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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 30, 1994
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
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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)
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
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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 (229.405 of this chapter) 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. /X/
As of April 26, 1994, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $564,280,860, based on the closing price of
the Registrant's Common Stock on such date, $42.25, as reported on the NASDAQ
National Market System.
As of April 26, 1994, 17,007,431 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 30, 1994 are incorporated by reference into Part II of this
report, and portions of the Proxy Statement for the Annual Meeting of
Shareholders of the Registrant to be held during 1994 are incorporated by
reference into Part III of this report.
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PART I
ITEM 1. BUSINESS.
GENERAL
Michaels Stores, Inc. ("Michaels" or the "Company") is the largest
nationwide specialty retailer of arts, crafts and decorative items, operating a
chain of 254 stores (as of April 15, 1994) located in 32 states and one Canadian
province. Michaels stores offer a wide selection of competitively priced items
including general crafts, wearable art, silk and dried flowers, picture framing
materials and services, art and hobby supplies, and party, seasonal and holiday
merchandise. The average sale is approximately $13.75. The Company's primary
customers are women aged 25 to 54 with above average median household incomes,
and the Company believes repeat customers account for a substantial portion of
its sales. The Company was incorporated in 1983 as the successor to a Colorado
corporation which commenced operations in 1962.
MERCHANDISING
PRODUCT SELECTION
Michaels' merchandising strategy is to provide a broad selection of products
in an appealing store environment with superior customer service. The commitment
to customer service is evidenced through in-store "how to" demonstrations,
project samples displayed throughout the store, and instructional classes for
adults and children. The typical Michaels store offers an assortment of over
30,000 stock keeping units ("SKUs"). In general, each store offers products from
ten departments. Nine 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 these nine departments is as follows:
- General craft materials, including those for stenciling, doll making,
jewelry making, woodworking, wall decor, and tole painting;
- Wearable art, including adult's and children's garments, fabric paints,
embellishments, jewels and sequins, transfers and appliques;
- 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 floral items, and other items for
personalizing home decor, such as wreaths, containers, baskets, candles,
and potpourri;
- 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;
- 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 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, knitting yarns, needles,
canvas and related supplies for needlepoint, embroidery and cross
stitching, knitting, crochet, and rug making, and quilts and afghans sold
separately or in kits;
- Ribbon, including satins, laces, florals and other styles sold both in
bolts and by the yard.
In addition to the nine 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,
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seasonal merchandise for the Christmas season includes trees, wreaths, candles,
lights and ornaments. Included in the seasonal department is promotional
merchandise that is offered with the intention of generating customer traffic.
The following table shows sales by the largest departments as a percent of
total sales for fiscal 1993, 1992 and 1991:
PERCENT OF SALES
-------------------------------------
DEPARTMENT 1993 1992 1991
- - --------------------------------------------------------------------------- ----------- ----------- -----------
General craft materials and wearable art................................... 21% 22% 21%
Silk and dried flowers and plants.......................................... 21 18 18
Picture framing............................................................ 15 14 15
Seasonal and promotional items............................................. 14 15 16
Fine art materials......................................................... 11 11 13
Hobby, party, needlecraft and ribbon....................................... 18 20 17
--- --- ---
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 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 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.
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.
CUSTOMER SERVICE
Michaels 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. 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
product. In addition, many sales associates are craft enthusiasts with the
experience 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. The Company creates additional shopper loyalty and
enthusiasm through publication of the "Michaels Arts & Crafts" magazine, which
reaches over 200,000 households six times per year, and sponsorship of the
"Michaels Kids Club" for over 250,000 children nationwide. 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. In addition, the Company measures its
customer service in each store at least four times a year through a "mystery
shopper" program.
PURCHASING AND DISTRIBUTION
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. Approximately 90% of the merchandise is acquired
by the stores 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, each store
has the flexibility
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to purchase approximately 10% of its merchandise directly from local vendors,
which allows the store managers to tailor the products offered in their stores
to local tastes and trends. All store purchases are monitored by district and
regional managers.
