a director of Sterling Software, Inc. since July 1992. Mr. French is currently a consultant to the international law firm of Jones, Day, Reavis & Pogue. Mr. French was a partner with the law firm of Jackson & Walker, L.L.P. from 1976 through 1995. Mr. Miller has served as Vice President - Market Development of the Company since November 1990, and as a director of the Company since September 1992. From September 1984 to November 1990 he was Director of Real Estate. Prior to joining the Company, Mr. Miller served in various real estate positions with the Bonanza Steakhouse chain and Peoples Restaurants. Mr. Miller has served as a director of Sterling Software, Inc. since September 1993. He also serves on the Board of Directors of Xscribe Corp. Mr. Miller is the son-in-law of Charles J. Wyly, Jr., Vice Chairman of the Company. Mr. Charles J. Wyly, Jr. became a director of the Company in October 1984 and Vice Chairman in February 1985. He co-founded Sterling Software, Inc. in 1981 and since such time has served as a director and (since November 1984) as Vice Chairman of Sterling Software, Inc. Mr. Wyly served as an officer and director of University Computing Company from 1964 to 1975, including President from 1969 to 1973. From 1968 to 1980, Mr. Wyly served as Chairman of the Board of Earth Resources Company, an oil refining and silver and gold mining company which he co-founded with his brother, Sam Wyly. Mr. Wyly served as Vice Chairman of the Bonanza Steakhouse chain from 1967 to 1989. Mr. Wyly has served as a director of Sterling Commerce, Inc. since December 1995. EXECUTIVE OFFICERS OF THE COMPANY The name, age and position of each executive officer of the Company is set forth under the heading "Executive Officers of the Company" in Item 1 of this report, which information is incorporated in this Item 10 by reference. SECTION 16 REQUIREMENTS Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (the "SEC"). Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it with respect to fiscal 1995, or written representations from certain reporting persons, the Company believes that its officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities have complied with all applicable filing requirements, except that David E. Bolen inadvertently failed to timely file a Statement of Changes of Beneficial Ownership of Securities (a "Form 4") to amend a previously filed Form 4 to include shares released to him from an escrow fund established in connection with a 1994 acquisition by the Company and to correct errors in a previous report of the number of options granted to Mr. Bolen, and each of Douglas B. Sullivan, Donald R. Miller, Jr., R. Don Morris, Jack E. Bush, David E. Bolen, Rex A. Rambo, John H. Rittenhouse, and Kristen L. Magnuson inadvertently failed to timely file an Annual Statement of Beneficial Ownership covering one transaction each which transaction constituted the allocation of shares attributable to such person under the Michaels Stores, Inc. Employees 401(k) Plan and Trust (the "Company's 401(k) Plan"). ITEM 11. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table sets forth certain information regarding compensation paid during each of the Company's last three fiscal years to the Company's Chief Executive Officer, each of the Company's four other most highly compensated executive officers employed by the Company at the end of the 13 fiscal year, and two other executive officers who would have been included in the four other most highly compensated executive officers if they were employed at the end of the fiscal year, based on salary and bonus earned during fiscal 1995 (the "Named Executives").
LONG-TERM COMPENSATION ------------------------------------ AWARDS ANNUAL COMPENSATION ------------------------- PAYOUTS ----------------------------------------- RESTRICTED SECURITIES --------- OTHER ANNUAL STOCK UNDERLYING LTIP FISCAL COMPENSATION AWARDS OPTIONS/ PAYOUTS NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) SARS(#)(1) ($) - -------------------------------- ----------- ----------- ----------- --------------- ----------- ------------ --------- Sam Wyly, 1995 450,000 -- 63,690(3) -- 300,000(4) -- Chairman of the 1994 434,875 -- 74,604(3) -- 200,000 -- Board of Directors (2) 1993 384,000 -- 73,900(3) -- 100,000 -- Charles J. Wyly, Jr., 1995 225,000 -- -- -- 450,000(5) -- Vice Chairman of the 1994 217,438 -- -- -- 100,000 -- Board of Directors 1993 192,000 -- -- -- 50,000 -- Douglas B. Sullivan, 1995 284,686 -- 39,105(6) -- 245,000(7) -- President and Chief 1994 271,924 -- 20,075(6) -- 60,000 -- Operating Officer 1993 239,878 -- 24,097(6) -- 25,000 -- R. Don Morris, 1995 325,550 -- 44,698(9) -- 259,000 (10 -- Executive Vice 1994 321,154 -- 49,357(9) -- 60,000 -- President 1993 288,461 -- 43,994(9) -- 25,000 -- David E. Bolen 1995 258,654 -- -- -- 120,000 (12 -- Executive Vice 1994 139,423 -- -- -- 30,000 -- President 1993 -- -- -- -- -- -- Jack E. Bush, 1995 486,392 -- -- -- 210,000 (14 -- President (Resigned 1994 442,308 -- -- -- 100,000 -- August 1995) 1993 376,923 -- -- 50,000 -- Robert H. Rudman 1995 221,637 -- -- -- 121,250 (16 -- Executive Vice 1994 192,308 -- -- -- 60,000 -- President (Resigned 1993 174,075 -- -- -- 20,000 -- January 1996) ALL OTHER COMPENSATION NAME AND PRINCIPAL POSITION ($) - -------------------------------- ------------- Sam Wyly, -- Chairman of the -- Board of Directors (2) -- Charles J. Wyly, Jr., -- Vice Chairman of the -- Board of Directors -- Douglas B. Sullivan, 5,269(8) President and Chief 6,560(8) Operating Officer 6,303(8) R. Don Morris, 7,460(11) Executive Vice 8,355(11) President 7,966(11) David E. Bolen 90,042(13) Executive Vice 2,308(13) President -- Jack E. Bush, 2,165,408(15) President (Resigned 59,504(15) August 1995) 77,908(15) Robert H. Rudman 344,582(17) Executive Vice 6,587(17) President (Resigned 4,333(17) January 1996)
- ------------------------------ (1) Options to acquire shares of Common Stock. The number of securities included in this table is inclusive of repricing grants during fiscal 1995. (2) Sam Wyly was Chief Executive Officer during the 1995 fiscal year. Mr. Rouleau was appointed Chief Executive Officer in April 1996. (3) Includes life insurance premiums paid by the Company in the amount of $51,678, $64,746 and $57,158 in fiscal 1995, 1994 and 1993, respectively. (4) Stock options were reissued due to repricing and cancellation of 300,000 previously granted stock options. (5) Stock options were reissued due to repricing and cancellation of 450,000 previously granted stock options. (6) Includes life insurance premiums paid by the Company in the amount of $18,798, $16,925 and $16,636 in fiscal 1995, 1994 and 1993, respectively. (7) Includes 165,000 stock options that were reissued due to repricing and cancellation of 165,000 previously granted stock options. (8) Includes the annual contribution by the Company for Mr. Sullivan's account pursuant to the Company's 401(k) Plan in the amount of $4,620, $3,914 and $4,189 in fiscal 1995, 1994 and 1993, respectively, and split-dollar life insurance providing $649, $2,646 and $2,114 of current net benefit projected on an actuarial basis in fiscal 1995, 1994 and 1993, respectively. (9) Includes life insurance premiums paid by the Company in the amount of $30,430, $42,651 and $35,228 in fiscal 1995, 1994 and 1993, respectively. (10) Includes 159,000 stock options that were reissued due to repricing and cancellation of 159,000 previously granted stock options. (11) Includes the annual contribution by the Company for Mr. Morris' account pursuant to the Company's 401(k) Plan in the amount of $4,620, $4,620 and $4,324 in fiscal 1995, 1994 and 1993, respectively, and split-dollar life insurance providing $2,840, $3,735 and $3,462 of current net benefit projected on an actuarial basis in fiscal 1995, 1994 and 1993, respectively. 14 (12) Includes 30,000 stock options that were reissued due to repricing and cancellation of 30,000 previously granted stock options. (13) Includes annual contribution by the Company for Mr. Bolen's account pursuant to the Company's 401(k) Plan in the amount of $4,620 and $2,308 in fiscal 1995 and 1994, respectively, and moving and relocation expenses of $85,422 in fiscal 1995. (14) Stock options were reissued due to repricing and cancellation of 210,000 previously granted stock options. (15) Includes annual contribution by the Company for Mr. Bush's account pursuant to the Company's 401(k) Plan in the amount of $4,620, $3,615 and $4,305 in fiscal 1995, 1994 and 1993, respectively, accruals by the Company of $281,997, $54,488 and $63,976 in fiscal 1995, 1994 and 1993, respectively, for an annuity for Mr. Bush, split-dollar life insurance providing $23,984, $1,401 and $9,627 of current net benefit projected on an actuarial basis in fiscal 1995, 1994 and 1993, respectively, and accruals by the Company of $1,854,807 in fiscal 1995 for the current net value of a deferred compensation plan. (16) Includes 71,250 stock options that were reissued due to repricing and cancellation of 71,250 previously granted stock options. (17) Includes severance compensation of $337,500 in fiscal 1995, annual contribution by the Company for Mr. Rudman's account pursuant to the Company's 401(k) Plan in the amount of $4,404, $3,808, and $2,545 in fiscal 1995, 1994 and 1993, respectively, and split-dollar life insurance providing $2,678, $2,779 and $1,788 of current net benefit projected on an actuarial basis in fiscal 1995, 1994 and 1993, respectively. OPTION GRANTS DURING 1995 FISCAL YEAR The following table provides information related to options granted to the Named Executives during fiscal 1995.
