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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
<TABLE>
<S> <C>
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
</TABLE>
For the transition period from ___________________ to ___________________
Commission file number 0-11822
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MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1943604
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
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)
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 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 26, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $367,922,957, based on the closing price of
the Registrant's Common Stock on such date, $18 7/8, as reported on the NASDAQ
National Market System.
As of April 26, 1996, 23,506,960 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 28, 1996 are incorporated by reference into Part II of this
report.
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PART I
ITEM 1. BUSINESS.
GENERAL
With approximately $1.3 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 in its stores are women aged 25-54
with above average median household incomes, and the Company believes that
repeat customers account for a substantial portion of its sales. The average
sale in the Company's Michaels stores has increased annually from approximately
$12.00 in fiscal 1991 to $14.44 in fiscal 1995, 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, that management believes both complements the Michaels store concept
and further strengthens the Company's position in Southern 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 1995, Aaron Brothers generated sales of $53.9
million. The average sale in the Company's Aaron Brothers stores is
approximately $23.94.
The Company operates 446 Michaels stores and 68 Aaron Brothers stores in 44
states, Puerto Rico and Canada. The Company's Michaels stores average
approximately 16,000 square feet of selling space and offer an assortment of
approximately 44,000 stock keeping units ("SKUs") in a typical store during the
course of a year (including seasonal product), of which approximately 31,000
SKUs are "planogrammed" SKUs offered at all times. The Company's Aaron Brothers
stores average approximately 6,700 square feet of selling space and offer an
assortment of approximately 6,500 SKUs. For fiscal 1995, the average sales of
the Company's Michaels and Aaron Brothers stores open for the full fiscal year
were $3.0 million and $0.9 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 through centralized purchasing and distribution
combined with significant investment in management information systems, 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
departments. Most of the departments offer essentially the same type of
merchandise throughout the year, although the products may vary from season to
season. The merchandise offered by the major departments is as follows:
- General craft materials, including those for stenciling, doll making,
jewelry making, woodworking, wall decor, tole painting, and plaster;
- Items for personalizing home decor, including vases, containers, baskets,
candles, potpourri, accent furniture, lamps, candleholders 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;
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- 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 finished doll houses and miniature furniture,
wooden and plastic model kits and related supplies, and paint-by-number
kits;
- Party needs, including paper party goods, gift wrap, candy making and cake
decorating supplies, invitations, greeting cards, balloons and candy;
- Needlecraft items, including stitchery supplies, 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, wedding millinery, and other floral items such as
wreaths;
- Wearable art, including adult's and children's garments, fabric paints,
embellishments, jewels and sequins, transfers and appliques;
- Ribbon, including satins, laces, florals and other styles sold both in
bolts and by the yard.
In addition to the basic departments described above, the Company regularly
features seasonal merchandise. Seasonal merchandise is ordered for several
holiday periods, including Valentine's Day, Easter, Mother's Day, Halloween and
Thanksgiving, in addition to the Christmas season. For example, seasonal
merchandise for the Christmas season includes trees, wreaths, candles, lights
and ornaments.
The Company is adding a home decor do-it-yourself fabric program in
approximately 40 Michaels stores which complements the Company's core strategy.
In addition, Michaels has successfully added a new wedding invitation business
and a wedding equipment rental business.
The following table shows Michaels' sales by department as a percent of
total sales for fiscal 1995, 1994 and 1993:
<TABLE>
<CAPTION>
PERCENT OF SALES
-------------------------------------
DEPARTMENT 1995 1994 1993
- --------------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Silk and dried flowers and plants...................................................... 22% 22% 21%
General craft materials and wearable art............................................... 17 20 21
Picture framing........................................................................ 16 15 15
Home decor, seasonal and promotional items............................................. 15 14 14
Fine art materials..................................................................... 11 10 11
Hobby, party, needlecraft, ribbon and all other........................................ 19 19 18
--- --- ---
Total.............................................................................. 100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
During the Christmas selling season, up to 25% 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 Michaels 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.
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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 professional custom framing services, photo
frames, and a full line of ready made frames as well as a wide selection of art
supplies. The Company's merchandising strategy for its Aaron Brothers stores is
to provide competitively priced superior custom framing services and selection,
with a five business day 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 hundreds of displays in every store in an
effort to stimulate new project ideas, and supplies project sheets with detailed
instructions on how to assemble the products. In addition, many Michaels sales
associates are craft enthusiasts who are able to help customers with ideas and
instructions. The Company also offers free demonstrations and inexpensive
classes in stores as a means of promoting new craft ideas. Michaels believes
that the in-store "how-to" demonstrations, instructional classes, knowledgeable
sales associates, and customer focus groups have allowed the Company to better
understand and serve its customers.
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 but also through direct mail
or on display within its stores, to be the most effective medium of advertising.
Such circulars advertise numerous products in order to emphasize the wide
selection of products available at Michaels stores. The Company believes that
its ability to advertise through circulars and newspapers approximately once a
week in each of its markets provides the Company with an advantage over its
smaller competitors.
Generally, the Company has limited television advertising to network
television in those major markets in which it has clusters of Michaels stores or
in which it is adding new stores. From time to time, Michaels' marketing program
has included advertising campaigns on certain national cable television
networks, among them The Discovery Channel-TM-, Lifetime Television, and USA
Network-Registered Trademark-. A significant portion of the cost of these
advertising campaigns were underwritten by vendors in 1994 and 1995. These
programs have coordinated television advertising and circular advertisements
together with project booklets, in-store demonstrations, and new point-of-sale
techniques.
