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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-23157
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A.C. MOORE ARTS & CRAFTS, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 22-3527763
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 University Court, Blackwood, NJ 08012
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(Address of principal executive offices)
(Zip Code)
(856) 228-6700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 8, 2000
----- -------------------------------
Common Stock, no par value 7,405,333
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A.C. MOORE ARTS & CRAFTS, INC.
TABLE OF CONTENTS
Page
Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for the three
and six month periods ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
2
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A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 868 $ 14,553
Inventories 64,894 59,327
Prepaid expenses and other current assets 1,701 1,394
-------- --------
67,463 75,274
-------- --------
Property and equipment, net 17,856 14,711
Other assets 652 632
-------- --------
$ 85,971 $ 90,617
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt and capital leases $ 3,369 $ 369
Accounts payable to trade and others 16,321 20,224
Accrued payroll and payroll taxes 1,841 3,019
Accrued expenses 2,119 3,005
Income taxes payable 69 2,032
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23,719 28,649
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Long-term liabilities:
Capital leases 1,019 1,199
Deferred income taxes 1,720 1,720
Other long-term liabilities 2,314 2,077
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5,053 4,996
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28,772 33,645
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SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, none issued
Common stock, no par value, 20,000,000 shares
authorized, 7,405,000 shares outstanding 43,184 43,116
Retained earnings 14,015 13,856
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57,199 56,972
-------- --------
$ 85,971 $ 90,617
======== ========
</TABLE>
See accompanying notes to financial statements
3
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A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 55,186 $ 45,460 107,970 $ 93,596
Cost of sales (including buying and
distribution costs) 34,919 28,871 68,295 59,392
----------- ----------- ---------- ----------
Gross margin 20,267 16,589 39,675 34,204
Selling, general and administrative expenses 19,920 16,857 38,516 33,772
Store pre-opening expenses 311 - 956 -
----------- ----------- ---------- ----------
Income (loss) from operations 36 (268) 203 432
Net interest (income) expense 12 (10) (54) (81)
----------- ----------- ---------- ----------
Income (loss) before income taxes 24 (258) 257 513
Income tax expense (benefit) 9 (101) 98 200
----------- ----------- ---------- ----------
Net income (loss) $ 15 $ (157) $ 159 $ 313
=========== =========== ========== ==========
Basic net income (loss) per share $ 0.00 $ (0.02) $ 0.02 $ 0.04
=========== =========== ========== ==========
Weighted average shares outstanding 7,405,000 7,405,000 7,405,000 7,405,000
=========== =========== ========== ==========
Diluted net income (loss) per share $ 0.00 $ (0.02) $ 0.02 $ 0.04
=========== =========== ========== ==========
Weighted average shares outstanding
plus impact of stock options 7,435,000 7,405,000 7,419,000 7,405,000
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
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A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six Months Ended
<TABLE>
<CAPTION>
June 30,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 159 $ 313
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 1,768 1,379
Compensation expense related to stock options 68 70
Changes in assets and liabilities:
Inventories (5,567) (2,281)
Prepaid expenses and other current assets (307) 322
Accounts payable and accrued expenses (8,795) (9,022)
Other long-term liabilities 237 199
Other (37) 37
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Net cash (used in) operating activities (12,474) (8,983)
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Cash flows (used in) investing activities: Capital expenditures (4,896) (1,771)
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Cash flows from financing activities:
Increase (decrease) in book overdraft 865 (2,356)
Proceeds from line of credit 3,000 500
Proceeds from redemption of marketable securities - 3,894
Repayment of capital leases (180) (173)
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Net cash provided by financing activities 3,685 1,865
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Net (decrease) in cash (13,685) (8,889)
Cash and cash equivalents at beginning of period 14,553 9,475
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Cash and cash equivalents at end of period $ 868 $ 586
============== ==============
</TABLE>
See accompanying notes to financial statements
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively
the "Company"). The Company is a chain of 45 retail stores selling arts and
crafts merchandise. The stores are located throughout the Eastern United States.
These financial statements have been prepared by management without audit and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. Due to the seasonality of the Company's business, the
results for the interim periods are not necessarily indicative of the results
for the year. The accompanying consolidated financial statements reflect, in the
opinion of management, all adjustments necessary for a fair presentation of the
interim financial statements. In the opinion of management, all such adjustments
are of a normal and recurring nature.
(2) Management Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reported period and related disclosures. Significant estimates made as of
and for the three and six month periods ended June 30, 2000 and 1999 include
provisions for shrinkage, capitalized buying, warehousing and distribution costs
related to inventory and markdowns of merchandise inventories. Actual results
could differ materially from those estimates.