INDIVIDUAL GRANTS - --------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1) OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------- NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(3) DATE 5%($) 10%($) - --------------------------- --------------- --------------- ----------- ----------- --------------- --------------- Sam Wyly................... 300,000 (4)(5 7.61 17.00 08/28/00 1,409,036 3,113,601 Charles J. Wyly, Jr........ 450,000 (4)(6 11.41 17.00 08/28/00 2,113,554 4,670,402 Douglas B. Sullivan........ 245,000 (4)(7 6.21 16.75 08/28/00 1,133,790 2,505,380 R. Don Morris.............. 259,000 (4)(8 6.57 16.75 08/28/00 1,198,578 2,648,545 David E. Bolen............. 90,000 (4)(9 2.28 16.75 08/28/00 416,494 920,344 30,000(4) 0.76 16.625 08/28/00 137,795 304,492 Jack E. Bush............... 10,000 (10 0.25 12.50 11/26/96 0 (11 0(11) 50,000 (12 1.26 12.50 08/18/97 0 (11 0(11) 50,000 (12 1.26 12.50 08/18/98 0 (11 0(11) 50,000 (12 1.26 12.50 04/17/99 0 (11 0(11) 50,000 (12 1.26 12.50 07/31/99 0 (11 0(11) Robert H. Rudman........... 121,250 (13 3.07 16.75 08/28/00 0 0
- ------------------------------ (1) The potential realizable value portion of the foregoing table illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the Company's Common Stock over the term of the options. These numbers do not take into account provisions of certain options providing for termination of the option following termination of employment, nontransferability or vesting over periods. The use of the assumed 5% and 10% returns is established by the SEC and is not intended by the Company to forecast possible future appreciation of the price of the Common Stock. (2) Options to acquire shares of Common Stock. The number of securities included in this table is inclusive of stock options which were cancelled and reissued due to repricing. (3) The option exercise price may be paid in shares of Common Stock owned by the Named Executives, in cash, or in any other form of valid consideration or a combination of any of the foregoing, in some cases as determined by the Board of Directors, the Stock Option Committee, the 1992 Non-Statutory Plan Committee or the 1994 Non-Statutory Plan Committee, as applicable, in its discretion. The exercise price of each option was equal to the fair market value of the Common Stock on the date of grant. 15 (4) Option becomes exercisable with respect to 50% of the shares covered thereby on August 29, 1996 and with respect to 100% of the shares covered thereby on August 29, 1997. (5) Stock options were reissued due to repricing and cancellation of 300,000 previously granted stock options. (6) Stock options were reissued due to repricing and cancellation of 450,000 previously granted stock options. (7) Includes 165,000 stock options that were reissued due to repricing and cancellation of 165,000 previously granted stock options. (8) Includes 159,000 stock options that were reissued due to repricing and cancellation of 159,000 previously granted stock options. (9) Includes 30,000 stock options that were reissued due to repricing and cancellation of 30,000 previously granted stock options. (10) Stock options were reissued due to repricing and cancellation of 10,000 previously granted stock options. (11) During fiscal 1995, Mr. Bush exercised all of his outstanding options. (12) Stock options were reissued due to repricing and cancellation of 50,000 previously issued stock options. (13) Includes 71,250 stock options that were reissued due to repricing and cancellation of 71,250 previously granted stock options. However, all of Mr. Rudman's options expired on January 26, 1996. OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table provides information related to options exercised by the Named Executives during the 1995 fiscal year and the number and value of options held at fiscal year end. The Company does not have any outstanding stock appreciation rights.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FY-END(#) AT FY-END($)(1) SHARES ACQUIRED VALUE -------------------------- ---------------------------- NAME ON EXERCISE(#) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------- --------------- ------------- ----------- ------------- ------------- ------------- Sam Wyly................. -- -- -- 0(3) -- -- Charles J.Wyly, Jr....... -- -- -- 0(4) -- -- Douglas B. Sullivan...... -- -- 8,250 245,000 8,625 -- R. Don Morris............ 4,000 81,500 24,250 259,000 8,625 -- David E. Bolen........... -- -- -- 120,000 -- -- Jack E. Bush............. 295,000 1,807,033 -- -- -- -- Robert H. Rudman......... -- -- -- -- -- --
- ------------------------------ (1) The closing price for the Company's Common Stock as reported through The Nasdaq National Market System on January 26, 1996, the last trading day of the 1995 fiscal year, was $12.75. Value is calculated on the basis of the difference between the option exercise price and $12.75 multiplied by the number of shares of Common Stock underlying the option. (2) Value is calculated based on the difference between the option exercise price and the closing market price of the Common Stock on the date of exercise multiplied by the number of shares to which the exercise relates. (3) In fiscal 1995, Sam Wyly transferred options to purchase 300,000 shares of Common Stock to an irrevocable trust and disclaims the beneficial ownership of the transferred options and the underlying shares of Common Stock. The table above does not include the value of such unexercised options. (4) In fiscal 1995, Charles J. Wyly, Jr. transferred options to purchase an aggregate of 450,000 shares of Common Stock to two irrevocable trusts and disclaims the beneficial ownership of the transferred options and the underlying shares of Common Stock. The table above does not include the value of such unexercised options. COMPENSATION OF DIRECTORS The Company pays Sam Wyly $37,500 per month for serving as Chairman of the Board and pays Charles J. Wyly, Jr. $18,750 per month for serving as Vice Chairman of the Board. Messrs. Taylor and Hanlon each receive an annual fee of $24,000 as members of the Board of Directors of the Company and a fee of $1,000 for attendance at each regular or special Board meeting. Each member of the Audit Committee receives a fee of $1,000 for attendance at each meeting of the Audit Committee. The members of the Audit Committee are Messrs. Taylor and Hanlon. 