<PAGE>
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 March 31, 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
---------
A.C. MOORE ARTS & CRAFTS, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 22-3527763
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 University Court, Blackwood, NJ 08012
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
(856) 228-6700
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 May 8, 2000
- ----- --------------------------
Common Stock, no par value 7,405,000
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A.C. MOORE ARTS & CRAFTS, INC.
TABLE OF CONTENTS
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 9
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 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
2
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A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,743 $ 14,553
Inventories 61,480 59,327
Prepaid expenses and other current assets 1,488 1,394
-------- --------
65,711 75,274
Property and equipment, net 16,634 14,711
Other assets 631 632
-------- --------
$ 82,976 $ 90,617
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital leases $ 369 $ 369
Accounts payable to trade and others 16,119 20,224
Accrued payroll and payroll taxes 1,629 3,019
Accrued expenses 2,467 3,005
Income taxes payable 222 2,032
-------- --------
20,806 28,649
-------- --------
Long-term liabilities:
Capital leases 1,110 1,199
Deferred taxes 1,720 1,720
Other long-term liabilities 2,188 2,077
-------- --------
5,018 4,996
-------- --------
25,824 33,645
-------- --------
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 43,151 43,116
Retained earnings 14,001 13,856
-------- --------
57,152 56,972
-------- --------
$ 82,976 $ 90,617
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Net sales $ 52,783 $ 48,135
Cost of sales (including buying
and distribution costs) 33,375 30,520
--------- ---------
Gross Margin 19,408 17,615
Selling, general and administrative expenses 18,596 16,915
Store pre-opening expenses 645 -
--------- ---------
Income from operations 167 700
Interest (income) expense, net (66) (71)
--------- ---------
Income before income taxes 233 771
Income tax expense 89 301
--------- ---------
Net income $ 144 $ 470
=========== ===========
Basic net income per share $ 0.02 $ 0.06
=========== ===========
Weighted average shares outstanding 7,405,000 7,405,000
=========== ===========
Diluted net income per share $ 0.02 $ 0.06
=========== ===========
Weighted average shares outstanding plus
impact of stock options 7,411,000 7,405,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
2000 1999
-------- ---------
<S> <C> <C.
Cash flows from operating activities:
Net income $ 144 $ 470
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 834 673
Compensation expense related to stock options 34 35
Changes in assets and liabilities:
Inventories (2,153) (318)
Prepaid expenses and other current assets (94) 378
Accounts payable, accrued payroll and
payroll taxes and accrued expenses (6,256) (4,228)
Income taxes payable (1,810) 279
Other long-term liabilities 111 100
Other 3 45
-------- -------
Net cash used in operating activities (9,187) (2,566)
-------- -------
Cash flows used in investing activities: Capital expenditures (2,757) (841)
-------- -------
Cash flows from financing activities:
Proceeds from bank overdraft 223 --
Repayment of bank overdraft -- (2,719)
Repayment of capital leases (89) (86)
-------- -------
Net cash provided by (used in) financing activities 134 (2,805)
-------- -------
Net decrease in cash (11,810) (6,212)
Cash and cash equivalents at beginning of period 14,553 9,475
-------- -------
Cash and cash equivalents at end of period $ 2,743 $ 3,263
========= =======
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
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 44 retail superstores 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 month periods ended March 31, 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
from those estimates.
(3) Earnings Per Share
The weighted average shares outstanding plus impact of stock options for the
three month period ended March 31, 1999 excludes potentially dilutive shares as
the result would be antidilutive.
