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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
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)
8000 BENT BRANCH DRIVE
IRVING, TEXAS 75063
P.O. BOX 619566
DFW, TEXAS 75261-9566
(Address of principal executive offices, including zip code)
(972) 409-1300
(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 (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. [ ]
AS OF APRIL 15, 1997, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS $411,643,907 BASED ON THE CLOSING PRICE
OF THE REGISTRANT'S COMMON STOCK ON SUCH DATE, $18-1/2, AS REPORTED ON THE
NASDAQ NATIONAL MARKET SYSTEM.
AS OF APRIL 15, 1997, 25,946,023 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 FEBRUARY 1, 1997 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 1997 ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT.
PART I
Item 1. BUSINESS.
GENERAL
UNLESS OTHERWISE NOTED, ALL NUMBERS CONTAINED IN THIS DOCUMENT ARE AS OF
FEBRUARY 1, 1997.
With approximately $1.4 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 are women with
above average median household incomes. The average sale in the Company's
Michaels stores has increased annually from approximately $12.00 in fiscal
1991 to $14.85 in fiscal 1996, 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. 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 1996, Aaron Brothers
generated sales of $69.0 million. The average sale in the Company's Aaron
Brothers stores is approximately $26.92.
The Company operates 453 Michaels stores and 72 Aaron Brothers stores in 45
states, Puerto Rico and Canada. The Company's Michaels stores average
approximately 16,200 square feet of selling space and offer an assortment of
approximately 40,000 stock keeping units ("SKU") in a typical store during the
course of a year (including seasonal product), of which approximately 35,000
SKUs are "planogrammed" SKUs offered at all times. The Company's Aaron Brothers
stores average approximately 6,500 square feet of selling space and offer an
assortment of approximately 6,500 SKUs. For fiscal 1996, the average sales of
the Company's Michaels and Aaron Brothers stores open for the full fiscal year
were $2.9 million and $1.0 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, 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
categories. Most of the categories 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 categories is as follows:
- General craft materials, including those for stenciling, doll making,
jewelry making, woodworking, wall decor, tole painting, rubber stamps,
memory books and plaster;
- Items for personalizing home decor, including vases, containers,
baskets, candles, potpourri 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;
- 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 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, balloons and candy;
- Needle craft 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 and other floral items such as wreaths;
- Ribbon, including satins, laces, florals and other styles sold both in
bolts and by the yard.
In addition to the basic categories described above, the Company operates a
home decor do-it-yourself fabric program in 36 Michaels stores which complements
the Company's core strategy and 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 following table shows Michaels' sales by department as a percent of total
sales for fiscal 1996, 1995,and 1994:
Department Percent of Sales
---------- ------------------------
1996 1995 1994
---- ---- ----
Silk and dried flowers and plants............... 19% 22% 22%
General craft materials and wearable art........ 15 17 20
Picture framing................................. 17 16 15
Home decor, seasonal and promotional items...... 17 15 14
Fine art materials.............................. 12 11 10
Hobby, party, needlecraft, ribbon and all other. 20 19 19
---- ---- ----
Total...................................... 100% 100% 100%
==== ==== ====
During the Christmas selling season, a significant portion 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 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.
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 a wide selection of art supplies,
professional custom framing services, photo frames, and what the Company
believes to be America's largest selection of ready made frames. The
Company's merchandising strategy for its Aaron Brothers stores is to provide
competitively priced exceptional custom framing services and selection, with
a five day delivery 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 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 Michaels sales
associates are craft enthusiasts who are able to help customers with ideas and
instructions. The Company periodically offers demonstrations and inexpensive
classes in stores as a means of promoting new craft ideas.
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, 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
throughout the year, in each of its markets, provides the Company with an
advantage over its smaller competitors.
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'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 95% of the merchandise
acquired by the stores is from vendors on the Company's "approved list." Of this
merchandise, approximately 46% is received from the Company's distribution
centers and 54% is received directly from vendors. District managers are
responsible for monitoring store purchases to insure compliance with Company
programs.