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 utilizes a centralized purchasing and distribution strategy to
manage its inventory. 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 90%
of the merchandise acquired by the stores is from vendors on the Company's
"approved list." Of this merchandise, approximately one-half is received from
the Company's distribution centers and one-half is received directly from
vendors. In addition, most stores have the flexibility to purchase
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from 2% to 5% of their merchandise directly from local vendors, which allows the
store managers to tailor the products offered in their stores to local tastes
and trends. District managers are responsible for monitoring store purchases on
a weekly basis to further manage the stores' merchandise needs.
The Company believes that its distribution capabilities 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
also utilizes a third-party warehouse in Oregon which allows the Company to
store bulk purchases of seasonal and promotional merchandise prior to
distribution and operates a secondary bulk storage facility in Arizona. 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 hired trucks.
To improve its capacity and efficiency, the Company is relocating its Texas
distribution center within the Dallas/Fort Worth area during the summer of 1996
at a total cost of $21 million, of which $14 million is covered by an operating
lease and $7 million will be paid as a capital expenditure in fiscal 1996 by the
Company. (The leases on the Company's current Texas facilities expire in January
1997.) The Florida distribution center, which opened during 1995, and the new
Texas facility give the Company considerable flexibility and capacity in meeting
its distribution needs.
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 the City of
Commerce, California that currently serves all of its stores. Approximately 60%
of the 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, maximizing store in-stock
position, improving store efficiency, and optimizing overall investment in
inventory. The Company manages its inventory in several ways, including: weekly
tracking of the "open-to-buy" status for each of several sources of inventory
flow to the stores; 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; and the use of management incentive plans that are
linked to the achievement of inventory goals. The data that the Company is
obtaining from its new 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 generally in groups of 30 to 40
stores and a complete physical count in all stores as close as practicable to
year-end.
STORE OPERATIONS
The Company's 446 Michaels stores average approximately 16,000 square feet
of selling space. The Company's 68 Aaron Brothers stores average approximately
6,700 square feet of selling space. Net sales for fiscal 1995 averaged
approximately $3.0 million per store for Michaels stores open the entire fiscal
year and $188 per square foot of selling space, and averaged approximately $0.9
million
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per store for Aaron Brothers stores open the entire fiscal year and $137 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,
merchandise 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. In addition, the Company believes that the training and experience
of its managers and assistant managers are vital to the success of its stores,
and therefore conducts training programs for such personnel.
STORE EXPANSION
Having achieved its objective of becoming the largest national retailer in
the arts, crafts and decorative items industry, the Company has shifted its
focus towards achieving improved operational efficiencies, resulting in higher
returns on its invested capital. Accordingly, having grown sales and store
locations (excluding Aaron Brothers) at compounded annual rates of 32% and 33%,
respectively, over the past four fiscal years, Michaels has moderated its
internal store growth target to 15% per annum over the longer term. However, in
1996 the Company currently anticipates opening only 12 to 15 new Michaels stores
and five to ten new Aaron Brothers stores. The slower growth in 1996 will allow
the Company to invest its resources to complete its POS system rollout, expand
its distribution capacity and enhance its inventory management systems. The
Company currently anticipates opening approximately 50 to 55 new Michaels stores
during fiscal 1997.
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 1996 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, the
availability of suitable acquisition candidates, 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 1995, the average net
cost to the Company of opening a new Michaels store was approximately $530,000,
which included leasehold improvements, furniture, fixtures and equipment, and
pre-opening expenses. The initial inventory investment associated with each new
Michaels store in fiscal 1995 was 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.
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INVESTMENT IN INFORMATION TECHNOLOGY
Recognizing the increasingly competitive nature of retailing in general and
the need for productivity improvements through technology, the Company decided
to accelerate its POS system rollout and to implement item level scanning for
the majority of the Company's product. The Company believes that the extent of
its investment in POS technology is unique in the arts and crafts industry, and
that this initiative is likely to provide it with a competitive advantage in the
future. The Company expects the POS system, which is presently installed in more
than 240 stores, to be in substantially all Michaels stores by the end of July
1996. The Company believes the information obtained from item level scanning
through the new POS system will enable 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, enabling the more rapid restocking of items, and enabling
the seamless repricing of sale items. The Company will finance this new POS
system through a $25 million capital lease with IBM Credit Corporation at an
interest rate of approximately 8%.
COMPETITION
Michaels is the largest nationwide retailer dedicated to serving the arts
and crafts marketplace. The specialty arts, crafts and decorative item retail
business is highly competitive. 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 quality and variety of merchandise assortment, customer service, such as
instructional demonstrations, and competitive pricing where appropriate. The
Company believes the combination of its broad selection of products, emphasis on
customer service, loyal customer base, and capacity to advertise frequently in
all of its markets provides the Company with a competitive advantage.
The U.S. arts, crafts and decorative items retailing industry, which is
estimated by trade publications to have exceeded $10.8 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 four times
larger than those of 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
($63 million in fiscal 1995), and significant ongoing capital investments in
information technology.
Michaels' primary competitors include Hobby Lobby, a chain based in Oklahoma
City which operates approximately 100 stores primarily in the southwestern
United States; MJ Designs, a chain which operates approximately 62 stores in
Dallas/Fort Worth, Baltimore/Washington, D.C. and selected other east coast
markets; and A.C. Moore, a chain which operates approximately 20 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 guarantee on custom frame orders, its pricing
structure, its fashion forward merchandising assortments, and its customer
service.
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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 a
recent agreement between the Company and DMC, DMC will relinquish its right to
use the Michaels name after March 31, 1997.