6
<PAGE>
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:
Three months
ended March 31,
---------------------------------
2000 1999
------------- --------------
Net sales 100.0% 100.0%
Cost of sales 63.2% 63.4%
------------- --------------
Gross margin 36.8% 36.6%
Selling, general and
administrative expenses 35.2% 35.1%
Pre-opening expenses 1.3% 0.0%
------------ --------------
Income from operations 0.3% 1.5%
Net interest (income) (0.1)% (0.1)%
------------- --------------
Income before income taxes 0.4% 1.6%
Income tax expense 0.1% 0.6%
------------- --------------
Net income 0.3% 1.0%
============= ==============
Number of stores open at end of period 42 37
7
<PAGE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Sales. Net sales increased $4.6 million, or 9.7%, to $52.8 million
in the three months ended March 31, 2000 from $48.1 million in the comparable
1999 period. This increase resulted from (i) net sales of $3.1 million from
superstores opened in 1999 and 2000 not included in the comparable store base,
and (ii) a comparable store sales increase of $1.5 million, or 3%. 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 $2.9 million,
or 9.4%, to $33.4 million in the three months ended March 31, 2000 from $30.5
million in the three months ended March 31, 1999. The gross margin increased
$1.8 million, or 10.2%, to $19.4 million in the three months ended March 31,
2000 from $17.6 million in the three months ended March 31, 1999. The gross
margin increased to 36.8% of net sales in the three months ended March 31, 2000
from 36.6% in the three months ended March 31, 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 $1.7 million, or 9.9%, in the
three months ended March 31, 2000 to $18.6 million from $16.9 million in the
three months ended March 31, 1999. Of the increase, $1.1 million was
attributable to the superstores open in 2000 which were not open during 1999 and
the superstores opened in 1999 not in the comparable store base. Of the
remainder, $300,000 is due to increases in the comparable superstores 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 increased to 35.2% of net sales in the three months ended
March 31, 2000 from 35.1% of net sales in the three months ended March 31, 1999.
This increase is primarily due to the newer stores, which, on average, have
higher operating costs as a percent of sales than older stores.
Pre-Opening Expense. The Company expenses store pre-opening expense as
incurred. Pre-opening expense for the two new superstores opened in the first
quarter of 2000 and the two new stores which opened in the second quarter
amounted to $645,000. In the first quarter of 1999, the Company did not open any
superstores and incurred no pre-opening expense.
Net Interest (Income). In the first quarter of 2000 the Company had net
interest income of $66,000 compared with interest income of $71,000 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 Taxes. The Company's effective income tax rate was 38% for the
first quarter ended March 31, 2000 and 39% for the first quarter 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, pre-opening costs and
beginning inventory for new superstores.
8
<PAGE>
At March 31, 2000 and December 31, 1999 the Company's working capital
was $44.9 million and $46.6 million, respectively. Cash used in operations was
$9.2 million for the three months ended March 31, 2000 as a result of the
seasonal reduction of accounts payable and accrued payroll in the amount of $6.3
million and an increase in inventory of $2.2 million to support the new
superstores.
Net cash used in investing activities during the three months ended
March 31, 2000 was $2.8 million. This use of cash was for capital expenditures,
primarily related to new stores. 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 $223,000 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.
On March 11, 1998 the Company entered into a new four year financing
agreement with a bank which provides a $25 million revolving credit facility,
$20 million of which is available immediately with the remainder available July
2000, provided the Company is in compliance with the agreement's covenants. A
portion of the credit facility was used to finance the acquisition of various
equipment purchases through a series of five year capital leases.
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.
9
<PAGE>
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
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter
ended March 31, 2000.
10
<PAGE>
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: May 10, 2000 By: /s/ Leslie H. Gordon
--------------------------------------------
Executive Vice President and Chief
Financial Officer
(duly authorized officer and principal
financial officer)
11
<PAGE>
EXHIBIT INDEX
27.1 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,743
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 61,480
<CURRENT-ASSETS> 65,711
<PP&E> 26,896
<DEPRECIATION> (10,262)
<TOTAL-ASSETS> 82,976
<CURRENT-LIABILITIES> 20,806
<BONDS> 0
0
0
<COMMON> 43,151
<OTHER-SE> 14,001
<TOTAL-LIABILITY-AND-EQUITY> 82,976
<SALES> 52,783
<TOTAL-REVENUES> 52,783
<CGS> 33,375
<TOTAL-COSTS> 18,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (66)
<INCOME-PRETAX> 233
<INCOME-TAX> 89
<INCOME-CONTINUING> 144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
