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 July 30, 1995
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 0-11822
----------------------------
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1943604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5931 Campus Circle Drive
Irving, Texas 75063
P.O. Box 619566
DFW, Texas 75261-9566
(Address of principal executive offices, including zip code)
(214) 714-7000
(Registrant's telephone number, including area code)
------------------------
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.
Shares Outstanding as of September 8, 1995
21,353,746
<PAGE>
Title
Common stock, par value $.10 per share
MICHAELS STORES, INC.
FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
MICHAELS STORES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
July 30, January 29,
1995 1995
-------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 94 $ 1,907
Marketable securities 6,487 15,002
Merchandise inventories 391,203 375,096
Deferred income taxes 44,785 15,002
Prepaid expenses and other 22,811 11,525
-------- --------
Total current assets 465,380 418,532
-------- --------
Property and equipment, at cost 243,685 204,032
Less accumulated depreciation (84,393) (62,228)
-------- --------
159,292 141,804
-------- --------
Costs in excess of net assets of
acquired operations, net 146,053 117,377
Other assets 8,329 8,313
-------- --------
154,382 125,690
-------- --------
$779,054 $686,026
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,158 $103,649
Short-term bank debt 74,400 -
Accrued liabilities and other 76,099 82,441
-------- --------
Total current liabilities 223,657 186,090
Bank debt 102,000 41,100
Convertible subordinated notes 96,940 96,950
Deferred income taxes and other 29,248 5,969
-------- --------
Total long-term liabilities 228,188 144,019
-------- --------
451,845 330,109
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, 21,353,171
shares outstanding 2,135 2,135
Additional paid-in capital 243,537 244,561
Retained earnings 85,097 109,221
Treasury stock, at cost (3,560) -
-------- --------
Total shareholders' equity 327,209 355,917
-------- --------
$779,054 $686,026
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------
July 30, July 31,
1995 1994
-------- --------
<S> <C> <C>
Net sales $259,910 $174,204
Cost of sales and occupancy expense 230,133 111,237
Selling, general and administrative
expense 84,750 52,817
Store closing and conversion costs <F1> - 7,074
-------- --------
Operating income (loss) (54,973) 3,076
Interest expense 4,537 2,358
Other (income) and expense, net 1,476 (450)
-------- --------
Income (loss) before income taxes (60,986) 1,168
Provision (benefit) for income taxes (27,862) 455
-------- --------
Net income (loss) $(33,124) $ 713
======== ========
Earnings (loss) per common and
common equivalent share $(1.55) $.04
====== ====
Weighted average common and common
equivalent shares outstanding 21,413 18,845
====== ======
</TABLE>
<F1> $4,385 net of tax, or $.23 per share
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 30, July 31,
1995 1994
-------- --------
<S> <C> <C>
Net sales $525,457 $334,002
Cost of sales and occupancy expense 402,176 214,748
Selling, general and administrative
expense 162,834 100,033
Store closing and conversion costs <F2> - 7,074
-------- --------
Operating income (loss) (39,553) 12,147
Interest expense 7,878 4,384
Other (income) and expense, net 1,267 (1,481)
-------- --------
Income (loss) before income taxes (48,698) 9,244
Provision (benefit) for income taxes (23,131) 3,564
-------- --------
Net income (loss) $(25,567) $ 5,680
======== ========
Earnings (loss) per common and
common equivalent share $(1.20) $.31
====== ====
Weighted average common and common
equivalent shares outstanding 21,392 18,315
====== ======
</TABLE>
<F2> $4,385 net of tax, or $.24 per share.