The Company believes that its distribution capabilities will 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 anticipates that its California distribution center will
be relocated in 1998. 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 contract carriers.
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 City of Commerce,
California that currently serves all of its stores. Approximately 60% of their
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, improving store in-stock
position, improving store labor efficiency, and optimizing overall investment
in inventory. The Company manages its inventory in several ways, including:
Weekly tracking of inventory status; 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. The data that
the Company is now obtaining from its 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 and a complete physical count in all stores as close as practicable to
year-end.
STORE OPERATIONS
The Company's 453 Michaels stores average approximately 16,200 square feet
of selling space. The Company's 72 Aaron Brothers stores average approximately
6,500 square feet of selling space. Net sales for fiscal 1996 averaged
approximately $2.9 million per store for Michaels stores open the entire fiscal
year and $179 per square foot of selling space, and averaged approximately $1.0
million per store for Aaron Brothers stores open the entire fiscal year and $153
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, loss prevention manager, human resources 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. The Company
actively communicates with its regional team through regularly scheduled
management meetings and conference calls.
STORE EXPANSION
Having achieved its objective of becoming the largest retailer in arts,
crafts and decorative items, the Company recognized that it had the critical
mass to achieve improved operating efficiencies that could result in higher
returns on capital. On August 23, 1995, the Company announced a shift in focus
from sales growth to realizing higher returns on capital. As a result, the
Company moderated its internal store growth rate and currently anticipates
opening 9 to 12 new Michaels stores in fiscal 1997 and approximately 35 to 50
during fiscal 1998.
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 1997 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, 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 1996, the average net
cost to the company of opening a new Michaels store was approximately $388,000
which included leasehold improvements, furniture, fixtures and equipment, and
pre-opening expenses. The initial inventory investment associated with each new
Michaels store is 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.
NEW STORE PROTOTYPES
In October 1996, the Company relocated a store in San Antonio, Texas, to a
new store prototype featuring a racetrack format that routes customers around
the store with new signage to identify each merchandise department. In-store
galleries highlight the custom floral, seasonal premade fashion floral, and
framing departments. The store manager's office was moved to the front of the
store to enhance customer service. The prototype model will continue to be
refined in future stores based upon on-going evaluation of sales performance.
The Company anticipates rolling out the new Michaels prototype to 9-12 new
stores, 10-12 relocations, and 15-20 conversions of existing stores in 1997.
In November 1996, Aaron Brothers opened two new prototype stores in
Las Vegas, Nevada. These stores are approximately 6,400 square feet, feature
updated colors, and a new lighting package. Space has been allocated for
customers to design their own framing using an expanded selection of prints,
mats, and frames giving the store an interactive flavor.
INVESTMENT IN INFORMATION TECHNOLOGY
The installation of POS systems in all the Company's stores was completed
in July 1996. The Company believes the information obtained from item level
scanning through the new POS system has enabled 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 and enabling the more rapid restocking of items.
COMPETITION
Michaels is the largest nationwide retailer dedicated to serving the arts
and crafts marketplace. 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
price, quality and variety of merchandise assortment, and customer service.
The Company believes the combination of its broad selection of products,
emphasis on customer service, loyal customer base, information received from
its point-of-sale system, distribution capabilities allowing it to maintain
high in-stock positions, 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 was
estimated by trade publications to be approximately $11.0 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 twice as large as 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 ($64 million in fiscal 1996), and significant
ongoing capital investments in information technology.
Michaels' primary competitors include Hobby Lobby, a chain based in
Oklahoma City which operates approximately 138 stores primarily in the
midwestern United States; MJ Designs, a chain which operates approximately 57
stores in Dallas/Fort Worth, Baltimore/Washington, D.C. and selected other
east coast markets; and A.C. Moore, a chain which operates approximately 19
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 delivery guarantee on custom frame
orders, its pricing structure, its fashion forward merchandising assortments,
and its customer service.