The Company currently operates three distribution centers which supply the
stores with certain merchandise, including substantially all seasonal and
promotional items. The Company's distribution centers are located in Irving,
Texas, Buena Park, California and Lexington, Kentucky. The Company also operates
a warehouse in Phoenix, Arizona, which allows the Company to store bulk
purchases of seasonal and promotional merchandise prior to distribution.
Michaels stores receive deliveries from the distribution centers generally once
a week through an internal distribution network using leased trucks.
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).
ADVERTISING
The Company believes that its advertising promotes craft and hobby project
ideas among its customers. The Company focuses on circular and newspaper
advertising. The Company has found 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. In the past
the Company generally limited television advertising to those major markets in
which it has clusters of stores or in which it was adding new stores. In the
future, the Company will conduct advertising campaigns on targeted cable
television networks reaching a nationwide audience. This effort may also be
complemented with network television advertising in select markets.
STORE OPERATIONS
The Company's stores average approximately 15,500 square feet of selling
space, although newer stores average approximately 17,000 square feet of selling
space. Net sales for fiscal 1993 averaged approximately $3,180,000 per store
(for stores open the entire fiscal year) and $218 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 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. The
Company's vice president of store operations, four regional managers and
twenty-three district managers are responsible for the supervision and operation
of the stores. 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 has implemented extensive training programs for such personnel.
NEW STORE EXPANSION
Michaels currently anticipates adding approximately 70 to 75 stores in the
United States and Canada during fiscal 1994, of which 34 have already opened or
been acquired. Michaels' expansion strategy is to give priority to adding stores
in existing markets in order to enhance economies of scale
3
associated with advertising, transportation, field supervision, and other
regional expenses. Management believes that few of its existing markets are
saturated. The Company also believes that many attractive new markets available
to the Company exist. The anticipated development of Michaels stores in 1994 and
the rate at which stores are developed thereafter will depend upon a number of
factors, including the success of existing Michaels stores, the availability of
suitable store sites, the availability of suitable acquisition candidates, and
the ability to hire and train qualified managers.
In February 1994 the Company acquired Treasure House Stores, Inc., an arts
and crafts chain of nine stores operating primarily in the Seattle market. In
April 1994 the Company acquired a group of companies operating eight stores
(primarily in Portland, Oregon) under the Oregon Craft and Floral Supply Co.
name and eight stores (in southern California) under the H & H Craft and Floral
Supply Co. name. All of these acquired stores will be operated in the future as
Michaels stores. These acquisitions have created a dominant position for the
Company in Oregon and Washington and further strengthened the Company's position
in southern California. The Company intends to continue to review acquisition
opportunities in existing and new markets.
In October 1993 the Company opened its first Michaels Craft and Floral
Warehouse store ("CFW") using a newly-developed "warehouse superstore" format.
It is anticipated that each store following the CFW format will occupy up to
40,000 square feet of selling space, carry a wider selection of certain
categories of merchandise than the typical store, and generally offer
merchandise at "everyday" discounted retail prices. In order to maintain a lower
cost structure than the typical store, the CFW store utilizes new computer
systems that provide full point-of-sale scanning, automated receiving of
merchandise, and allow the elimination of retail price marking of individual
product. The Company plans to open four or five additional CFW stores during
1994, and may accelerate the opening of such stores in the future if the format
continues to be favorably received by the consumer.
Michaels has developed a standardized procedure which enables the Company to
efficiently open new stores and integrate them into its information and
distribution systems. The Company 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 an experienced store opening
staff to provide new store personnel with in-store training. The Company
generally opens new stores during the period from February through October
because new store personnel require significant in-store training prior to the
first Christmas selling season.
INVENTORY CONTROL/MANAGEMENT INFORMATION SYSTEMS
Michaels' management information systems include automated point-of-sale,
merchandising, distribution and financial applications. All orders from the
stores to the Company's distribution centers are processed electronically to
ensure timely delivery of warehouse-sourced inventory. The Company's
point-of-sale system generally captures sales information by department. Due to
the large number of inexpensive items in the stores, the non-fashion nature of
the merchandise, and the long lead times involved for ordering seasonal goods
(up to nine months), the Company does not currently capture item-level sales
information, inventory or margin electronically in all stores. Sales trend
tracking combines item level point-of-sale scanning data from the CFW store with
point-of-sale department-level sales from all other stores, weekly test counts
of certain SKUs in 40 selected stores, and regular communication from store
managers through the district and regional managers. Inventory and margins are
monitored on a perpetual basis in the distribution centers and in the stores via
physical inventories at least quarterly in groups of 30 to 40 stores and a
year-end complete physical count in most stores. The Company believes that these
procedures and automated systems, together with its other control processes,
allow Michaels to manage and monitor its inventory levels and margin performance
while it implements new SKU management systems.