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 30, July 31,
1995 1994
--------- ---------
<S> <C> <C>
Operating activities:
Net income $(25,567) $ 5,680
Adjustments:
Depreciation and amortization 15,756 8,056
Change in assets and liabilities excluding
the effects of acquisitions:
Merchandise inventories (8,772) (51,408)
Prepaid expenses and other (7,719) 1,564
Deferred income taxes and other (25,875) (7,077)
Accounts payable (35,646) 2,381
Income taxes payable - (8,363)
Accrued liabilities and other (7,521) (2,400)
-------- --------
Net change in assets and liabilities (85,533) (65,303)
-------- --------
Net cash used in operating activities (95,344) (51,567)
-------- --------
Investing activities:
Additions to property and equipment (30,441) (31,268)
Net proceeds from sales of property
and equipment 1,791 -
Net proceeds from sales of marketable
securities 10,705 46,183
Acquisitions (24,683) (48,820)
-------- --------
Net cash used in investing activities (42,628) (33,905)
-------- --------
Financing activities:
Net borrowings under bank credit facilities 135,300 20,700
Proceeds from issuance of common stock and other 859 73,629
-------- --------
Net cash provided by financing activities 136,159 94,329
-------- --------
Net increase (decrease) in cash and equivalents (1,813) 8,857
Cash and equivalents at beginning of year 1,907 867
-------- --------
Cash and equivalents at end of period $ 94 $ 9,724
======== ========
Cash payments for:
Interest $ 6,371 $ 3,498
Income taxes 1,353 14,399
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months ended July 30, 1995
(Unaudited)
Note A
------
The accompanying consolidated financial statements are unaudited (except for
the Consolidated Balance Sheet as of January 29, 1995) and, in the opinion of
management, reflect all adjustments that are necessary for a fair
presentation of financial position and results of operations for the three
and six months ended July 30, 1995. All of such adjustments are of a normal
and recurring nature. Because of the seasonal nature of the Company's
business, the results of operations for the three and six months ended
July 30, 1995 are not indicative of the results to be expected for the entire
year.
Note B
------
In March 1995, the Company purchased Aaron Brothers Holdings, Inc. ("Aaron
Brothers"), which owned a chain of 71 framing and art supplies stores
predominantly in California (the "Aaron Brothers Stores"), for a purchase
price of $25 million in cash including the assumption of $19.7 million of
debt. The transaction was accounted for as a purchase; accordingly, the
purchase price has been preliminarily allocated to assets and liabilities
based on estimated values as of the acquisition date. The cost in excess of
the estimated fair value of net assets acquired was recorded as goodwill in
the amount of $26.3 million, which will be amortized on a straight-line basis
over a period of 40 years. The results of operations from April 1995 forward
are included in the accompanying consolidated financial statements.
Note C
------
Certain fiscal 1994 balances included in the consolidated financial
statements have been reclassified to conform to the fiscal 1995 presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
The Company acquired 71 Aaron Brothers Stores and opened 36 Michaels stores
during the first six months of fiscal 1995. Capital expenditures for these
stores, and, to a lesser extent, the remodeling and expansion of existing
stores, the opening of a new distribution facility, and system enhancements,
amounted to $30.4 million in the first six months of fiscal 1995. The
Company expects capital expenditures during the remainder of fiscal 1995 to
approximate $30.0 million, relating primarily to the opening of new stores
and additional systems enhancements.
In March 1995, the Company paid $25 million in cash, including the assumption
and retirement of $19.7 million of debt, associated with the acquisition of
Aaron Brothers.
At July 30, 1995 the Company had working capital of $241.7 million, compared
to $232.4 million at January 29, 1995. The Company currently has a bank
credit agreement ("Credit Agreement") which includes an unsecured line of
credit and provides for the issuance of letters of credit. As of July 30,
1995, the Company had $20.0 million in available unused credit capacity under
the Credit Agreement. Effective September 1, 1995, the Credit Agreement was
amended to, among other things, modify certain covenants to exclude the
second quarter effect of unusual costs associated with the retail markdown
of inventory which will be eliminated as part of an inventory reduction
program.
Management has made a strategic decision to reduce the number of product
stock keeping units ("SKUs") typically carried in the Michaels inventory
assortment by embarking on an aggressive promotional and markdown program.
The proceeds from this inventory reduction program will be used to pay down
bank debt.
Management believes that the Company has sufficient working capital, cash flow
from operating activities, and available unused credit capacity to sustain
current growth plans.