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 an
agreement between the Company and DMC in 1996, DMC has relinquished its right to
use the Michaels name effective March 31, 1997.
EMPLOYEES
As of March 22, 1997, approximately 16,500 persons were employed by the
Company, approximately 9,500 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 1,500 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 REGISTRANT
Name Age Position
- ---- --- --------
Sam Wyly 62 Chairman of the Board of Directors
Charles J. Wyly, Jr. 63 Vice Chairman of the Board of Directors
R. Michael Rouleau 58 President and Chief Executive Officer
Bryan M. DeCordova 40 Executive Vice President-Chief
Financial Officer
Lawrence H. Fine 43 Executive Vice President-General
Merchandise Manager
Duane Hiemenz 43 Executive Vice President-Store Operations
Douglas B. Sullivan 46 Executive Vice President-Development
Kristen L. Magnuson 41 Vice President-Finance and Planning
Donald R. Miller, Jr. 42 Managing Director and
Vice President-Market Development
John H. Rittenhouse 40 Vice President-Distribution
Michael C. French 54 Managing Director
Evan A. Wyly 35 Managing Director
Mr. 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. In 1968, Mr. Wyly founded Datran, Inc., which was envisioned as
the nation's first all-digital switched "telephone company for computers" and
contributed to the breakup of AT&T's telephone monopoly and the resulting
benefits of increased competition in the telecommunications industry. 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 as a director. Mr Wyly is a partner of Maverick Capital Ltd., an investment
fund management limited partnership. He has served as a director of Sterling
Commerce, Inc., since December 1995.
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. He has
served as a director of Sterling Commerce, Inc. since December 1995. 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. Rouleau became President and Chief Executive Office in April 1997 and
has been Chief Executive Officer of the Company since April 1996. Prior to
joining the Company, Mr. Rouleau had served as Executive Vice President of store
operations for Lowe's since May 1992 and in addition 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. DeCordova became Executive Vice President - Chief Financial Officer in
March 1997. Since 1990 he was Vice President of Finance, Treasurer and Chief
Financial Officer for Duckwall-ALCO Stores, Inc.
Mr. Fine became Executive Vice President-General Merchandise Manager in
December, 1996. Before joining the Company, he was Senior Vice President of
Merchandising for Party City. Prior to Party City, he held a variety of
merchandising positions with the Jamesway Corporation.
Mr. Heimenz became Executive Vice President-Store Operations in August,
1996. Prior to joining Michaels, Mr. Hiemenz was a Regional Vice President for
Lowe's.
Mr. Sullivan became Executive Vice President-Development on April 1, 1997.
He joined Michaels 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.
Ms. Magnuson became Vice President-Finance and Planning for the Company in
August 1990. Prior to joining the Company, Ms. Magnuson had served with
MeraBank, a Federal Savings Bank, from March 1987 to August 1990, most recently
as Senior Vice President and Controller. Prior to March 1987 Ms. Magnuson was a
Senior Manager/Principal at Arthur Young & Company.
Mr. Miller, a Managing Director, is a charter employee of the Company and
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 Bonanza and Peoples
Restaurants. Mr. Miller has served as a director of Sterling Software, Inc.
since September 1993. Mr. Miller is the son-in-law of Charles J. Wyly, Jr.,
Vice Chairman of the Company.
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. French, a Managing Director, has served as a director of the Company
since September 1992. He has been a partner of Maverick Capital
Ltd., an investment fund management limited partnership, 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. Evan A. Wyly, a Managing Director, has served as a director of the
Company since September 1992 and as an officer 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
is a managing partner of Maverick Capital Ltd., an investment fund management
limited partnership. He serves as a director and officer of Sterling Software,
Inc., and as a director of Sterling Commerce, Inc. Evan Wyly is the son of Sam
Wyly, a director and officer of the Company.