In conjunction with the centralization of certain merchandising, financial
and operational functions in 1991, the Company developed a Five-Year Information
Technology Plan designed to satisfy the Company's growing management information
needs. The enhancements provided for in this Plan
4
that have been implemented include improved ordering capabilities in the stores
using radio frequency and bar-code scanning technologies, item-level scanning
and automated receiving for the CFW store, the implementation of electronic data
interchange with key vendors, and additional automation in the distribution
centers also using radio frequency and bar-code scanning technologies.
Additional near-term enhancements will include the implementation of more
sophisticated warehouse replenishment, merchandise assortment planning, and
"planogramming" capabilities.
COMPETITION
Michaels is the largest nationwide specialty retailer dedicated to serving
the arts and crafts marketplace. The specialty retail business is highly
competitive. Michaels competes primarily with other nationwide retailers of
craft items and related merchandise, 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 stores compete based on price, quality and variety of merchandise
assortment, and customer service, such as instructional demonstrations. Michaels
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.
SERVICE MARKS
The name "Michaels" and the Michaels logo are both federally registered
service marks held by a trust of which a wholly-owned subsidiary of the Company
is beneficiary.
FRANCHISES
The Company has granted to Dupey Management Corporation the right to open
royalty-free, licensed Michaels stores in an eight-county area in north Texas
which includes the Dallas-Fort Worth area. In addition, a majority-owned
subsidiary of the Company has the right to operate licensed Michaels stores in
Canada, in return for which such subsidiary pays royalty fees.
EMPLOYEES
As of March 27, 1994, approximately 10,040 persons were employed by the
Company, approximately 5,830 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, 640 are engaged in various
executive, operating, training and administrative functions in the Company's
corporate office, distribution centers and bulk warehouse, and the remainder are
engaged in store operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- - --------------------------------------- ----- -------------------------------------------------------
Sam Wyly............................... 59 Chairman of the Board of Directors and Chief Executive
Officer
Charles J. Wyly, Jr.................... 60 Vice Chairman of the Board of Directors
Jack E. Bush........................... 59 Director, President and Chief Operating Officer
R. Don Morris.......................... 54 Executive Vice President and Chief Financial Officer
Douglas B. Sullivan.................... 43 Executive Vice President
Robert H. Rudman....................... 43 Senior Vice President -- Merchandising and Marketing
Mr. Sam Wyly became a director of the Company in July 1984 and was elected
Chairman of the Board in October 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,
5
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. It grew to approximately 600 restaurants by 1989, during which
time he served as Chairman. Mr. Wyly currently serves as Chairman of Sterling
Software, Inc., a computer software company which he co-founded in 1981, and as
President of Maverick Capital, Ltd., an investment fund management company. Sam
Wyly is the father of Evan A. Wyly, a director of the Company.
Mr. Charles J. Wyly, Jr. became a director of the Company in October 1984
and Vice Chairman of the Board of Directors in February 1985. Mr. Wyly served as
an officer and director of University Computing Company from 1964 to 1975,
including President from 1969 to 1973. Mr. Wyly and his brother, Sam Wyly,
founded Earth Resources Company, and Charles J. Wyly, Jr. served as Chairman of
the Board from 1968 to 1980. Mr. Wyly served as Vice Chairman of the Bonanza
Steakhouse chain from 1967 to 1989. Mr. Wyly is a co-founder and currently
serves as Vice Chairman of the Board of Directors of Sterling Software, Inc. and
as Chairman of Maverick Capital, Ltd. 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. Bush became a director of the Company and was elected President and
Chief Operating Officer in August 1991. Prior to joining the Company, Mr. Bush
was Executive Vice President -- Operations and Stores for Ames Department
Stores, Inc. Before joining Ames in 1990, Mr. Bush was President, Chief
Operating Officer and a director of Rose's Stores, Inc., a discount store chain.