EMPLOYEES
As of April 15, 1996, approximately 19,330 persons were employed by the
Company, approximately 10,330 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 1,310 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 COMPANY
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NAME AGE POSITION
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<S> <C> <C>
Sam Wyly 61 Chairman of the Board of Directors
Charles J. Wyly, Jr. 62 Vice Chairman of the Board of Directors
R. Michael Rouleau 57 Chief Executive Officer
Douglas B. Sullivan 45 President and Chief Operating Officer
R. Don Morris 56 Executive Vice President and Chief Financial Officer
David E. Bolen 44 Executive Vice President
Evan A. Wyly 34 Vice President
Rex A. Rambo 54 Executive Vice President-Merchandising/Marketing
Kristen L. Magnuson 40 Vice President-Finance and Business Planning
Donald R. Miller, Jr. 41 Vice President-Market Development
John H. Rittenhouse 39 Vice President-Distribution
Colby H. Springer 48 Vice President-Information Services
</TABLE>
Mr. Sam Wyly has served as Chairman of the Board 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. 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 a director. Mr Wyly serves as Chairman of Maverick Capital, Ltd.,
an investment fund management company, and has served as a director of Sterling
Commerce, Inc. since December 1995. Sam Wyly is the father of Evan A. Wyly, a
director and officer of the Company.
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. 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
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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. Wyly has served as a director of
Sterling Commerce, Inc. since December 1995. Charles J. Wyly, Jr. is the
father-in-law of Donald R. Miller, Jr., a director and Vice President-Market
Development of the Company.
Mr. Rouleau became Chief Executive Officer of the Company in April 1996.
Prior to joining the Company, Mr. Rouleau had served as Executive Vice President
of store operations for Lowe's Companies, Inc. since May 1992 and additionally
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. Sullivan became President and Chief Operating Officer of the Company in
August 1995. He joined the Company 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.
Mr. Morris became Executive Vice President and Chief Financial Officer of
the Company in August 1990. From January 1990 until August 1990 he was Senior
Vice President-Finance and Chief Financial Officer. From April 1988 until
January 1990, Mr. Morris was a director, President and Chief Executive Officer
of Frostcollection, Inc. Prior to April 1988, Mr. Morris was Partner-In-Charge
of the Accounting and Audit and the Merger and Acquisition Departments of the
Dallas, Texas office of Arthur Young & Company.
Mr. Bolen joined the Company as Executive Vice President in July 1994. From
January 1987 until July 1994, he held the positions of Vice President of Stores
and more recently Executive Vice President and Chief Operating Officer with
Leewards Creative Crafts, Inc. Prior to Leewards, Mr. Bolen held various
positions with Gemco and Zayre Corporation, principally in store operations.
Mr. Rambo has been Executive Vice President Merchandising/Marketing, with
responsibility for all merchandising and marketing functions, since November
1995. Mr. Rambo joined the Company most recently from Lechmere, Inc., a retail
chain, where he served as President. Prior to that he ran the Electric Avenue
division for Montgomery Wards. He also worked approximately 25 years with Sears,
Roebuck and Company.
Mr. Evan A. Wyly became a director of the Company in September 1992 and has
served as Vice President 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 serves as the
President of Maverick Capital Ltd., an investment fund management company. He
serves as a director and Vice President of Sterling Software, Inc. Mr. Wyly
serves as a director of Xscribe Corp., a high-technology information management
company, and as a director of Sterling Commerce, Inc.
Ms. Magnuson became Vice President-Finance and Business Planning for the
Company in August 1990. She was Senior Vice President-Controller, Financial and
Strategic Planning, Mergers and Acquisitions, Treasury and Investments for
MeraBank from March 1987 to August 1990. Prior to March 1987, Ms. Magnuson was a
Senior Manager/Principal at Arthur Young & Company.
Mr. Miller has served as Vice President-Marketing 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. He also serves on the Board of Directors of
Xscribe Corp.
8
<PAGE>
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. Springer has been Vice President-Information Services since November
1995. From 1993 to November 1995 he was Vice President-Information Services with
Blockbuster Entertainment Corporation. Prior to that he was Vice President of
Management Information Systems with Pearle Vision, Incorporated.
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 1995 averaged
$156,000. 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 1995 averaged approximately $105,000.
The following table indicates the number of the Company's stores located in
each state or province as of April 25, 1996:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
- ------------------------------------ -------------------
<S> <C>
Alabama............................. 5
Alaska.............................. 1
Arizona............................. 17*
Arkansas............................ 3
British Columbia.................... 1
California.......................... 144*
Colorado............................ 9
Connecticut......................... 1
Florida............................. 22
Georgia............................. 19
Idaho............................... 2
Illinois............................ 22
Indiana............................. 9
Iowa................................ 6
Kansas.............................. 4
Kentucky............................ 3
Louisiana........................... 4
Maine............................... 2
Maryland............................ 1
Massachusetts....................... 10
Michigan............................ 16
Minnesota........................... 9
Mississippi......................... 1
Missouri............................ 11
<CAPTION>
STATE NUMBER OF STORES
- ------------------------------------ -------------------
<S> <C>
Nebraska............................ 1
Nevada.............................. 6*
New Hampshire....................... 2
New Jersey.......................... 7
New Mexico.......................... 3
New York............................ 11
North Carolina...................... 14
North Dakota........................ 1
Ohio................................ 21
Oklahoma............................ 7
Ontario............................. 15
Oregon.............................. 10
Pennsylvania........................ 9
Puerto Rico......................... 3
Rhode Island........................ 1
South Carolina...................... 4
Tennessee........................... 9
Texas............................... 35
Utah................................ 4
Virginia............................ 8
Washington.......................... 13
West Virginia....................... 1
Wisconsin........................... 7
---
Total........................... 514
</TABLE>
- ------------------------
*Of the store counts indicated in Arizona, California and Nevada, Aaron Brothers
accounts for 3, 63 and 2 stores, respectively.