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 1996 averaged
$160,000. 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 1996 averaged $102,000.
The following table indicates the number of the Company's stores located in
each state or province as of April 28, 1997:
Number of
State Stores
----- ------
Alabama 5
Alaska 1
Arizona 17*
Arkansas 3
British Columbia 1
California 144*
Colorado 9
Connecticut 2
Florida 23
Georgia 18
Idaho 2
Illinois 23
Indiana 10
Iowa 6
Kansas 4
Kentucky 3
Louisiana 4
Maine 2
Maryland 1
Massachusetts 10
Michigan 16
Minnesota 9
Mississippi 1
Missouri 11
Nebraska 1
Nevada 9*
New Hampshire 2
New Jersey 7
New Mexico 3
New York 11
North Carolina 15
North Dakota 1
Ohio 21
Oklahoma 7
Ontario 16
Oregon 10
Pennsylvania 9
Puerto Rico. 3
Rhode Island 1
South Carolina 4
South Dakota 1
Tennessee 10
Texas 32
Utah 4
Virginia 7
Washington 14
West Virginia 1
Wisconsin 7
---
Total 521
- --------------------
*Of the store counts indicated in Arizona, California and Nevada, Aaron
Brothers accounts for 3, 65 and 4 stores, respectively.
The Company leases a 426,000 square foot building at the Alliance Airport
in Tarrant County, Texas for use as a distribution center. The Company also
leases a 136,000 square foot building for the corporate headquarters in Irving,
Texas. 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. 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 price of the Company's Common Stock during the
period between February 1, 1995 and August 23, 1995. The plaintiffs seek on
behalf of the 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 Court certified a class on March 24, 1997 and discovery
is proceeding. The Company believes that it has meritorious defenses to this
action and intends to defend itself vigorously.
A lawsuit was commenced against the Company and several other parties on
September 19, 1994 in the Superior Court of Stanislaus County, California, on
behalf of a former employee, Naomi Snyder, her child, and her husband. The
complaint alleges that the former employee and her then-unborn child were
exposed to excessive levels of carbon monoxide in one of the Company's stores
caused by a propane gas powered floor buffer which was operated by an outside
cleaning service, resulting, among other things, in severe and permanent
injuries to the child. Plaintiffs' Statement of Damages, filed on or about
January 26, 1995, seeks $11 million. On April 10, 1995 the trial court ruled
the plaintiffs' pleadings did not state a cause of action against the Company
upon which relief could be granted. However, the ruling by the trial court was
overturned by the Court of Appeals of the State of California, Fifth Appellate
District, on September 23, 1996. On or about November 1, 1996 the Company filed
its petition for review with the California Supreme Court requesting a review of
the appellate decision. Review was granted on December 23, 1996. Should the
California Supreme Court sustain the appellate court ruling and remand the case
to the trial court, the Company believes it has meritorious defenses to this
action and will defend itself vigorously.
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 litigation described above,
is uncertain, and there can be no assurance that future costs related to such
litigation would not be material to the Company's financial position or results
of operations.
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.
The following table sets forth the high and low bid prices of the Company's
Common Stock for each quarterly period within the two most recent fiscal years.
Fiscal 1996 High Low
----------- ---- ---
First $19 7/8 $11 3/4
Second 19 1/8 12 3/8
Third 14 7/8 10 1/4
Fourth 14 8 1/16
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
On April 15, 1997, the last reported bid price of the Common Stock on the
Nasdaq National Market System was $18-1/2 and as of such date there were
approximately 1,031 holders of record of the Common Stock.
Options to purchase 2,000,000 shares of the Company's Common Stock were
acquired in December 1996 through private transactions by entities owned by
independent trusts of which Wyly family members are beneficiaries. The options
had an exercise price equal to the then current market price of $10.50 per share
and were exercised on February 28, 1997.