From 1980 to 1985, he served as Vice President -- Southern Zone Manager for
Zayre Corporation. Previously, Mr. Bush spent 22 years with J.C. Penney Company,
where he held a variety of executive positions in merchandising, operations,
marketing, strategic planning, specialty businesses, discount stores and
business development.
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. Sullivan became Executive Vice President of the Company in August 1990.
From March 1988 until August 1990 he was Senior Vice President -- Real Estate.
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. Rudman became Senior Vice President -- Merchandising and Marketing of
the Company in October 1991. From October 1990 until October 1991 he was
Director of Merchandising for Best Products, a catalog showroom retailer. From
September 1989 until October 1990 Mr. Rudman was Senior Vice President --
Merchandising/Marketing and Distribution for Silk Greenhouse, Inc., a chain of
retail silk floral and accessory stores which filed a petition under federal
bankruptcy laws in November 1990. From May 1988 until September 1989 he served
as Vice President -- Non-Foods Merchandise for Pace Membership Club, prior to
which time he was Vice President and Divisional Merchandise Manager of
McCrory's, a chain of variety stores.
ITEM 2. PROPERTIES.
The Company's 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 twenty years. The base
rental rates generally range from $75,000 to $175,000 per year. Rental expense
for stores open during the full 12-month period of fiscal 1993 averaged
$137,000. The leases are generally renewable, with increases in rental rates for
renewal terms. A majority of the existing
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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.
During 1993 the Company purchased a total of seven properties (consisting of
six parcels of land and seven buildings) at a cost of $8.8 million, generally
acquiring such properties by bidding for them in reorganization proceedings of
other retail companies. Four of the properties have been or are in the process
of being sold, generally in transactions pursuant to which the Company will
lease the property back for a specified period of time. It is the Company's
present intention to acquire land and/or buildings only in unusual circumstances
where the economics of the transactions appear favorable to the Company and the
locations involved fit into the Company's expansion strategy.
The following table indicates the number of the Company's stores located in
each state or province:
STATE NUMBER OF STORES
- - ------------------------------------------------------------------ -----------------
Alabama........................................................... 4
Arizona........................................................... 8
Arkansas.......................................................... 3
California........................................................ 58
Colorado.......................................................... 8
Florida........................................................... 4
Georgia........................................................... 13
Illinois.......................................................... 12
Indiana........................................................... 6
Iowa.............................................................. 4
Kansas............................................................ 2
Kentucky.......................................................... 3
Louisiana......................................................... 4
Michigan.......................................................... 7
Minnesota......................................................... 2
Mississippi....................................................... 1
Missouri.......................................................... 7
Nebraska.......................................................... 1
Nevada............................................................ 2
New Mexico........................................................ 2
New York.......................................................... 4
North Carolina.................................................... 9
Ohio.............................................................. 14
Oklahoma.......................................................... 6
Ontario........................................................... 2
Oregon............................................................ 9
South Carolina.................................................... 4
Tennessee......................................................... 6
Texas............................................................. 32
Utah.............................................................. 3
Virginia.......................................................... 2
Washington........................................................ 11
West Virginia..................................................... 1
-----
Total........................................................... 254
-----
-----
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, and leases
two nearby facilities for supplemental warehouse and office space. The Company
also leases a 400,000 square foot building in Buena Park,
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California for use as a distribution center and leases a 350,000 square foot
building in Lexington, Kentucky for the same purpose. In addition, the Company
leases a 160,000 square foot building in Phoenix, Arizona for use as a bulk
warehouse facility.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant from time to time in routine lawsuits incidental
to its business. The Company believes that none of such current proceedings,
individually or in the aggragate, will have a materially adverse effect on the
Company.
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.