9
<PAGE>
The Company leases a 210,000 square foot building in Irving, Texas for use
as a distribution center and as the Company's corporate headquarters. In
addition it leases four nearby facilities for supplemental warehouse and office
space. During 1995 the Company entered into lease agreements to relocate its
Irving distribution center and office space. A lease was entered into and
construction was started on a 426,000 square foot distribution facility at the
Alliance Airport in Tarrant County, Texas. In addition, a lease was entered into
for a 136,000 square foot building in Irving, Texas, to which the Company will
relocate its corporate offices. The move of the distribution center and
corporate offices is scheduled for mid 1996. 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, all of which are used as distribution centers. 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 prices of the Company's Common Stock. The
plaintiffs seek on behalf of the purported 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 Company and the individual defendants
have filed a motion to dismiss the consolidated, amended complaint. The court
has not yet ruled on this motion. Discovery related to both class certification
issues and the merits of plaintiffs' claims has been stayed pending resolution
of defendants' motion to dismiss. The Company believes the claims are without
merit and intends to vigorously defend this action.
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 security holder litigation
described above, would not have a material adverse impact on the Company's
financial position. However, there can be no assurance that future costs would
not be material to results of operations of the Company for a particular future
period. In addition, the Company's estimates of future costs are subject to
change as events evolve and additional information becomes available during the
course of litigation.
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.
10
<PAGE>
The following table sets forth the high and low sales prices of the
Company's Common Stock for each quarterly period within the two most recent
fiscal years.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First............................................................. $ 37 1/2 $ 27 3/4
Second............................................................ 32 3/4 20 3/4
Third............................................................. 25 3/4 11
Fourth............................................................ 18 11 3/8
<CAPTION>
FISCAL 1994 HIGH LOW
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
First............................................................. $ 44 3/4 $ 31
Second............................................................ 46 1/2 30 1/2
Third............................................................. 45 29 1/2
Fourth............................................................ 45 3/4 32 1/4
</TABLE>
On April 26, 1996, the last reported sale price of the Common Stock on the
NASDAQ National Market System was $18 7/8, and as of such date there were
approximately 1,232 holders of record of the Common Stock.
The Company's present plan is to retain earnings for the foreseeable future
for use in the Company's business and the financing of its growth. The Company
did not pay any dividends on its Common Stock during fiscal 1994 and 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial information required by this item is included in the
Company's 1995 Annual Report to Shareholders (the "1995 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 Company's 1995
Annual Report on pages 9 through 11 under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Such information
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item are
included in the Annual Report on Form 10-K that was filed on April 29, 1996, or
are included in the Company's 1995 Annual Report and are incorporated herein by
reference, as indicated in the following Index to Financial Statements.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND 1995 ANNUAL
FINANCIAL STATEMENT SCHEDULES REPORT PAGE
- ---------------------------------------------------------------------------------------------------- -------------
<S> <C>
Report of Independent Auditors 19
Consolidated Balance Sheets at January 28, 1996 and January 29, 1995 12
Consolidated Statements of Operations for the fiscal years ended
January 28, 1996, January 29, 1995 and January 30, 1994 13
Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1996, January 29, 1995
and January 30, 1994 14
Consolidated Statements of Shareholders' Equity for the fiscal years ended January 28, 1996, January
29, 1995 and January 30, 1994 15
Notes to Consolidated Financial Statements 16-18
</TABLE>
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.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS OF THE COMPANY
The Board is presently comprised of seven members. The Board is divided into
three classes, with two classes consisting of three directors and one class
consisting of one director. Members of each class of directors serve for a term
of three years. Each director shall serve until the Annual Meeting of
Shareholders in the year in which his term expires or until his successor is
elected and qualified.
The following sets forth information as to each of the directors of the
Company, including their ages, present principal occupations, other business
experience during the last five years, and directorships in other publicly-held
companies.
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE POSITION EXPIRES
- ------------------------- --- ------------------------------------------------------------- -----------
<S> <C> <C> <C>
Dr. F. Jay Taylor 72 Director 1996
Richard E. Hanlon 48 Director 1996
Evan A. Wyly 34 Director and Vice President 1996
Sam Wyly 61 Chairman of the Board of Directors 1997
Michael C. French 53 Director 1997
Donald R. Miller, Jr. 41 Director and Vice President - Market Development 1997
Charles J. Wyly, Jr. 62 Vice Chairman of the Board of Directors 1998
</TABLE>
Dr. Taylor became a director of the Company in June 1989. Dr. Taylor was
President of Louisiana Tech University from 1962 until 1987, and has served as
President - Emeritus of Louisiana Tech since 1987. Dr. Taylor also currently
serves as a director of Illinois Central Railroad Corporation and Pizza Inn,
Inc. and performs mediation and arbitration services as a member of The American
Arbitration Association and The Federal Mediation and Conciliation Service.
Mr. Hanlon became a director of the Company in April 1990. Since February
1995, Mr. Hanlon has been Vice President - Investor Relations of America Online,
Inc., a provider of online computer services. From March 1993 until February
1995, Mr. Hanlon was President of Hanlon & Co. He was Vice President - Corporate
Communications and Secretary from 1988 to 1993 for LEGENT Corporation and its
predecessor. From 1987 to 1988, Mr. Hanlon served as a consultant to Sam Wyly,
Chairman. From 1983 through 1987, Mr. Hanlon was Director of Investor &
Corporate Communications, UCCEL Corporation.