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 1995 and 1996.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information required by this item is included in the
Company's 1996 Annual Report to Shareholders (the "1996 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 1996 Annual Report
on pages 9 and 10 under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Such information is incorporated
herein by reference.
CERTAIN STATEMENTS CONTAINED IN THE 1996 ANNUAL REPORT AND INCORPORATED HEREIN
BY REFERENCE WHICH ARE NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, CUSTOMER DEMAND
AND TRENDS IN THE ARTS AND CRAFTS INDUSTRY, RELATED INVENTORY RISKS DUE TO
SHIFTS IN CUSTOMER DEMAND, THE EFFECT OF ECONOMIC CONDITIONS, THE IMPACT OF
COMPETITORS' LOCATIONS OR PRICING, THE AVAILABILITY OF ACCEPTABLE REAL ESTATE
LOCATIONS FOR NEW STORES, DIFFICULTIES WITH RESPECT TO NEW INFORMATION SYSTEM
TECHNOLOGIES, SUPPLY CONSTRAINTS OR DIFFICULTIES, THE RESULTS OF FINANCING
EFFECTS, THE EFFECT OF THE COMPANY'S ACCOUNTING POLICIES AND OTHER RISKS
DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
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
1996 Annual Report and are incorporated herein by reference, as indicated in the
following Index to Financial Statements.
Index to Financial Statements and 1996 Annual
- --------------------------------- -----------
Financial Statement Schedules Report Page
- ----------------------------- -----------
Report of Independent Auditors 19
Consolidated Balance Sheets at
February 1, 1997 and January 28, 1996 11
Consolidated Statements of Operations for
the fiscal years ended February 1, 1997,
January 28, 1996 and January 29, 1995 12
Consolidated Statements of Cash Flows for
the fiscal years ended February 1, 1997,
January 28, 1996 and January 29, 1995 13
Consolidated Statements of Shareholders'
Equity for the fiscal years ended
February 1, 1997, January 28, 1996
and January 29, 1995 14
Notes to Consolidated Financial Statements 15-18
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.
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 June 6, 1997 (the "Proxy
Statement") under the heading "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
Stockholders and Management Ownership," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Transactions,"
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:
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.(2)
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.(3)
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.(4)
2.4 - Amendment No. 1 to Stock Purchase Agreement, dated as of
February 22, 1994, among Michaels Stores, Inc., Treasure
House Stores, Inc., THSI Acquisition Corporation and the
stockholders of Treasure House Stores, Inc.(4)
2.5 - Agreement and Plan of Merger, dated as of March 3, 1994,
among Michaels Stores, Inc. and the other parties listed
therein.(2)
2.6 - Amendment No. 1 to Agreement and Plan of Merger, dated as of
March 3, 1994, among Michaels Stores, Inc. and the other
parties listed therein.(2)
2.7 - Stock Purchase Agreement, dated as of March 8, 1995, among
Aaron Brothers Holdings, Inc., ABAM Investors Limited
Partnership, and Michaels Stores, Inc.(5)
3.1 - Bylaws of the Registrant, as amended and restated.(6)
3.2 - Restated Certificate of Incorporation of the Registrant.(7)
4.1 - Form of Common Stock Certificate.(8)
4.2 - 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.(9)
4.3 - Indenture, dated as of June 21, 1996 between Michaels
Stores, Inc. and The Bank of New York.(10)
10.1 - Michaels Stores, Inc. Employees 401(k) Plan, as amended and
restated effective October 1, 1996.(11)
10.2 - Michaels Stores, Inc. Employees 401(k) Trust, dated July 11,
1996.(11)
10.3 - Form of Indemnity Agreement between Michaels Stores, Inc.
and certain officers and directors of the Registrant (9)
10.4 - Form of Employment Agreement between Michaels Stores, Inc.
and certain directors of the Registrant.(1)(19)
10.5 - Form of Consulting Agreement between Michaels Stores, Inc.