The Company's Common Stock is quoted through the NASDAQ National Market
System under the symbol "MIKE." 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 1993 HIGH LOW
- - -------------------- -------- --------
First............... $34 $26 1/4
Second.............. 33 25 1/4
Third............... 39 26 3/8
Fourth.............. 36 1/2 31 7/8
FISCAL 1992 HIGH LOW
- - -------------------- -------- --------
First............... $26 $19
Second.............. 23 1/2 16 1/2
Third............... 29 3/4 20 1/2
Fourth.............. 34 3/4 24 5/8
On April 26, 1994, the last reported sale price of the Common Stock on the
NASDAQ National Market System was $42.25, and as of such date there were
approximately 1,044 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 1992 and 1993.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial information required by this item is included in the
Company's 1993 Annual Report to Shareholders (the "1993 Annual Report") on page
1 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 1993
Annual Report on pages 20 through 22 under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Such information
is incorporated herein by reference.
8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item are
included in this Annual Report on Form 10-K, or are included in the Company's
1993 Annual Report and are incorporated herein by reference, as indicated in the
following Index to Financial Statements and Financial Statement Schedules:
INDEX TO FINANCIAL STATEMENTS AND 1993 ANNUAL
FINANCIAL STATEMENT SCHEDULES 10-K PAGE REPORT PAGE
- - -------------------------------------------------------------------------------------------- --------- -------------
Report of Independent Auditors.............................................................. 29
Consolidated Balance Sheets at January 30, 1994 and January 31, 1993........................ 23
Consolidated Statements of Income for the fiscal years ended January 30, 1994, January 31,
1993 and February 2, 1992.................................................................. 24
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1994, January
31, 1993 and February 2, 1992.............................................................. 25
Consolidated Statements of Shareholders' Equity for the fiscal years ended January 30, 1994,
January 31, 1993 and February 2, 1992...................................................... 24
Notes to Consolidated Financial Statements.................................................. 26-29
Financial statement schedules for the fiscal years ended January 30, 1994, January 31, 1993
and February 2, 1992:
I --Marketable Securities -- Other Investments....................... 13
IX --Short-term Borrowings............................................ 14
X --Supplementary Income Statement Information....................... 15
All other 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the company is set forth in the
Proxy Statement to be delivered to shareholders in connection with the Company's
Annual Meeting of Shareholders to be held on May 24, 1994 (the "Proxy
Statement") under the heading "Proposal I -- Election of Directors," which
information is incorporated herein by reference. The name, age and position of
each executive officer of the Company is set forth under the heading: "Executive
Officers of the Registrant" in Item 1 of this report, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Management Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Principal
Shareholders and Management Ownership," which information is incorporated herein
by reference.
9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the headings "Certain Transactions" and
"Management Compensation -- Compensation and Stock Option Committee Interlocks
and Insider Participation," which information is incorporated herein by
reference.
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:
The exhibits filed as a part of this report are listed under
"Exhibits" at subsection (c) of this Item 14.
(b) Reports on 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:
3.1 -- Bylaws of the Registrant, as amended and restated.(1)
3.2 -- Restated Certificate of Incorporation of the Registrant.(3)
4.1 -- Form of Common Stock Certificate.(1)
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)
10.1 -- Asset Purchase and Territorial Development Agreement dated March 25, 1983
among Dupey Enterprises, Inc., Dupey Management Corporation, Michael and
Patricia Dupey Family Trust, Mike Dupey and Patty Dupey.(5)
10.2 -- Amendment to Asset Purchase and Territorial Development Agreement dated
March 30, 1985.(10)
10
10.3 -- Release and Settlement Agreement dated February 15, 1988 between Dupey
Management Corporation, Michael J. Dupey, Patricia Dupey, Michaels
Stores, Inc. and B.B. Tuley.(1)
10.4 -- Michaels Stores, Inc. Employees 401(k) Plan.(1)
10.5 -- Michaels Stores, Inc. Employees 401(k) Trust.(6)
10.6 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain
officers and directors of the Registrant.(10)
10.7 -- Form of Employment Agreement between Michaels Stores, Inc. and certain
directors of the Registrant.(7)(12)
10.8 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain
directors of the Registrant.(7)(12)
10.9 -- Form of Employment Agreement between Michaels Stores, Inc. and certain
key executives of the Registrant.(7)(12)
10.10 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)
10.11 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended
effective February 25, 1992.(3)(12)
10.12 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August
1, 1992.(3)(12)
10.13 -- 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)
10.14 -- Credit Agreement dated June 24, 1993, between Michaels Stores, Inc. and
NationsBank of Texas, N.A. (the "Credit Agreement").(11)
10.15 -- Amendment to Credit Agreement dated as of December 31, 1993.(1)
10.16 -- Amendment to Credit Agreement dated as of March 31, 1994.(1)
10.17 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and
NationsBank of Texas, N.A.(1)
11 -- Computation of Earnings Per Common Share.(1)
13 -- Portions of 1993 Annual Report to Shareholders that are incorporated by
reference into Items 6, 7 and 8 of this Annual Report on form 10-K.(1)
23 -- Consent of Ernst & Young.(1)
- - ------------------------
(1) Filed herewith.