Mr. Evan A. Wyly became a director of the Company in September 1992 and has
served as Vice President 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 serves as the
President of Maverick Capital Ltd, an investment fund management company. He
serves as a director and Vice President of Sterling Software, Inc. Mr. Wyly
serves as a director of Xscribe Corp., a high-technology information management
company, and as a director of Sterling Commerce, Inc. Evan Wyly is the son of
Sam Wyly, a director and officer of the Company.
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. 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 a director. Mr. Wyly serves as Chairman of Maverick
Capital Ltd., an investment fund management company and has served as a director
of Sterling Commerce, Inc. since December 1995.
12
<PAGE>
Mr. French has served as a director of the Company since September 1992. He
has been a Managing Director of Maverick Capital Ltd., an investment fund
management company, 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. Miller 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 the Bonanza
Steakhouse chain and Peoples Restaurants. Mr. Miller has served as a director of
Sterling Software, Inc. since September 1993. He also serves on the Board of
Directors of Xscribe Corp. Mr. Miller is the son-in-law of Charles J. Wyly, Jr.,
Vice Chairman of the Company.
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. 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. Wyly has served as a
director of Sterling Commerce, Inc. since December 1995.
EXECUTIVE OFFICERS OF THE COMPANY
The name, age and position of each executive officer of the Company is set
forth under the heading "Executive Officers of the Company" in Item 1 of this
report, which information is incorporated in this Item 10 by reference.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1995, or written representations from certain reporting
persons, the Company believes that its officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities have
complied with all applicable filing requirements, except that David E. Bolen
inadvertently failed to timely file a Statement of Changes of Beneficial
Ownership of Securities (a "Form 4") to amend a previously filed Form 4 to
include shares released to him from an escrow fund established in connection
with a 1994 acquisition by the Company and to correct errors in a previous
report of the number of options granted to Mr. Bolen, and each of Douglas B.
Sullivan, Donald R. Miller, Jr., R. Don Morris, Jack E. Bush, David E. Bolen,
Rex A. Rambo, John H. Rittenhouse, and Kristen L. Magnuson inadvertently failed
to timely file an Annual Statement of Beneficial Ownership covering one
transaction each which transaction constituted the allocation of shares
attributable to such person under the Michaels Stores, Inc. Employees 401(k)
Plan and Trust (the "Company's 401(k) Plan").
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer, each of the Company's four other most highly compensated
executive officers employed by the Company at the end of the
13
<PAGE>
fiscal year, and two other executive officers who would have been included in
the four other most highly compensated executive officers if they were employed
at the end of the fiscal year, based on salary and bonus earned during fiscal
1995 (the "Named Executives").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------- PAYOUTS
----------------------------------------- RESTRICTED SECURITIES ---------
OTHER ANNUAL STOCK UNDERLYING LTIP
FISCAL COMPENSATION AWARDS OPTIONS/ PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) SARS(#)(1) ($)
- -------------------------------- ----------- ----------- ----------- --------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sam Wyly, 1995 450,000 -- 63,690(3) -- 300,000(4) --
Chairman of the 1994 434,875 -- 74,604(3) -- 200,000 --
Board of Directors (2) 1993 384,000 -- 73,900(3) -- 100,000 --
Charles J. Wyly, Jr., 1995 225,000 -- -- -- 450,000(5) --
Vice Chairman of the 1994 217,438 -- -- -- 100,000 --
Board of Directors 1993 192,000 -- -- -- 50,000 --
Douglas B. Sullivan, 1995 284,686 -- 39,105(6) -- 245,000(7) --
President and Chief 1994 271,924 -- 20,075(6) -- 60,000 --
Operating Officer 1993 239,878 -- 24,097(6) -- 25,000 --
R. Don Morris, 1995 325,550 -- 44,698(9) -- 259,000 (10 --
Executive Vice 1994 321,154 -- 49,357(9) -- 60,000 --
President 1993 288,461 -- 43,994(9) -- 25,000 --
David E. Bolen 1995 258,654 -- -- -- 120,000 (12 --
Executive Vice 1994 139,423 -- -- -- 30,000 --
President 1993 -- -- -- -- -- --
Jack E. Bush, 1995 486,392 -- -- -- 210,000 (14 --
President (Resigned 1994 442,308 -- -- -- 100,000 --
August 1995) 1993 376,923 -- -- 50,000 --
Robert H. Rudman 1995 221,637 -- -- -- 121,250 (16 --
Executive Vice 1994 192,308 -- -- -- 60,000 --
President (Resigned 1993 174,075 -- -- -- 20,000 --
January 1996)
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)
- -------------------------------- -------------
<S> <C>
Sam Wyly, --
Chairman of the --
Board of Directors (2) --
Charles J. Wyly, Jr., --
Vice Chairman of the --
Board of Directors --
Douglas B. Sullivan, 5,269(8)
President and Chief 6,560(8)
Operating Officer 6,303(8)
R. Don Morris, 7,460(11)
Executive Vice 8,355(11)
President 7,966(11)
David E. Bolen 90,042(13)
Executive Vice 2,308(13)
President --
Jack E. Bush, 2,165,408(15)
President (Resigned 59,504(15)
August 1995) 77,908(15)
Robert H. Rudman 344,582(17)
Executive Vice 6,587(17)
President (Resigned 4,333(17)
January 1996)
</TABLE>
- ------------------------------
(1) Options to acquire shares of Common Stock. The number of securities
included in this table is inclusive of repricing grants during fiscal 1995.
(2) Sam Wyly was Chief Executive Officer during the 1995 fiscal year. Mr.
Rouleau was appointed Chief Executive Officer in April 1996.