and certain directors of the Registrant.(1)(19)
10.6 - Form of Employment Agreement between Michaels Stores, Inc.
and certain key executives of the Registrant.(1)(19)
10.7 - Michaels Stores, Inc. Employees Stock Purchase Plan.(13)
10.8 - Amendment No. 1 to Michaels Stores, Inc. Employees Stock
Purchase Plan.(1)
10.9 - Michaels Stores, Inc. Amended and Restated Key Employee
Stock Compensation Program.(1)(19)
10.10 - Michaels Stores, Inc. Amended and Restated 1992 Non-Statutory
Stock Option Plan.(14)(19)
10.11 - 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.(9)(19)
10.12 - Second Amended and Restated Credit Agreement dated June 20,
1996, between Michaels Stores, Inc. and NationsBank of
Texas, N.A. (the "Credit Agreement").(15)
10.13 - Waiver Agreement and First Amendment to Credit Agreement
dated January 31, 1997.(1)
10.14 - Second Amendment to Credit Agreement dated as of March 11,
1997.(1)
10.15 - Michaels Stores, Inc. Amended and Restated 1994 Non-Statutory
Stock Option Plan.(16)
10.16 - 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.(17)
10.17 - Amendment No. 4 to Amended, Modified and Restated Master
Lease Agreement and Waiver dated as of March 11, 1997
between Jacksonville Funding Corporation as Lessor and
Michaels Stores, Inc. as Lessee.(1)
10.18 - Term Lease Master Agreement between IBM Credit Corporation
as Lessor and Michaels Stores, Inc. as Lessee.(1)
10.19 - Agreement dated as of January 30, 1996 by and between
Michaels Stores, Inc. and Jack E. Bush.(17)
10.20 - Common Stock and Warrant Agreement dated as of October 16,
1984 between Michaels Stores, Inc. and Peoples Restaurants,
Inc., including form of Warrant.(9)
10.21 - First Amendment to Common Stock and Warrant Agreement dated
October 31, 1984 between the First Dallas Group, Ltd. and
Michaels Stores, Inc.(9)
10.22 - Second Amendment to Common Stock and Warrant Agreement dated
November 28, 1984 between First Dallas Investments-Michaels
I, Ltd. and Michaels Stores, Inc.(9)
10.23 - 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.(18)
10.24 - Amendment to Common Stock and Warrant Agreement, dated as of
September 1, 1992 between Michaels Stores, Inc. and the
other parties named therein.(7)
10.25 - Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Fugue Limited.(17)
10.26 - Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Locke Limited.(17)
10.27 - Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Quayle Limited.(17)
10.28 - Option Agreement, dated as of December 23, 1996 between
Michaels Stores, Inc. and Devotion Limited.(1)
10.29 - Option Agreement, dated as of December 23, 1996 between
Michaels Stores, Inc. and Elegance Limited.(1)
10.30 - 1997 Bonus Plan for R. Michael Rouleau.(1)(19)
10.31 - 1997 Bonus Plan for Douglas B. Sullivan.(1)(19)
10.32 - Employment Agreement effective as of April 29, 1997 between
Michaels Stores, Inc. and R. Michael Rouleau.(1)(19)
10.33 - Michaels Stores, Inc. 1997 Employees Stock Purchase Plan.(1)
11.1 - Computation of Earnings Per Common Share.(1)
13.1 - Portions of 1996 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)
23.1 - Consent of Ernst & Young.(1)
27.1 - Financial Data Schedule.(1)
- ---------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-3 (No. 33-53639) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended January 19, 1995 and incorporated herein by
reference.
(6) 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.
(7) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-54726) and incorporated herein by reference.
(8) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (No. 2-89370) 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 January 31, 1993 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended July 28, 1996 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K, dated September 30, 1996 and incorporated herein by reference.
(12) 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.
(13) 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.