<PAGE>
Results of Operations
The following table shows the percentage of net sales that each item in the
Consolidated Statements of Income represents. This table should be read in
conjunction with the following discussion and with the Company's financial
statements, including the notes:
<TABLE>
<CAPTION>
For the For the
Quarter Ended Six Months Ended
------------------- ------------------
July 30, July 31, July 30, July 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy
expense 88.5 63.8 76.5 64.3
Selling, general and
administrative expense 32.6 30.3 31.0 30.0
Store closing and conversion
costs - 4.1 - 2.1
----- ----- ----- -----
Operating income (loss) (21.1) 1.8 (7.5) 3.6
Interest expense 1.7 1.4 1.5 1.3
Other (income) and expense,
net 0.6 (0.3) 0.3 (0.5)
----- ----- ----- -----
Income (loss) before income
taxes (23.4) 0.7 (9.3) 2.8
Provision (benefit) for
income taxes (10.7) 0.3 (4.4) 1.1
----- ----- ----- -----
Net income (loss) (12.7)% 0.4% (4.9)% 1.7%
===== ===== ===== =====
</TABLE>
<PAGE>
Three months ended July 30, 1995 compared to the
------------------------------------------------
three months ended July 31, 1994
--------------------------------
Net sales for the three months ended July 30, 1995 were $259.9 million, an
increase of $85.7 million, or 49.2%, compared to the same period of the prior
year. The results for the second quarter of fiscal 1995 included sales of 68
Michaels stores that were added during the previous twelve months, 21 of
which were added during the second quarter of fiscal 1995, and 69 (net of two
closures) Aaron Brothers Stores which were included since April 1995. Sales
of newer stores accounted for $75.8 million of the increase. Comparable
store sales increased 9% over the same period last year.
Cost of sales and occupancy expense increased by 24.7% compared to the same
period last year, as a percentage of sales, principally due to $57.5 million
of unusual costs associated with the retail markdown of inventory, initiated
as a result of the Company's strategic decision to reduce the number of
product SKUs typically carried in the Michaels inventory assortment.
Management believes that its efforts to reduce the overall SKU base will
result in a more efficient deployment of capital going forward. Excluding
the inventory charge, cost of sales and occupancy expense increased 2.6%,
as a percentage of sales, compared to last year's comparable period. The
increase was due principally to higher promotional sales than a year ago,
as a percentage of sales. Also contributing to the increase was higher
occupancy expense, as a percentage of sales, due to a higher proportion
in the current year of newer and acquired stores having a relatively low
sales base over which fixed occupancy costs can be spread.
Selling, general and administrative expense increased by 2.3%, as a
percentage of sales, in the second quarter of fiscal 1995 compared to the
same period of the prior year, due principally to a charge taken to cover
certain retirement costs of the Company's former President and Chief
Operating Officer and costs related to the inventory reduction program.
The increase in interest expense for the second quarter of fiscal 1995 to
$4.5 million from $2.4 million for the same period a year ago was due
primarily to increased bank borrowings to finance inventory growth. The
increase in other expense over other income was due principally to losses
recognized in liquidating the investment portfolio this year compared to
investment income recorded in the prior year period.
<PAGE>
Six months ended July 30, 1995 compared to the
----------------------------------------------
six months ended July 31, 1994
------------------------------
Net sales for the six months ended July 30, 1995 were $525.5 million, an
increase of $191.5 million, or 57.3%, compared to the same period of the
prior year. The results for the six months of fiscal 1995 included sales of
68 Michaels stores that were added during the previous twelve months, 36 of
which were added during fiscal 1995, and 69 (net of two closures) Aaron
Brothers Stores which were included since April 1995. Sales of newer stores
accounted for $173.9 million of the increase. Comparable store sales
increased 9% over the same period last year.