(3) Includes life insurance premiums paid by the Company in the amount of
$51,678, $64,746 and $57,158 in fiscal 1995, 1994 and 1993, respectively.
(4) Stock options were reissued due to repricing and cancellation of 300,000
previously granted stock options.
(5) Stock options were reissued due to repricing and cancellation of 450,000
previously granted stock options.
(6) Includes life insurance premiums paid by the Company in the amount of
$18,798, $16,925 and $16,636 in fiscal 1995, 1994 and 1993, respectively.
(7) Includes 165,000 stock options that were reissued due to repricing and
cancellation of 165,000 previously granted stock options.
(8) Includes the annual contribution by the Company for Mr. Sullivan's account
pursuant to the Company's 401(k) Plan in the amount of $4,620, $3,914 and
$4,189 in fiscal 1995, 1994 and 1993, respectively, and split-dollar life
insurance providing $649, $2,646 and $2,114 of current net benefit projected
on an actuarial basis in fiscal 1995, 1994 and 1993, respectively.
(9) Includes life insurance premiums paid by the Company in the amount of
$30,430, $42,651 and $35,228 in fiscal 1995, 1994 and 1993, respectively.
(10) Includes 159,000 stock options that were reissued due to repricing and
cancellation of 159,000 previously granted stock options.
(11) Includes the annual contribution by the Company for Mr. Morris' account
pursuant to the Company's 401(k) Plan in the amount of $4,620, $4,620 and
$4,324 in fiscal 1995, 1994 and 1993, respectively, and split-dollar life
insurance providing $2,840, $3,735 and $3,462 of current net benefit
projected on an actuarial basis in fiscal 1995, 1994 and 1993, respectively.
14
<PAGE>
(12) Includes 30,000 stock options that were reissued due to repricing and
cancellation of 30,000 previously granted stock options.
(13) Includes annual contribution by the Company for Mr. Bolen's account
pursuant to the Company's 401(k) Plan in the amount of $4,620 and $2,308 in
fiscal 1995 and 1994, respectively, and moving and relocation expenses of
$85,422 in fiscal 1995.
(14) Stock options were reissued due to repricing and cancellation of 210,000
previously granted stock options.
(15) Includes annual contribution by the Company for Mr. Bush's account pursuant
to the Company's 401(k) Plan in the amount of $4,620, $3,615 and $4,305 in
fiscal 1995, 1994 and 1993, respectively, accruals by the Company of
$281,997, $54,488 and $63,976 in fiscal 1995, 1994 and 1993, respectively,
for an annuity for Mr. Bush, split-dollar life insurance providing $23,984,
$1,401 and $9,627 of current net benefit projected on an actuarial basis in
fiscal 1995, 1994 and 1993, respectively, and accruals by the Company of
$1,854,807 in fiscal 1995 for the current net value of a deferred
compensation plan.
(16) Includes 71,250 stock options that were reissued due to repricing and
cancellation of 71,250 previously granted stock options.
(17) Includes severance compensation of $337,500 in fiscal 1995, annual
contribution by the Company for Mr. Rudman's account pursuant to the
Company's 401(k) Plan in the amount of $4,404, $3,808, and $2,545 in fiscal
1995, 1994 and 1993, respectively, and split-dollar life insurance providing
$2,678, $2,779 and $1,788 of current net benefit projected on an actuarial
basis in fiscal 1995, 1994 and 1993, respectively.
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table provides information related to options granted to the
Named Executives during fiscal 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(3) DATE 5%($) 10%($)
- --------------------------- --------------- --------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sam Wyly................... 300,000 (4)(5 7.61 17.00 08/28/00 1,409,036 3,113,601
Charles J. Wyly, Jr........ 450,000 (4)(6 11.41 17.00 08/28/00 2,113,554 4,670,402
Douglas B. Sullivan........ 245,000 (4)(7 6.21 16.75 08/28/00 1,133,790 2,505,380
R. Don Morris.............. 259,000 (4)(8 6.57 16.75 08/28/00 1,198,578 2,648,545
David E. Bolen............. 90,000 (4)(9 2.28 16.75 08/28/00 416,494 920,344
30,000(4) 0.76 16.625 08/28/00 137,795 304,492
Jack E. Bush............... 10,000 (10 0.25 12.50 11/26/96 0 (11 0(11)
50,000 (12 1.26 12.50 08/18/97 0 (11 0(11)
50,000 (12 1.26 12.50 08/18/98 0 (11 0(11)
50,000 (12 1.26 12.50 04/17/99 0 (11 0(11)
50,000 (12 1.26 12.50 07/31/99 0 (11 0(11)
Robert H. Rudman........... 121,250 (13 3.07 16.75 08/28/00 0 0
</TABLE>
- ------------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment,
nontransferability or vesting over periods. The use of the assumed 5% and
10% returns is established by the SEC and is not intended by the Company to
forecast possible future appreciation of the price of the Common Stock.
(2) Options to acquire shares of Common Stock. The number of securities included
in this table is inclusive of stock options which were cancelled and
reissued due to repricing.
(3) The option exercise price may be paid in shares of Common Stock owned by the
Named Executives, in cash, or in any other form of valid consideration or a
combination of any of the foregoing, in some cases as determined by the
Board of Directors, the Stock Option Committee, the 1992 Non-Statutory Plan
Committee or the 1994 Non-Statutory Plan Committee, as applicable, in its
discretion. The exercise price of each option was equal to the fair market
value of the Common Stock on the date of grant.
15
<PAGE>
(4) Option becomes exercisable with respect to 50% of the shares covered thereby
on August 29, 1996 and with respect to 100% of the shares covered thereby on
August 29, 1997.