(3) Earnings Per Share
The weighted average shares outstanding plus impact of stock options for the
three and six month periods ended June 30, 1999 excludes potentially dilutive
shares as the result would be antidilutive.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements. These forward-looking statements do not constitute historical facts
and involve risks and uncertainties. Actual results could differ materially from
those referred to in the forward-looking statements due to a number of factors,
including, but not limited to, the following: 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 effectiveness of advertising strategies and the ability to
meet capital needs. For additional information concerning factors that could
cause actual results to differ materially from the information contained herein,
reference is made to the information under the heading "Cautionary Statement
Relating to Forward Looking Statements" in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
Due to the importance of the fall selling season, the fourth quarter has
historically contributed, and the Company expects it will continue to
contribute, disproportionately to the Company's profitability for the entire
year. As a result, the Company's quarterly results of operations may fluctuate.
In addition, results of a period shorter than a full year may not be indicative
of results expected for the entire year.
Results of Operations
The following table sets forth, for the periods indicated, selected statement of
operations data expressed as a percentage of net sales and the number of stores
open at the end of each such period:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 63.3 % 63.5 % 63.3 % 63.5 %
------------- -------------- ------------- -------------
Gross Margin 36.7 % 36.5 % 36.7 % 36.5 %
Selling, general and administrative expenses 36.1 % 37.1 % 35.6 % 36.1 %
Store pre-opening expenses 0.6 % 0.0 % 0.9 % 0.0 %
------------- -------------- ------------- -------------
Income (loss) from operations 0.0 % (0.6)% 0.2 % 0.4 %
Net interest (income) 0.0 % 0.0 % 0.0 % (0.1)%
------------- -------------- ------------- -------------
Income (loss) before income taxes 0.0 % (0.6)% 0.2 % 0.5 %
Income tax expense (benefit) 0.0 % (0.2)% 0.1 % 0.2 %
------------- -------------- ------------- -------------
Net income (loss) 0.0 % (0.3)% 0.1 % 0.3 %
============= ============== ============= =============
Number of stores open at end of period 45 37
</TABLE>
7
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Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Sales. Net sales increased $9.7 million, or 21.4%, to $55.2 million
in the three months ended June 30, 2000 from $45.5 million in the comparable
1999 period. This increase resulted from (i) net sales of $6.6 million from
stores opened in 1999 and 2000 not included in the comparable store base, and
(ii) a comparable store sales increase of $3.1 million, or 7%. Stores are added
to the comparable store base at the beginning of the fourteenth full month of
operation.
Gross Margin. Cost of sales includes the cost of merchandise, plus
certain distribution and purchasing costs. Cost of sales increased $6.0 million,
or 20.9%, to $34.9 million in the three months ended June 30, 2000 from $28.9
million in the three months ended June 30, 1999. The gross margin increased $3.7
million, or 22.2%, to $20.3 million in the three months ended June 30, 2000 from
$16.6 million in the three months ended June 30, 1999. The gross margin
increased to 36.7% of net sales in the three months ended June 30, 2000 from
36.5% in the three months ended June 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include (a) direct store level expenses, including rent
and related operating costs, payroll, advertising, depreciation and other direct
costs, and (b) corporate level costs not directly associated with or allocable
to cost of sales including executive salaries, accounting and finance, corporate
information systems, office facilities and other corporate expenses. Selling,
general and administrative expenses increased $3.1 million, or 18.2%, in the
three months ended June 30, 2000 to $19.9 million from $16.9 million in the
three months ended June 30, 1999. Of the increase, $2.5 million was attributable
to the stores opened in 2000 which were not open during 1999 and the stores
opened in 1999 not in the comparable store base. Of the remainder, $300,000 is
due to increases in the comparable stores and $300,000 is attributable to the
increase in corporate costs to support the growth of the Company. As a
percentage of sales, selling, general and administrative costs decreased to
36.1% of net sales in the three months ended June 30, 2000 from 37.1% of net
sales in the three months ended June 30, 1999. This decrease is primarily due to
leveraging store and corporate expenses as a result of increased sales.
Store Pre-Opening Expenses. The Company expenses store pre-opening
expenses as incurred. Pre-opening expense for the three new stores opened in the
second quarter of 2000 amounted to $311,000. In the second quarter of 1999, the
Company did not open any stores and incurred no pre-opening expenses.
Net Interest (Income). In the second quarter of 2000, the Company had
interest expense of $12,000 compared with interest income of $10,000 in 1999.
The reduction is due to lower cash balances resulting from the use of cash to
fund the new stores added in 1999 and 2000.