Cost of sales and occupancy expense increased by 12.2% compared to the same
period last year, as a percentage of sales, principally due to $57.5 million
of unusual costs associated with the retail markdown of inventory, initiated
as a result of the Company's strategic decision to reduce the number of
product SKUs typically carried in the Michaels inventory assortment. Management
believes that its efforts to reduce the overall SKU base will result in a more
efficient deployment of capital going forward. Excluding the inventory charge,
the cost of sales and occupancy expense increased 1.3%, as a percentage of
sales, compared to last year's comparable period. The increase was due
principally to higher promotional sales than a year ago, as a percentage of
sales. Also contributing to the increase was higher occupancy expense, as a
percentage of sales, due to a higher proportion in the current year of newer
and acquired stores having a relatively low sales base over which fixed
occupancy costs can be spread.
Selling, general and administrative expense increased by 1.0%, as a
percentage of sales, for the first six months of fiscal 1995 compared to the
same period of the prior year, due principally to a charge taken to cover
certain retirement costs of the Company's former President and Chief
Operating Officer and costs related to the inventory reduction program.
The increase in interest expense for the first six months of fiscal 1995 to
$7.9 million from $4.4 million for the same period a year ago was due
primarily to increased bank borrowings to finance inventory growth. The
increase in other expense over other income was due principally to losses
recognized in liquidating the investment portfolio this year compared to
investment income recorded in the prior year period.
<PAGE>
MICHAELS STORES, INC.
FORM 10-Q
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 28, 1995, two lawsuits were filed against Michaels and certain
of its officers and directors in the United States District Court for the
Northern District of Texas, Dallas Division (the "Class Action Suits"). Each
of the Class Action Suits is purportedly a class action lawsuit on behalf of
Michaels' stockholders alleging violations of Sections 10(b) and 20 of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), Rule 10b-5
under the Exchange Act and related common law. The alleged factual basis
underlying the Class Action Suits and the relief sought therein is the
plaintiffs' allegations that Michaels and the individual defendants
misrepresented or failed to disclose material information concerning the
financial condition of Michaels, its operations and prospects and that the
value of Michaels Common Stock was artificially inflated as a result of such
misrepresentations or failures to disclose. Each of the Class Action Suits
seeks compensatory damages and reimbursement for the plaintiffs' fees and
expenses. The Company believes the Class Action Suits are without merit and
intends to vigorously defend this litigation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 - Second Amendment to Credit Agreement
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period covered by
this report.
<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.
MICHAELS STORES, INC.
By: /s/ R. Don Morris
------------------
R. Don Morris
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: September 12, 1995
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
4.1 Second Amendment to Credit Agreement
<PAGE>
Exhibit 4.1
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT is dated as of the 1st day of
September, 1995, and entered into among MICHAELS STORES, INC., a Delaware
corporation ("Company"), the Lenders signatory hereto, NATIONSBANK OF TEXAS,
N.A., a national banking association, individually and as Administrative
Lender (in such latter capacity, the "Administrative Lender"), and BANK OF
AMERICA ILLINOIS, a national banking association, individually and as Co-
Agent.
WITNESSETH:
WHEREAS, Company, the Lenders, the Administrative Lender entered into a
First Amended and Restated Credit Agreement, effective as of June 18, 1994
(as amended, restated, or otherwise modified from time to time, including
without limitation, as amended by the First Amendment of Credit agreement
dated as of April 26, 1995, between the parties hereto, the "Credit
Agreement");
WHEREAS, Company, the Administrative Lender and the Lenders have agreed
to increase the loan facility and make certain other changes;
WHEREAS, the Lenders, Company and the Administrative Lender have agreed
to amend the Credit Agreement to make certain changes to the terms therein;
WHEREAS, the Lenders, the Administrative Lender and Company have agreed
to modify the Credit Agreement upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, Company,
the Lenders and the Administrative Lender agree as follows:
SECTION 1. Definitions. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto
in the Credit Agreement.
(a) The definition of Commitment on page 5 of the Credit Agreement
shall be deleted in its entirety and the following substituted in its stead:
"Commitment" means $220,000,000 until December 1, 1995, and on
December 1, 1995 and thereafter, $200,000,000; in each case as such
amount may be terminated or reduced in accordance with Section 2.09
hereof from time to time, which such amount includes the Letter of
Credit Commitment.