(5) Stock options were reissued due to repricing and cancellation of 300,000
previously granted stock options.
(6) Stock options were reissued due to repricing and cancellation of 450,000
previously granted stock options.
(7) Includes 165,000 stock options that were reissued due to repricing and
cancellation of 165,000 previously granted stock options.
(8) Includes 159,000 stock options that were reissued due to repricing and
cancellation of 159,000 previously granted stock options.
(9) Includes 30,000 stock options that were reissued due to repricing and
cancellation of 30,000 previously granted stock options.
(10) Stock options were reissued due to repricing and cancellation of 10,000
previously granted stock options.
(11) During fiscal 1995, Mr. Bush exercised all of his outstanding options.
(12) Stock options were reissued due to repricing and cancellation of 50,000
previously issued stock options.
(13) Includes 71,250 stock options that were reissued due to repricing and
cancellation of 71,250 previously granted stock options. However, all of Mr.
Rudman's options expired on January 26, 1996.
OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by the
Named Executives during the 1995 fiscal year and the number and value of options
held at fiscal year end. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE -------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sam Wyly................. -- -- -- 0(3) -- --
Charles J.Wyly, Jr....... -- -- -- 0(4) -- --
Douglas B. Sullivan...... -- -- 8,250 245,000 8,625 --
R. Don Morris............ 4,000 81,500 24,250 259,000 8,625 --
David E. Bolen........... -- -- -- 120,000 -- --
Jack E. Bush............. 295,000 1,807,033 -- -- -- --
Robert H. Rudman......... -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) The closing price for the Company's Common Stock as reported through The
Nasdaq National Market System on January 26, 1996, the last trading day of
the 1995 fiscal year, was $12.75. Value is calculated on the basis of the
difference between the option exercise price and $12.75 multiplied by the
number of shares of Common Stock underlying the option.
(2) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise multiplied by the number of shares to which the exercise relates.
(3) In fiscal 1995, Sam Wyly transferred options to purchase 300,000 shares of
Common Stock to an irrevocable trust and disclaims the beneficial ownership
of the transferred options and the underlying shares of Common Stock. The
table above does not include the value of such unexercised options.
(4) In fiscal 1995, Charles J. Wyly, Jr. transferred options to purchase an
aggregate of 450,000 shares of Common Stock to two irrevocable trusts and
disclaims the beneficial ownership of the transferred options and the
underlying shares of Common Stock. The table above does not include the
value of such unexercised options.
COMPENSATION OF DIRECTORS
The Company pays Sam Wyly $37,500 per month for serving as Chairman of the
Board and pays Charles J. Wyly, Jr. $18,750 per month for serving as Vice
Chairman of the Board. Messrs. Taylor and Hanlon each receive an annual fee of
$24,000 as members of the Board of Directors of the Company and a fee of $1,000
for attendance at each regular or special Board meeting. Each member of the
Audit Committee receives a fee of $1,000 for attendance at each meeting of the
Audit Committee. The members of the Audit Committee are Messrs. Taylor and
Hanlon.
16
<PAGE>
Since December 1, 1992, Mr. French has provided advisory services to the
Company, for which he is compensated at the rate of $15,000 per month. Directors
who are salaried employees of the Company are not compensated for their Board
activities. Jones, Day, Reavis & Pogue, a law firm for which Mr. French is a
consultant, provides legal services to the Company, but does not charge the
Company for any time spent by Mr. French on any Company matters. Jackson &
Walker, L.L.P., a law firm of which Mr. French was a partner until August 1995,
provided legal services to the Company in 1995. The Company was not charged by
such firm for time spent by Mr. French on any matters regarding the Company
during fiscal 1995.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company has entered into agreements with Sam Wyly and Charles J. Wyly,
Jr., directors and executive officers of the Company, which agreements provide
for the employment of such persons by the Company upon a change of control of
the Company (a "Change of Control") for a salary not less than each such
individual's respective annual salary immediately preceding the Change of
Control and allows each such individual to participate in bonuses with other key
management personnel. Each of these agreements (i) is for a term of three years
with provisions for annual automatic one-year extensions and, upon a Change of
Control, an additional extension of 36 months and (ii) requires the Company to
pay to each such individual, if his employment is terminated within three years
of a Change of Control, a sum equal to three times such individual's salary and
bonus during the twelve-month period immediately preceding termination.
The Company has entered into an agreement with Dr. F. Jay Taylor, a director
of the Company, which agreement provides for the engagement by the Company of
Dr. Taylor as a consultant upon a Change of Control for an annual base
compensation not less than the fees received by him from the Company in all
capacities during the twelve-month period immediately preceding the Change of
Control. This agreement (i) is for a term of three years with provisions for
annual automatic one-year extensions and, upon a Change of Control, an
additional extension of 36 months and (ii) requires the Company to pay to Dr.
Taylor, if his consulting arrangement is terminated within three years of a
Change of Control, a sum equal to three times the fees received by him from the
Company in all capacities during the twelve-month period immediately preceding
termination.
During a portion of fiscal 1995, the Company operated under an agreement
with Jack E. Bush, then a director and executive officer of the Company, which
provided that the Company would fund a retirement plan intended to provide Mr.
Bush with an annuity of $60,000 per year for life after age 65; during fiscal
1995, the Company accrued $281,997 pursuant to such agreement with respect to
such retirement plan.