Income Tax Expense (Benefit). The Company's effective income tax rate
was 38% for the second quarter ended June 30, 2000 and 39% for the second
quarter ended June 30, 1999.
8
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Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Sales. Net sales increased $14.4 million, or 15.4%, to $108.0
million in the six months ended June 30, 2000 from $93.6 million in the
comparable 1999 period. This increase resulted from (i) net sales of $9.7
million from stores opened in 1999 and 2000 not included in the comparable store
base, and (ii) a comparable store sales increase of $4.7 million, or 5%.
Gross Margin. Cost of sales increased $8.9 million, or 15.0%, to $68.3
million in the six months ended June 30, 2000 from $59.4 million in the six
months ended June 30, 1999. The gross margin increased $5.5 million, or 16.0%,
to $39.7 million in the six months ended June 30, 2000 from $34.2 million in the
six months ended June 30, 1999. The gross margin increased to 36.7% of net sales
in the six months ended June 30, 2000 from 36.5% in the six months ended June
30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.7 million, or 14.0% in the six months ended
June 30, 2000 to $38.5 million from $33.8 million in the six months ended June
30, 1999. Of the increase, $3.5 million was attributable to the stores opened in
2000 which were not open during 1999 and the stores opened in 1999 not in the
comparable store base. Of the remainder, $600,000 is due to increases in the
comparable stores and $600,000 is attributable to the increase in corporate
costs to support the growth of the Company. As a percentage of sales, selling,
general and administrative costs decreased to 35.7% of net sales in the six
months ended June 30, 2000 from 36.1% of net sales in the six months ended June
30, 1999. This decrease is primarily due to the leveraging of store and
corporate expenses as a result of increased sales.
Store Pre-Opening Expenses. Pre-opening expenses for the five new stores
opened in the first six months of 2000 amounted to $956,000. In the first six
months of 1999, the Company did not open any stores and incurred no pre-opening
expenses.
Net Interest (Income). In the first six months of 2000 the Company had
interest income of $54,000 compared with interest income of $81,000 in 1999. The
reduction is due to lower cash balances resulting from the use of cash to fund
the new stores added in 1999 and 2000.
Income Tax Expense (Benefit). The Company's effective income tax rate
was 38% for first six months ended June 30, 2000 and 39% for the first six
months ended March 31, 1999.
Liquidity and Capital Resources
The Company's cash needs are primarily for working capital to support
its inventory requirements and capital expenditures, store pre-opening costs and
beginning inventory for new stores.
At June 30, 2000 and December 31, 1999, the Company's working capital
was $43.7 million and $46.6 million, respectively. Cash used in operations was
$12.5 million for the six months ended June 30, 2000 as a result of the seasonal
reduction of accounts payable and accrued payroll in the amount of $8.8 million
and an increase in inventory of $5.6 million to support the new stores.
9
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Net cash used in investing activities during the six months ended June
30, 2000 was $4.9 million. This use of cash was for capital expenditures,
primarily related to new stores and the implementation of a new point of sale
system. In 2000, the Company expects to spend approximately $9.0 million on
capital expenditures, which includes approximately $5.4 million for new store
openings, $2.6 million for remodeling and systems in existing stores, and the
remainder for warehouse equipment and systems development. There are no other
material commitments for capital expenditures other than new store openings in
the next 12 months.
Net cash provided by financing activities includes $865,000 of proceeds
from book overdrafts. The overdrafts represented outstanding checks at certain
banks in excess of funds on deposit at those banks. These accounts are
maintained as zero balance accounts and are covered as required from funds
available at other banks. The Company also borrowed $3.0 million against its $25
million revolving credit facility during the second quarter of 2000. The
proceeds were used to fund new store openings, including related capital
expenditures.
The Company believes the cash generated from operations during the year
and available borrowings under the financing agreement will be sufficient to
finance its working capital and capital expenditure requirements for at least
the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 18, 2000. At
the meeting, shareholders elected two Class A directors to hold office for a
term of three years until their successors are duly elected and qualified. The
nominees for director received the following votes at the meeting.
For Withhold Authority
---------------- ----------------------
William Kaplan 7,106,767 11,484
John E. (Jack) Parker 7,106,567 11,684
The term of office for each of the following directors continued after
the meeting: Patricia A. Parker, Richard Lesser and Richard J. Bauer.
10
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ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
June 30, 2000.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A.C. MOORE ARTS & CRAFTS, INC.
Date: August 9, 2000 By: /s/ Leslie H. Gordon
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Executive Vice President and
Chief Financial Officer (duly
authorized officer and
principal financial officer)
12