(b) The definition of Specified Percentage on page 16 of the Credit
Agreement shall be deleted in its entirety and the following substituted in
its stead:
"Specified Percentage" means, with respect to each Lender (i) until
December 1, 1995, the percentages set forth under each Lender's name under a.
on Schedule 1 to the Second Amendment to Credit Agreement, dated as of the
1st day of September, 1995, entered into among Company, the Lenders signatory
thereto, and NationsBank of Texas, N.A. and (ii) on December 1, 1995 and
thereafter, the percentage set forth under each Lender's name under b. on
Schedule 1 (provided that, until the temporary $20,000,000 increase in
Commitment is repaid in full, the term "Specified Percentage" shall mean the
<PAGE>
percentage set forth under each Lender's name under a. on Schedule 1 for all
purposes under this Agreement (except Section 2.01 in determining the amount
of each Lender's Commitment hereunder)); in each case, as adjusted pursuant
to Section 2.30(a) hereof or pursuant to, and as set forth therein, each
Assignment and Acceptance Agreement or any other amendment to this Agreement.
SECTION 2. Amendment to Section 7.01(b). Section 7.01(b) the Credit
Agreement shall be deleted in its entirety and the following substituted in
its stead:
(b) Fixed Charge Coverage Ratio. Company will not permit the
Fixed Charges Coverage Ratio at any time to be less than 1.30 to 1.00.
$50,000,000 of the provision established in the fiscal quarter ending
July 30, 1995 for inventory markdowns shall be added to pretax
consolidated income of the Company for fiscal quarter ending July 30,
1995 only for purposes of determining compliance with the covenant
contained in this Section for the fiscal quarters ending July 30, 1995,
October 29, 1995, January 28, 1996, and April 28, 1996 only.
SECTION 3. AMENDMENT TO SECTION 7.01(c). Section 7.01(c) to the Credit
Agreement shall be deleted in its entirety and the following substituted in
its stead:
"(c) Current Ratio. Company will not permit the ratio of (a)
Current Assets to (b) the sum of (i) Current Liabilities plus (ii)
amounts outstanding under this Agreement as Advances, at any time to be
less than 1.20 to 1.00."
SECTION 3. Specified Percentages. The Specified Percentage set forth
opposite each Lender's signature block on the Credit Agreement shall be
deleted. On December 1, 1995, all principal amounts outstanding with respect
to the $20,000,000 temporary increase in the Commitment shall be repaid by
Company in full as a mandatory prepayment in accordance with Section 2.15(a)
hereof to each of the Lenders in accordance with the percentages set forth
under each Lender's name under a. on Schedule 1 hereto.
SECTION 4. Conditions Precedent. This Second Amendment shall not be
effective until all proceedings of Company taken in connection with this
Second Amendment and the transactions contemplated hereby shall be
satisfactory in form and substance to the Administrative Lender and Lenders,
and the Administrative Lender and Lenders shall have each received the
following:
(a) a loan certificate of Company certifying (i) as to the accuracy
of its representations and warranties set forth in Article V of the
Credit Agreement, the other Loan Papers and in this Second Amendment,
(ii) that there exists no Default or Event of Default both before and
after giving effect to this Second Amendment, and the execution,
delivery and performance of this Second Amendment will not cause a
default or Event of Default, (iii) that it has complied with all
agreements and conditions to be complied with by it under the Credit
Agreement, the other Loan Papers and this Second Amendment by the date
hereof, and (iv) that no notice of the execution of this Second
Amendment is required under the terms of any other agreement of Company
in connection with this Second Amendment;
<PAGE>
(b) new Notes evidencing the Loan for each Lender in form and
substance acceptable to the Administrative Lender and Lenders;
(c) an opinion of counsel of Company acceptable to the Lenders
with respect to this Second Amendment and all other Loan Papers executed
in connection therewith, including, without limitation, an opinion with
respect to the validity and enforceability of the Loan Papers before and
after giving effect to this Second Amendment; and
(d) such other documents, instruments, and certificates, in form
and substance satisfactory to the Lenders, as the Lenders shall deem
necessary or appropriate in connection with this Second Amendment and
the transactions contemplated hereby.