16 Since December 1, 1992, Mr. French has provided advisory services to the Company, for which he is compensated at the rate of $15,000 per month. Directors who are salaried employees of the Company are not compensated for their Board activities. Jones, Day, Reavis & Pogue, a law firm for which Mr. French is a consultant, provides legal services to the Company, but does not charge the Company for any time spent by Mr. French on any Company matters. Jackson & Walker, L.L.P., a law firm of which Mr. French was a partner until August 1995, provided legal services to the Company in 1995. The Company was not charged by such firm for time spent by Mr. French on any matters regarding the Company during fiscal 1995. EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS The Company has entered into agreements with Sam Wyly and Charles J. Wyly, Jr., directors and executive officers of the Company, which agreements provide for the employment of such persons by the Company upon a change of control of the Company (a "Change of Control") for a salary not less than each such individual's respective annual salary immediately preceding the Change of Control and allows each such individual to participate in bonuses with other key management personnel. Each of these agreements (i) is for a term of three years with provisions for annual automatic one-year extensions and, upon a Change of Control, an additional extension of 36 months and (ii) requires the Company to pay to each such individual, if his employment is terminated within three years of a Change of Control, a sum equal to three times such individual's salary and bonus during the twelve-month period immediately preceding termination. The Company has entered into an agreement with Dr. F. Jay Taylor, a director of the Company, which agreement provides for the engagement by the Company of Dr. Taylor as a consultant upon a Change of Control for an annual base compensation not less than the fees received by him from the Company in all capacities during the twelve-month period immediately preceding the Change of Control. This agreement (i) is for a term of three years with provisions for annual automatic one-year extensions and, upon a Change of Control, an additional extension of 36 months and (ii) requires the Company to pay to Dr. Taylor, if his consulting arrangement is terminated within three years of a Change of Control, a sum equal to three times the fees received by him from the Company in all capacities during the twelve-month period immediately preceding termination. During a portion of fiscal 1995, the Company operated under an agreement with Jack E. Bush, then a director and executive officer of the Company, which provided that the Company would fund a retirement plan intended to provide Mr. Bush with an annuity of $60,000 per year for life after age 65; during fiscal 1995, the Company accrued $281,997 pursuant to such agreement with respect to such retirement plan. The Company has entered into an agreement with Douglas B. Sullivan, an executive officer of the Company, which provides for his employment by the Company upon a Change of Control for a salary not less than his annual salary immediately preceding the Change of Control and allows him to participate in bonuses with other key management personnel of the Company. This agreement (i) is for a term of three years with provisions for annual automatic one-year extensions and, upon a Change of Control, an additional extension of twelve months and (ii) requires the Company to pay to Mr. Sullivan, if his employment is terminated within one year of a Change of Control, a sum equal to his salary and bonus during the twelve-month period immediately preceding termination. COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1995, the members of the Compensation Committee were primarily responsible for determining executive compensation, and the members of the Option Committees made decisions related to stock option grants to executive officers and directors. The following executive officers, who also are members of the Compensation Committee and the Stock Option Committee, participated in deliberations concerning executive officer compensation: Sam Wyly and Charles J. Wyly, Jr. 17 Sam Wyly and Charles J. Wyly, Jr. are members of the Compensation Committee of the Company. Sam Wyly and Charles J. Wyly, Jr. are also executive officers and members of the Executive Committees, Stock Option Committees and Boards of Directors of the Company, Sterling Software, Inc. and Sterling Commerce, Inc. Accordingly, Sam Wyly and Charles J. Wyly, Jr. have participated in decisions related to compensation of executive officers of each of the Company, Sterling Software, Inc., and Sterling Commerce, Inc. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information as of April 26, 1996, regarding the beneficial ownership of Common Stock by each person known by the Company to own 5% or more of the outstanding shares of Common Stock, each director of the Company, certain Named Executives, and the directors and executive officers of the Company as a group. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them, unless otherwise noted.