(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 28, 1990 and incorporated herein by
reference.
11
(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 fiscal 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).
12
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: April 28, 1994 By: ___________/s/_SAM WYLY___________
Sam Wyly
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
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.
NAME TITLE DATE
- - ------------------------------------------------ ------------------------------------------ -------------------
/s/ SAM WYLY Chairman of the Board of Directors and
-------------------------------------- Chief Executive Officer (Principal April 28, 1994
Sam Wyly Executive Officer)
/s/ CHARLES J. WYLY, JR.
-------------------------------------- Vice Chairman of the Board of April 28, 1994
Charles J. Wyly, Jr. Directors
-------------------------------------- President, Chief Operating Officer and
Jack E. Bush Director
/s/ R. DON MORRIS Executive Vice President and Chief
-------------------------------------- Financial Officer (Principal Financial and April 28, 1994
R. Don Morris Accounting Officer)
/s/ EVAN A. WYLY
-------------------------------------- Director April 28, 1994
Evan A. Wyly
/s/ WILLIAM O. HUNT
-------------------------------------- Director April 28, 1994
William O. Hunt
/s/ F. JAY TAYLOR
-------------------------------------- Director April 28, 1994
F. Jay Taylor
/s/ RICHARD E. HANLON
-------------------------------------- Director April 28, 1994
Richard E. Hanlon
/s/ DONALD R. MILLER, JR.
-------------------------------------- Vice President -- Market Development and April 28, 1994
Donald R. Miller, Jr. Director
/s/ MICHAEL C. FRENCH
-------------------------------------- Director April 28, 1994
Michael C. French
13
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Michaels Stores, Inc.
We have audited the consolidated financial statements of Michaels Stores,
Inc. as of January 30, 1994 and January 31, 1993, and for each of the three
years in the period ended January 30, 1994, and have issued our report thereon
dated February 28, 1994. Our audits also included the financial statement
schedules listed in item 14(b). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Dallas, Texas
February 28, 1994
14
SCHEDULE I
MICHAELS STORES, INC.
MARKETABLE SECURITIES -- OTHER INVESTMENTS
JANUARY 30, 1994
(IN THOUSANDS EXCEPT SHARE OR UNIT DATA)
NUMBER OF
SHARES OR
UNITS --
PRINCIPAL
AMOUNT OF
BONDS AND MARKET
ISSUER AND TITLE OF ISSUE NOTES COST VALUE CARRYING VALUE
- - -------------------------------------------------- ----------- -------------- ----------- -----------------
Mutual funds...................................... $ 4,102 $ 4,235 $ 4,102
Adjustable dividend preferred stock............... 60,000 2,412 2,369 2,412
Convertible preferred stock:
Industrial...................................... 276,000 5,737 6,547 5,737
Financial services.............................. 80,000 2,000 2,010 2,000
Fixed dividend preferred stock:
Banks........................................... 190,000 4,889 4,939 4,889
Financial services.............................. 180,250 4,866 4,955 4,866
Industrial...................................... 252,542 7,279 7,391 7,279
Utilities....................................... 151,300 7,032 6,977 7,032
Other services.................................. 80,000 1,985 2,010 1,985
Limited partnerships:
Maverick Fund USA Ltd........................... 15,000 16,319 15,000
Other........................................... 5,833 7,282 5,833
U.S. Corporate bonds.............................. 4,350,000 4,469 4,356 4,469
Dollar denominated foreign bonds.................. 2,625,000 2,352 2,627 2,352
-------------- ----------- --------
Total portfolio............................... $ 67,956 $ 72,017 $ 67,956
-------------- ----------- --------
-------------- ----------- --------
15
SCHEDULE IX
MICHAELS STORES, INC.