SECTION 5. Representations and Warranties. Company represents and
warrants to the Lenders and the Administrative Lender that (a) this Second
Amendment constitutes its legal, valid, and binding obligations, enforceable
in accordance with the terms hereof (subject as to enforcement of remedies to
any applicable bankruptcy, reorganization, moratorium, or other laws or
principles of equity affecting the enforcement of creditors' rights
generally), (b) there exists no Event of Default or Default under the Credit
Agreement both before and after giving effect to this Second Amendment,
(c)its representations and warranties set forth in the Credit Agreement and
other Loan Papers are true and correct on the date hereof both before and
after giving effect to this Second Amendment, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit
Agreement and the other Loan Papers by the date hereof, (e) the Credit
Agreement, as amended hereby, and the other Loan Papers remain in full force
and effect, and (f) no notice to, or consent of, any Person is required under
the terms of any agreement of Company in connection with the execution of
this Second Amendment.
SECTION 6. Further Assurances. Company shall execute and deliver such
further agreements, documents, instruments, and certificates in form and
substance satisfactory to the Administrative Lender, as the Administrative
Lender or any Lender may deem necessary or appropriate in connection with
this Second Amendment.
SECTION 7. Counterparts. This Second Amendment and the other Loan
Papers may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument. In making proof of
any such agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought.
SECTION 8. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 9. GOVERNING LAW. (a) THIS AGREEMENT AND ALL LOAN PAPERS SHALL
BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE
EXTENT (A) FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT AND ALL LOAN PAPERS OR
(B) STATE LAW GOVERNS UCC COLLATERAL INTERESTS FOR PROPERTIES OF COMPANY AND
THE SUBSIDIARIES OUTSIDE THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, COMPANY AND EACH SUBSIDIARY AGREES THAT THE COURTS OF TEXAS
WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
<PAGE>
(b) COMPANY AND EACH SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF ANY
LEGAL PROCESS UPON IT. IN ADDITION, COMPANY AND EACH SUBSIDIARY AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO COMPANY AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER
THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
RECEIPT BY COMPANY. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE LENDER OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
SECTION 10. WAIVER OF JURY TRAIL. TO THE MAXIMUM EXTENT PERMITTED BY
LAW, COMPANY, EACH SUBSIDIARY AND EACH LENDER HEREBY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT,
CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT,
THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH
DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, this Second Amendment to Credit Agreement is
executed as of the date first set forth above.
COMPANY: MICHAELS STORES, INC.
/s/ Kristen L. Magnuson
-------------------------------
By: Kristen L. Magnuson
Its: Vice President-Finance and
Business Planning
<PAGE>
AGREED AND ACCEPTED: The following guarantors
agree and accept the above increase The Commitment:
MICHAELS OF CANADA, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President & Treasurer
---------------------------
MICHAELS INTERNATIONAL FINANCE, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
5931, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
LEEWARDS CREATIVE CRAFTS, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President - Finance &
--------------------------
Business Planning
--------------------------
TREASURE HOUSE STORES, INC.
By: /s/ Kristen L. Magnuson
--------------------------
Its: Vice President
--------------------------
<PAGE>
OREGON CRAFT & FLORAL SUPPLY CO., INC.
OREGON CRAFT & FLORAL SUPPLY CO. II, INC.
OREGON CRAFT & FLORAL SUPPLY CO. III, INC.
OREGON CRAFT & FLORAL SUPPLY CO. IV, INC.
OREGON CRAFT & FLORAL SUPPLY CO. V, INC.
OREGON CRAFT & FLORAL SUPPLY CO. VI, INC.
OREGON CRAFT & FLORAL SUPPLY CO. VII, INC.
OREGON CRAFT & FLORAL SUPPLY CO. VIII, INC.
OREGON CRAFT & FLORAL SUPPLY CO. I, INC.