(14) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (333-21407) and incorporated herein by reference.
(15) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K, dated June 20, 1996 and incorporated herein by reference.
(16) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (333-21635) and incorporated herein by reference.
(17) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended January 28, 1996 filed on April 29, 1996 and
incorporated herein by reference.
(18) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-9456) and incorporated herein by reference.
(19) Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this form pursuant to Item 14 (c).
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 2, 1997 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 2, 1997
- ------------------------ Directors
Sam Wyly
/s/ Charles J. Wyly, Jr. Vice Chairman of the May 2, 1997
- ------------------------- Board of Directors
Charles J. Wyly, Jr.
/s/ R. Michael Rouleau President and May 2, 1997
- ------------------------- Chief Executive Officer
R. Michael Rouleau (Principal Executive Officer)
/s/ Bryan M. DeCordova Executive Vice President- May 2, 1997
- ------------------------- Chief Financial Officer
Bryan M. DeCordova (Principal Financial and
Accounting Officer)
/s/ F. Jay Taylor Director May 2, 1997
- -------------------------
F. Jay Taylor
/s/ Richard E. Hanlon Director May 2, 1997
- -------------------------
Richard E. Hanlon
/s/ Donald R. Miller, Jr Managing Director and May 2, 1997
- -------------------------- Vice President-
Donald R. Miller, Jr. Market Development
/s/ Michael C. French Managing Director May 2, 1997
- --------------------------
Michael C. French
/s/ Evan A. Wyly Managing Director May 2, 1997
- --------------------------
Evan A. Wyly
INDEX TO EXHIBITS
Exhibit
Number Description of Document
------- -----------------------
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.(2)
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.(3)
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.(4)
2.4 Amendment No. 1 to Stock Purchase Agreement, dated as of
February 22, 1994, among Michaels Stores, Inc., Treasure
House Stores, Inc., THSI Acquisition Corporation and the
stockholders of Treasure House Stores, Inc.(4)
2.5 Agreement and Plan of Merger, dated as of March 3, 1994,
among Michaels Stores, Inc. and the other parties listed
therein.(2)
2.6 Amendment No. 1 to Agreement and Plan of Merger, dated as of
March 3, 1994, among Michaels Stores, Inc. and the other
parties listed therein.(2)
2.7 Stock Purchase Agreement, dated as of March 8, 1995, among
Aaron Brothers Holdings, Inc., ABAM Investors Limited
Partnership, and Michaels Stores, Inc.(5)
3.1 Bylaws of the Registrant, as amended and restated.(6)
3.2 Restated Certificate of Incorporation of the Registrant.(7)
4.1 Form of Common Stock Certificate.(8)
4.2 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.(9)
Exhibit
Number Description of Document
------- -----------------------
4.3 Indenture, dated as of June 21, 1996 between Michaels
Stores, Inc. and The Bank of New York.(10)
10.1 Michaels Stores, Inc. Employees 401(k) Plan, as amended and
restated effective October 1, 1996.(11)
10.2 Michaels Stores, Inc. Employees 401(k) Trust, dated July 11,
1996.(11)
10.3 Form of Indemnity Agreement between Michaels Stores, Inc.
and certain officers and directors of the Registrant (9)
10.4 Form of Employment Agreement between Michaels Stores, Inc.
and certain directors of the Registrant.(1)(19)
10.5 Form of Consulting Agreement between Michaels Stores, Inc.
and certain directors of the Registrant.(1)(19)