AMOUNT AND NATURE OF NAME OF BENEFICIAL OWNER OR BENEFICIAL PERCENT NUMBER OF PERSONS IN GROUP OWNERSHIP OF CLASS - ------------------------------------------------------------------------------------- ----------------- ----------- Sam Wyly............................................................................. 1,934,905(1) 8.23 Charles J. Wyly, Jr.................................................................. 1,897,607(2) 8.07 R. Michael Rouleau................................................................... 200,000(3) * Evan A. Wyly......................................................................... 55,875(4) * Michael C. French.................................................................... 1,200(5) * Richard E. Hanlon.................................................................... 12,600(6) * Donald R. Miller, Jr................................................................. 13,437(7) * Dr. F. Jay Taylor.................................................................... 21,440 * R. Don Morris........................................................................ 39,287(8) * Douglas B. Sullivan.................................................................. 35,000(9) * David E. Bolen....................................................................... 26,713 * The Wyly Group....................................................................... 3,532,512 (10 15.03 8080 N. Central Expressway, Suite 1300 Dallas, Texas 75206 ICM Asset Management, Inc............................................................ 1,471,430 (11 6.26 601 W. Main Avenue, Suite 917 Spokane, Washington 99201 The Capital Group Companies, Inc..................................................... 1,705,000 (12 7.25 333 South Hope Street Los Angeles, California 90071 LGT Asset Management, Inc............................................................ 2,092,000 (13 8.90 50 California, 27th Floor San Francisco, California 94111 All directors and executive officers as a group (15 persons)......................... 3,985,624 (14 16.96
- ------------------------------ * Less than 1% (1) Includes 1,074,536 shares held of record by Tallulah, Ltd. (a limited partnership of which Mr. Wyly is general partner); 536,615 shares held of record by family trusts of which Mr. Wyly is trustee; 300,000 shares held of record by Maverick Entrepreneurs Fund, Ltd. ("Maverick"), a limited partnership of which Mr. Wyly is a general partner; 7,918 shares held by his daughter and for which he has power of attorney; and 15,836 shares held of record by certain of Mr. Wyly's adult children, who have given him the power to vote such shares. Does not include 1,333,333 shares of Common Stock acquired by two separate entities owned by two separate independent irrevocable trusts established by Mr. Wyly. Mr. Wyly disclaims beneficial ownership of those shares. 18 (2) Includes 755,000 shares held of record by Brush Creek, Ltd., a limited partnership of which Mr. Wyly is general partner; 842,233 shares held of record by family trusts of which Mr. Wyly is trustee; 300,000 shares held of record by Maverick, of which Mr. Wyly is a general partner; and 374 shares held of record by Mr. Wyly's adult children, who have given him the power to vote such shares. Does not include 666,667 shares of Common Stock acquired by an entity owned by an independent irrevocable trust established by Mr. Wyly. Mr. Wyly disclaims beneficial ownership of those shares. (3) Shares subject to presently exercisable options. Mr. Rouleau is the Chief Executive Officer of the Company. (4) Includes 30,000 shares subject to presently exercisable options. (5) Shares held by a retirement account directed by Mr. French. (6) Includes 10,000 shares subject to presently exercisable options. (7) Includes 9,250 shares subject to presently exercisable options and 187 shares held by Mr. Miller's spouse. (8) Includes 24,250 shares subject to presently exercisable options. Excludes 348,039 shares held by the Company's 401(k) Plan for which Mr. Morris is a trustee and a member of the Investment Committee. Mr. Morris disclaims beneficial ownership of those excluded shares. (9) Includes 8,250 shares subject to presently exercisable options. (10) The Wyly Group consists of Sam Wyly, Charles J. Wyly, Jr. and Maverick. (11) Based on a Schedule 13G filed with the Securities and Exchange Commission dated February 10, 1996, ICM Asset Management, Inc., a registered investment adviser, has the shared power to vote or direct the vote of 805,500 shares of Common Stock and has the sole power to dispose or direct the disposition of 1,471,430 shares of Common Stock. (12) Based on a Schedule 13G filed with the Securities and Exchange Commission dated February 9, 1996, The Capital Group Companies, Inc. and its operating subsidiary, Capital Research & Management Company, a registered investment adviser, have the sole power to dispose or to direct the disposition of 1,705,000 shares of Common Stock and have no right to vote or direct the vote of those shares. (13) Based on a Schedule 13G filed with the Securities and Exchange Commission dated February 13, 1996, LGT Asset Management, Inc., a registered investment adviser, has the sole power to vote or to direct the vote of 2,092,000 shares of Common Stock and has the sole power to dispose or to direct the disposition of 2,092,000 shares of Common Stock. (14) Includes 69,000 shares subject to presently exercisable options held, in the aggregate, by 4 executive officers not named in the table. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Jones, Day, Reavis & Pogue, a law firm for which Michael C. French is currently a consultant, provides legal services to the Company. The Company is not charged by such firm for any time spent by Mr. French on Company matters. Jackson & Walker, L.L.P., a law firm of which Mr. French was a partner until August 1995, provided legal services to the Company in 1995. The Company was not charged by such firm for any time spent by Mr. French on Company matters. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Annual Report on Form 10-K: (1) Financial Statements: The financial statements filed as a part of this report are listed in the "Index to Financial Statements and Financial Statement Schedules" at Item 8. (2) Financial Statement Schedules: The financial statement schedules filed as a part of this report are listed in the "Index to Financial Statements and Financial Statement Schedules" at Item 8. (3) Exhibits: 19 The exhibits filed as a part of this report are listed under "Exhibits" at subsection (c) of this Item 14. (b) Reports of Form 8-K: No report on Form 8-K was filed on behalf of the Registrant during the last quarter of the period covered by this report. (c) Exhibits: 2.1 -- Agreement and Plan of Merger, dated as of May 10, 1994, among Michaels Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc. (13) 2.2 -- First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc. (14) 2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc., Treasure House Stores, Inc. and the stockholders of Treasure House Stores, Inc. (15) 2.4 -- Amendment No. 1 to Stock Purchase Agreement (15) 2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and the other parties listed therein. (13) 2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 31, 1994, among Michaels Stores, Inc. and the other parties listed therein. (13) 2.7 -- Stock Purchase Agreement, dated as of March 8, 1995, among Aaron Brothers Holdings, Inc., ABAM Investors Limited Partnership, and Michaels Stores, Inc. (16) 3.1 -- Bylaws of the Registrant, as amended and restated. (16) 3.2 -- Restated Certificate of Incorporation of the Registrant. (3) 4.1 -- Form of Common Stock Certificate. (4) 4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores, Inc. and Peoples Restaurants, Inc., including form of Warrant. (10) 4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between the First Dallas Group, Ltd. and Michaels Stores, Inc. (10) 4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between First Dallas Investments-Michaels I, Ltd. and Michaels Stores, Inc. (10) 4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between First Dallas Investments-Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly, Charles J. Wyly, Jr. and Michaels Stores, Inc. (2) 4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible Subordinated Note included therein. (10) 4.7 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Qualye Limited. (1) 4.8 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Locke Limited. (1) 4.9 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Fugue Limited. (1) 10.1 -- Michaels Stores, Inc. Employees 401(k) Plan. (8) 10.2 -- Michaels Stores, Inc. Employees 401(k) Trust. (6)
20 10.3 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers and directors of the Registrant. (10) 10.4 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors of the Registrant. (7)(12) 10.5 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors of the Registrant.(7)(12) 10.6 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key executives of the Registrant.(7)(12) 10.7 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9) 10.8 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended effective January 25, 1992.(3)(12) 10.9 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1, 1992.(3)(12) 10.10 -- Form of Non-Statutory Stock Option Agreement covering options granted to certain directors and consultants of the Company other than pursuant to the Michaels Stores, Inc. Key Employee Stock Compensation Program and the Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan.(10)(12) 10.11 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and NationsBank of Texas, N.A. (the "Credit Agreement")(8) 10.12 -- First Amendment to Credit Agreement dated April 26, 1995.(16) 10.13 -- Second Amendment to Credit Agreement dated as of September 1, 1995.(17) 10.14 -- Third Amendment to Credit Agreement dated as of February 12, 1996.(1) 10.15 -- Fourth Amendment to Credit Agreement dated as of March 4, 1996.(1) 10.16 -- Michaels Stores, Inc. 1994 Non-Statutory Stock Option Plan dated March 31, 1994.(16) 10.17 -- Amended, Modified and Restated Master Lease Agreement dated as of December 18, 1995 between Jacksonville Funding Corporation as Lessor and Michaels Stores, Inc., as Lessee. (1) 10.18 -- Agreement dated as of January 30, 1996 by and between Michaels Stores, Inc. and Jack E. Bush. (1) 10.19 -- First Amendment to the Michaels Stores, Inc. Employees 401(k) Plan. (1) 11 -- Computation of Earnings Per Common Share.(18) 13 -- Portions of 1995 Annual Report to Shareholders that are incorporated by reference into Items 6, 7 and 8 of this Annual Report on Form 10-K.(1) 21.1 -- Subsidiaries of Michaels Stores, Inc.(1) 23 -- Consent of Ernst & Young.(1) 27 -- Financial Data Schedule.(1)