By: /s/ Kristen L. Magnuson
----------------------------
Its: Vice President
----------------------------
HABIF & ROSS ENTERPRISES, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
RIVERSIDE CRAFT & FLORAL SUPPLY CO., INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
SAN DIEGO CRAFT & FLORAL SUPPLY CO. INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
<PAGE>
MISSION VIEJO CRAFT & FLORAL, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
H.F.C.S, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
SAN LEANDRO CRAFT AND FLORAL SUPPLY COMPANY, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
ORANGE CRAFT & FLORAL SUPPLY CO., INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
H & H CRAFT & FLORAL SUPPLY CO. #9, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
<PAGE>
OC&F NUMBER 18, INC.
By: /s/ Kristen L. Magnuson
---------------------------
Its: Vice President
---------------------------
MICHAELS OF PUERTO RICO, INC.
By: /s/ Kristen L. Magnuson
--------------------------
Its: Vice President
--------------------------
AARON BROTHERS, INC.
By: /s/ Kristen L. Magnuson
--------------------------
Its: Vice President
--------------------------
AARON BROTHERS HOLDINGS, INC.
By: /s/ Kristen L. Magnuson
--------------------------
Its: Vice President
--------------------------
AARON BROTHERS ART MARTS, INC.
By: /s/ Kristen L. Magnuson
--------------------------
Its: Vice President
--------------------------
<PAGE>
NATIONSBANK OF TEXAS N.A., as
Administrative Lender, and
individually as a Lender
901 Main Street
67th Floor
Dallas, TX 75202
Attn: Joseph G. Taylor By: /s/ Joseph G. Taylor
-----------------------
Joseph G. Taylor
Senior Vice President
BANK OF AMERICA ILLINOIS, as
Co-Agent and as a Lender
Address
231 S. LaSalle
Chicago, IL 60604 By: /s/ Jody B. Schneider
Attn: Juanita Hester -----------------------
Tel.: (312) 828-3872 Its: Vice President
BANK ONE, TEXAS, N.A., as a Lender
Address:
1717 Main Street
3rd Floor By: /s/ Alan Miller
Dallas, TX 75201 ------------------------
Attn: Alan L. Miller Its: Vice President
CREDIT LYONAIS NEW YORK BRANCH, as
a Lender
Address:
500 N. Akard
Suite 3210 By: /s/ Alain Papiasse
Dallas, TX 75201 ------------------------
Attn: Timothy M. O'Conner Its: Executive Vice President
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
as a Lender
Address:
1445 Robs Avenue
Third Floor
Dallas, TX 75202 By: /s/ Susan Coulter
Attn: Susan Coulter -----------------------
Its: Vice President
MELLON BANK, N.A., as a Lender
Address:
One Mellon Bank Center
Room 4535 By: /s/ Marc T. Kennedy
Pittsburgh, PA 15258-0001 -----------------------
Attn: Marc T. Kennedy Its: Assist Vice President
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS, as a Lender
Address:
800 Market Street
14th Floor
St. Louis, MO 63101 By: /s/ Dwight Erdbruegger
Attn: Dwight Erdbruegger ----------------------
Its: Vice President
UNITED STATES NATIONAL BANK OF
OREGON, as a Lender
Address:
111 Southwest Fifth Ave.
T-29 By: /s/ Blake R. Howells
Portland, OR 97204 ----------------------
Attn: Blake Howells Its: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000740670
<NAME> MICHAELS STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JUL-30-1995
<CASH> 94
<SECURITIES> 6,487
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 391,203
<CURRENT-ASSETS> 465,380
<PP&E> 243,685
<DEPRECIATION> 84,393
<TOTAL-ASSETS> 779,054
<CURRENT-LIABILITIES> 223,657
<BONDS> 0
<COMMON> 2,135
0
0
<OTHER-SE> 325,074
<TOTAL-LIABILITY-AND-EQUITY> 779,054
<SALES> 525,457
<TOTAL-REVENUES> 525,457
<CGS> 402,176
<TOTAL-COSTS> 565,010
<OTHER-EXPENSES> 1,267
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<INTEREST-EXPENSE> 7,878
<INCOME-PRETAX> (48,698)
<INCOME-TAX> (23,131)
<INCOME-CONTINUING> (25,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,567)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