10.6 Form of Employment Agreement between Michaels Stores, Inc.
and certain key executives of the Registrant.(1)(19)
10.7 Michaels Stores, Inc. Employees Stock Purchase Plan.(13)
10.8 Amendment No. 1 to Michaels Stores, Inc. Employees Stock
Purchase Plan.(1)
10.9 Michaels Stores, Inc. Amended and Restated Key Employee
Stock Compensation Program.(1)(19)
10.10 Michaels Stores, Inc. Amended and Restated 1992 Non-Statutory
Stock Option Plan.(14)(19)
10.11 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.(9)(19)
10.12 Second Amended and Restated Credit Agreement dated June 20,
1996, between Michaels Stores, Inc. and NationsBank of
Texas, N.A. (the "Credit Agreement").(15)
10.13 Waiver Agreement and First Amendment to Credit Agreement
dated January 31, 1997.(1)
10.14 Second Amendment to Credit Agreement dated as of March 11,
1997.(1)
10.15 Michaels Stores, Inc. Amended and Restated 1994 Non-Statutory
Stock Option Plan.(16)
10.16 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.(17)
Exhibit
Number Description of Document
------- -----------------------
10.17 Amendment No. 4 to Amended, Modified and Restated Master
Lease Agreement and Waiver dated as of March 11, 1997
between Jacksonville Funding Corporation as Lessor and
Michaels Stores, Inc. as Lessee.(1)
10.18 Term Lease Master Agreement between IBM Credit Corporation
as Lessor and Michaels Stores, Inc. as Lessee.(1)
10.19 Agreement dated as of January 30, 1996 by and between
Michaels Stores, Inc. and Jack E. Bush.(17)
10.20 Common Stock and Warrant Agreement dated as of October 16,
1984 between Michaels Stores, Inc. and Peoples Restaurants,
Inc., including form of Warrant.(9)
10.21 First Amendment to Common Stock and Warrant Agreement dated
October 31, 1984 between the First Dallas Group, Ltd. and
Michaels Stores, Inc.(9)
10.22 Second Amendment to Common Stock and Warrant Agreement dated
November 28, 1984 between First Dallas Investments-Michaels
I, Ltd. and Michaels Stores, Inc.(9)
10.23 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.(18)
10.24 Amendment to Common Stock and Warrant Agreement, dated as of
September 1, 1992 between Michaels Stores, Inc. and the
other parties named therein.(7)
10.25 Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Fugue Limited.(17)
10.26 Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Locke Limited.(17)
10.27 Stock Purchase Agreement, dated as of March 29, 1996 between
Michaels Stores, Inc. and Quayle Limited.(17)
10.28 Option Agreement, dated as of December 23, 1996 between
Michaels Stores, Inc. and Devotion Limited.(1)
10.29 Option Agreement, dated as of December 23, 1996 between
Michaels Stores, Inc. and Elegance Limited.(1)
10.30 1997 Bonus Plan for R. Michael Rouleau.(1)(19)
10.31 1997 Bonus Plan for Douglas B. Sullivan.(1)(19)
10.32 Employment Agreement effective as of April 29, 1997 between
Michaels Stores, Inc. and R. Michael Rouleau.(1)(19)
10.33 Michaels Stores, Inc. 1997 Employees Stock Purchase Plan.(1)
Exhibit
Number Description of Document
------- -----------------------
11.1 Computation of Earnings Per Common Share.(1)
13.1 Portions of 1996 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)
23.1 Consent of Ernst & Young.(1)
27.1 Financial Data Schedule.(1)
- ---------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-3 (No. 33-53639) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended January 19, 1995 and incorporated herein by
reference.
(6) 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.
(7) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-54726) and incorporated herein by reference.
(8) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (No. 2-89370) 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 January 31, 1993 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended July 28, 1996 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K, dated September 30, 1996 and incorporated herein by reference.
(12) 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.
(13) 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.
(14) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (333-21407) and incorporated herein by reference.
(15) Previously filed as an Exhibit to the Registrant's Current Report on
Form 8-K, dated June 20, 1996 and incorporated herein by reference.
(16) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (333-21635) and incorporated herein by reference.
(17) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the year ended January 28, 1996 filed on April 29, 1996 and
incorporated herein by reference.
(18) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-9456) and incorporated herein by reference.
(19) Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this form pursuant to Item 14 (c).