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
AVERAGE
MAXIMUM AMOUNT
WEIGHTED AMOUNT OUTSTANDING WEIGHTED AVERAGE
BALANCE AT AVERAGE OUTSTANDING DURING INTEREST RATE
CATEGORY OF BORROWINGS END OF YEAR INTEREST RATE DURING YEAR YEAR (1) DURING YEAR (2)
- - --------------------------------------------------- ----------- ------------- ------------ ------------ ----------------
Year ended January 30, 1994........................ $13,000 6.0% $31,000 $13,945 4.9%
Year ended January 31, 1993........................ -- -- -- -- --
Year ended February 2, 1992........................ -- -- $ 1,500 $ 995 7.8%
- - ------------------------
(1) The average borrowings were determined on a daily outstanding basis.
(2) The weighted average interest rate during the year was computed by
dividing actual interest expense in the year by average short-term
borrowings during the year.
16
SCHEDULE X
MICHAELS STORES, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
CHARGED TO EXPENSES FOR THE YEAR
ENDED
-------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Advertising................................................................ $ 29,227 $ 23,764 $ 17,200
----------- ----------- -----------
----------- ----------- -----------
Depreciation and Amortization.............................................. $ 12,490 $ 10,160 $ 8,858
----------- ----------- -----------
----------- ----------- -----------
17
APPENDIX A
A DESCRIPTION OF GRAPHIC MATERIAL CONTAINED IN THE COMPANY'S FORM OF COMMON
STOCK CERTIFICATE IS CONTAINED IN EXHIBIT 4.1.
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- - --------- -------------------------------------------------------------------------------------------- -------------
3.1 -- Bylaws of the Registrant, as amended and restated.(1)....................................
3.2 -- Restated Certificate of Incorporation of the Registrant.(3)..............................
4.1 -- Form of Common Stock Certificate.(1).....................................................
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 Investment -- 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)..................................................
10.1 -- Asset Purchase and Territorial Development Agreement dated March 25, 1983 among Dupey
Enterprises, Inc., Dupey Management Corporation, Michael and Patricia Dupey Family Trust,
Mike Dupey and Patty Dupey.(5)...........................................................
10.2 -- Amendment to Asset Purchase and Territorial Development Agreement dated March 30,
1985.(10)................................................................................
10.3 -- Release and Settlement Agreement dated February 15, 1988 between Dupey Management
Corporation, Michael J. Dupey, Patricia Dupey, Michaels Stores, Inc. and B.B.
Tuley.(1)................................................................................
10.4 -- Michaels Stores, Inc. Employees 401(k) Plan.(1)..........................................
10.5 -- Michaels Stores, Inc. Employees 401(k) Trust.(6).........................................
10.6 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers and
directors of the Registrant.(10).........................................................
10.7 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors of the
Registrant.(7)(12).......................................................................
10.8 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors of the
Registrant.(7)(12).......................................................................
10.9 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key executives of
the Registrant.(7)(12)...................................................................
10.10 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)..................................
10.11 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended effective
February 25, 1992.(3)(12)................................................................
10.12 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1,
1992.(3)(12).............................................................................
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- - --------- -------------------------------------------------------------------------------------------- -------------
10.13 -- 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)...............................................................
10.14 -- Credit Agreement dated June 24, 1993, between Michaels Stores, Inc. and NationsBank of
Texas, N.A. (the "Credit Agreement").(11)
10.15 -- Amendment to Credit Agreement dated as of December 31, 1993.(1)
10.16 -- Amendment to Credit Agreement dated as of March 31, 1994.(1)
10.17 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and NationsBanks of
Texas, N.A.(1)
11 -- Computation of Earnings Per Common Share.(1).............................................
13 -- Portions of 1993 Annual Report to Shareholders that are incorporated by reference into
Items 6, 7 and 8 of this Annual Report on Form 10-K.(1)..................................
23 -- Consent of Ernst & Young.(1).............................................................
- - ------------------------
(1) Filed herewith.
(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 28, 1990 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 fiscal 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).