- ------------------------ (1) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended January 28, 1996 that was filed on April 29, 1996 and incorporated herein by reference. (2) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-9456) and incorporated herein by reference. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8 (No. 33-54726) and incorporated herein by reference. 21 (4) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (No. 2-89370) and incorporated herein by reference. (5) Previously filed as an Exhibit to the Peoples Restaurants, Inc. Registration Statement on Form S-1 (No. 2-85737) and incorporated herein by reference. (6) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8 (No. 33-11985) and incorporated herein by reference. (7) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 29, 1989 and incorporated herein by reference. (8) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 30, 1994 and incorporated herein by reference. (9) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended February 2, 1992 and incorporated herein by reference. (10) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 31, 1993 and incorporated herein by reference. (11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 1, 1993 and incorporated herein by reference. (12) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c). (13) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-53639) and incorporated herein by reference. (14) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended March 1, 1994 and incorporated herein by reference. (15) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-52311) and incorporated herein by reference. (16) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 29, 1995 and incorporated herein by reference. (17) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended July 30, 1995 and incorporated herein by reference. (18) Filed herewith. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: May 28, 1996 By: /s/ SAM WYLY ----------------------------------- Sam Wyly CHAIRMAN OF THE BOARD OF DIRECTORS Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ SAM WYLY - ----------------------------------- Chairman of the Board of May 28, 1996 Sam Wyly Directors /s/ CHARLES J. WYLY, JR. - ----------------------------------- Vice Chairman of the May 28, 1996 Charles J. Wyly, Jr. Board of Directors /s/ R. MICHAEL ROULEAU Chief Executive Officer - ----------------------------------- (Principal Executive May 28, 1996 R. Michael Rouleau Officer) Executive Vice President /s/ R. DON MORRIS and Chief Financial - ----------------------------------- Officer (Principal May 28, 1996 R. Don Morris Financial and Accounting Officer) /s/ EVAN A. WYLY - ----------------------------------- Vice President and May 28, 1996 Evan A. Wyly Director - ----------------------------------- Director F. Jay Taylor - ----------------------------------- Director Richard E. Hanlon - ----------------------------------- Vice President-Market Donald R. Miller, Jr. Development and Director /s/ MICHAEL C. FRENCH - ----------------------------------- Director May 28, 1996 Michael C. French 23 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE - ----------- ---------------------------------------------------------------------------------------- --------------- 2.1 -- Agreement and Plan of Merger, dated as of May 10, 1994, among Michaels Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc. (13) 2.2 -- First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc. (14) 2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc., Treasure House Stores, Inc. and the stockholders of Treasure House Stores, Inc. (15) 2.4 -- Amendment No. 1 to Stock Purchase Agreement (15) 2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and the other parties listed therein. (13) 2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 31, 1994, among Michaels Stores, Inc. and the other parties listed therein. (13) 2.7 -- Stock Purchase Agreement, dated as of March 8, 1995, among Aaron Brothers Holdings, Inc., ABAM Investors Limited Partnership, and Michaels Stores, Inc. (16) 3.1 -- Bylaws of the Registrant, as amended and restated. (16) 3.2 -- Restated Certificate of Incorporation of the Registrant. (3) 4.1 -- Form of Common Stock Certificate. (4) 4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores, Inc. and Peoples Restaurants, Inc., including form of Warrant. (10) 4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between the First Dallas Group, Ltd. and Michaels Stores, Inc. (10) 4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between First Dallas Investments-Michaels I, Ltd. and Michaels Stores, Inc. (10) 4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between First Dallas Investments-Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly, Charles J. Wyly, Jr. and Michaels Stores, Inc. (2) 4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible Subordinated Note included therein. (10) 4.7 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Qualye Limited. (1) 4.8 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Locke Limited. (1) 4.9 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc. and Fugue Limited. (1) 10.1 -- Michaels Stores, Inc. Employees 401(k) Plan. (8) 10.2 -- Michaels Stores, Inc. Employees 401(k) Trust. (6)
10.3 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers and directors of the Registrant. (10) 10.4 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors of the Registrant. (7)(12) 10.5 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors of the Registrant.(7)(12) 10.6 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key executives of the Registrant.(7)(12) 10.7 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9) 10.8 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended effective January 25, 1992.(3)(12) 10.9 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1, 1992.(3)(12) 10.10 -- Form of Non-Statutory Stock Option Agreement covering options granted to certain directors and consultants of the Company other than pursuant to the Michaels Stores, Inc. Key Employee Stock Compensation Program and the Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan.(10)(12) 10.11 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and NationsBank of Texas, N.A. (the "Credit Agreement")(8) 10.12 -- First Amendment to Credit Agreement dated April 26, 1995.(16) 10.13 -- Second Amendment to Credit Agreement dated as of September 1, 1995.(17) 10.14 -- Third Amendment to Credit Agreement dated as of February 12, 1996.(1) 10.15 -- Fourth Amendment to Credit Agreement dated as of March 4, 1996.(1) 10.16 -- Michaels Stores, Inc. 1994 Non-Statutory Stock Option Plan dated March 31, 1994.(16) 10.17 -- Amended, Modified and Restated Master Lease Agreement dated as of December 18, 1995 between Jacksonville Funding Corporation as Lessor and Michaels Stores, Inc., as Lessee. (1) 10.18 -- Agreement dated as of January 30, 1996 by and between Michaels Stores, Inc. and Jack E. Bush. (1) 10.19 -- First Amendment to the Michaels Stores, Inc. Employees 401(k) Plan. (1) 11 -- Computation of Earnings Per Common Share.(18) 13 -- Portions of 1995 Annual Report to Shareholders that are incorporated by reference into Items 6, 7 and 8 of this Annual Report on Form 10-K.(1) 21.1 -- Subsidiaries of Michaels Stores, Inc.(1) 23 -- Consent of Ernst & Young.(1) 27 -- Financial Data Schedule.(1)
- ------------------------ (1) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended January 28, 1996 that was filed on April 29, 1996 and incorporated herein by reference. (2) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-9456) and incorporated herein by reference. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8 (No. 33-54726) and incorporated herein by reference. (4) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (No. 2-89370) and incorporated herein by reference. (5) Previously filed as an Exhibit to the Peoples Restaurants, Inc. Registration Statement on Form S-1 (No. 2-85737) and incorporated herein by reference. (6) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-8 (No. 33-11985) and incorporated herein by reference. (7) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 29, 1989 and incorporated herein by reference. (8) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 30, 1994 and incorporated herein by reference. (9) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended February 2, 1992 and incorporated herein by reference. (10) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 31, 1993 and incorporated herein by reference. (11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended August 1, 1993 and incorporated herein by reference. (12) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c). (13) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-53639) and incorporated herein by reference. (14) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended March 1, 1994 and incorporated herein by reference. (15) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-3 (No. 33-52311) and incorporated herein by reference. (16) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 29, 1995 and incorporated herein by reference. (17) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended July 30, 1995 and incorporated herein by reference. (18) Filed herewith. EX-11 2 EXHIBIT 11 MICHAELS STORES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share data) EXHIBIT 11
Weighted Weighted Average Common Average and Common Common Shares Equivalent Shares Outstanding Outstanding ------------- ----------------- Fully Primary Diluted ------- ------- For the year ended January 28, 1996 Weighted average common shares outstanding 21,451 21,451 21,451 Net shares to be issued upon exercise of dilutive stock options after applying treasury stock method - 66 66 ------ -------- --------- Total average outstanding shares 21,451 21,517 21,517 ------ -------- -------- ------ -------- -------- Net loss $(20,417) $(20,417) -------- -------- -------- -------- Loss per common share $(0.95) $(0.95) -------- -------- -------- --------
MICHAELS STORES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share data) EXHIBIT 11
Weighted Weighted Average Common Average and Common Common Shares Equivalent Shares Outstanding Outstanding ------------- ----------------- Fully Primary Diluted ------- ------- For the year ended January 29, 1995 Weighted average common shares outstanding 19,405 19,405 19,405 Assumed issuance of shares upon conversion of convertible subordinated debt 638 Net shares to be issued upon exercise of dilutive stock options after applying treasury stock method 741 764 ------ ------ ------ Total average outstanding shares 19,405 20,146 20,807 ------ ------ ------ ------ ------ ------ Net income $35,647 $35,647 Assumed interest on convertible subordinated debt less tax benefit of $607 969 ------- ------- Net income for per share computation $35,647 $36,616 ------- ------- ------- ------- Earnings per common share $1.77 $1.76 ----- ----- ----- -----
MICHAELS STORES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share data) EXHIBIT 11
Weighted Weighted Average Common Average and Common Common Shares Equivalent Shares Outstanding Outstanding ------------- ----------------- Fully Primary Diluted ------- ------- For the year ended January 30, 1994 Weighted average common shares outstanding 16,592 16,592 16,592 Assumed issuance of shares upon conversion of convertible subordinated debt at beginning of year 2,572 Net shares to be issued upon exercise of dilutive stock options and warrants after applying treasury stock method 639 645 ------ ------- ------- Total average outstanding shares 16,592 17,231 19,809 ------ ------- ------- ------ ------- ------- Net income $26,287 $26,287 Assumed interest on convertible subordinated debt less tax benefit of $2,427 3,902 ------- ------- Net income for per share computation $26,287 $30,189 ------- ------- ------- ------- Earnings per common share $1.53 $1.52 ------- ------- ------- -------
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