The Company has entered into an agreement with Douglas B. Sullivan, an
executive officer of the Company, which provides for his employment by the
Company upon a Change of Control for a salary not less than his annual salary
immediately preceding the Change of Control and allows him to participate in
bonuses with other key management personnel of the Company. This agreement (i)
is for a term of three years with provisions for annual automatic one-year
extensions and, upon a Change of Control, an additional extension of twelve
months and (ii) requires the Company to pay to Mr. Sullivan, if his employment
is terminated within one year of a Change of Control, a sum equal to his salary
and bonus during the twelve-month period immediately preceding termination.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the members of the Compensation Committee were primarily
responsible for determining executive compensation, and the members of the
Option Committees made decisions related to stock option grants to executive
officers and directors. The following executive officers, who also are members
of the Compensation Committee and the Stock Option Committee, participated in
deliberations concerning executive officer compensation: Sam Wyly and Charles J.
Wyly, Jr.
17
<PAGE>
Sam Wyly and Charles J. Wyly, Jr. are members of the Compensation Committee
of the Company. Sam Wyly and Charles J. Wyly, Jr. are also executive officers
and members of the Executive Committees, Stock Option Committees and Boards of
Directors of the Company, Sterling Software, Inc. and Sterling Commerce, Inc.
Accordingly, Sam Wyly and Charles J. Wyly, Jr. have participated in decisions
related to compensation of executive officers of each of the Company, Sterling
Software, Inc., and Sterling Commerce, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of April 26, 1996, regarding
the beneficial ownership of Common Stock by each person known by the Company to
own 5% or more of the outstanding shares of Common Stock, each director of the
Company, certain Named Executives, and the directors and executive officers of
the Company as a group. The persons named in the table have sole voting and
investment power with respect to all shares of Common Stock owned by them,
unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL OWNER OR BENEFICIAL PERCENT
NUMBER OF PERSONS IN GROUP OWNERSHIP OF CLASS
- ------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Sam Wyly............................................................................. 1,934,905(1) 8.23
Charles J. Wyly, Jr.................................................................. 1,897,607(2) 8.07
R. Michael Rouleau................................................................... 200,000(3) *
Evan A. Wyly......................................................................... 55,875(4) *
Michael C. French.................................................................... 1,200(5) *
Richard E. Hanlon.................................................................... 12,600(6) *
Donald R. Miller, Jr................................................................. 13,437(7) *
Dr. F. Jay Taylor.................................................................... 21,440 *
R. Don Morris........................................................................ 39,287(8) *
Douglas B. Sullivan.................................................................. 35,000(9) *
David E. Bolen....................................................................... 26,713 *
The Wyly Group....................................................................... 3,532,512 (10 15.03
8080 N. Central Expressway, Suite 1300
Dallas, Texas 75206
ICM Asset Management, Inc............................................................ 1,471,430 (11 6.26
601 W. Main Avenue, Suite 917
Spokane, Washington 99201
The Capital Group Companies, Inc..................................................... 1,705,000 (12 7.25
333 South Hope Street
Los Angeles, California 90071
LGT Asset Management, Inc............................................................ 2,092,000 (13 8.90
50 California, 27th Floor
San Francisco, California 94111
All directors and executive officers as a group (15 persons)......................... 3,985,624 (14 16.96
</TABLE>
- ------------------------------
* Less than 1%
(1) Includes 1,074,536 shares held of record by Tallulah, Ltd. (a limited
partnership of which Mr. Wyly is general partner); 536,615 shares held of
record by family trusts of which Mr. Wyly is trustee; 300,000 shares held
of record by Maverick Entrepreneurs Fund, Ltd. ("Maverick"), a limited
partnership of which Mr. Wyly is a general partner; 7,918 shares held by
his daughter and for which he has power of attorney; and 15,836 shares held
of record by certain of Mr. Wyly's adult children, who have given him the
power to vote such shares. Does not include 1,333,333 shares of Common
Stock acquired by two separate entities owned by two separate independent
irrevocable trusts established by Mr. Wyly. Mr. Wyly disclaims beneficial
ownership of those shares.
18
<PAGE>
(2) Includes 755,000 shares held of record by Brush Creek, Ltd., a limited
partnership of which Mr. Wyly is general partner; 842,233 shares held of
record by family trusts of which Mr. Wyly is trustee; 300,000 shares held
of record by Maverick, of which Mr. Wyly is a general partner; and 374
shares held of record by Mr. Wyly's adult children, who have given him the
power to vote such shares. Does not include 666,667 shares of Common Stock
acquired by an entity owned by an independent irrevocable trust established
by Mr. Wyly. Mr. Wyly disclaims beneficial ownership of those shares.
(3) Shares subject to presently exercisable options. Mr. Rouleau is the Chief
Executive Officer of the Company.
(4) Includes 30,000 shares subject to presently exercisable options.
(5) Shares held by a retirement account directed by Mr. French.
(6) Includes 10,000 shares subject to presently exercisable options.
(7) Includes 9,250 shares subject to presently exercisable options and 187
shares held by Mr. Miller's spouse.
(8) Includes 24,250 shares subject to presently exercisable options. Excludes
348,039 shares held by the Company's 401(k) Plan for which Mr. Morris is a
trustee and a member of the Investment Committee. Mr. Morris disclaims
beneficial ownership of those excluded shares.
(9) Includes 8,250 shares subject to presently exercisable options.
(10) The Wyly Group consists of Sam Wyly, Charles J. Wyly, Jr. and Maverick.
(11) Based on a Schedule 13G filed with the Securities and Exchange Commission
dated February 10, 1996, ICM Asset Management, Inc., a registered investment
adviser, has the shared power to vote or direct the vote of 805,500 shares
of Common Stock and has the sole power to dispose or direct the disposition
of 1,471,430 shares of Common Stock.
(12) Based on a Schedule 13G filed with the Securities and Exchange Commission
dated February 9, 1996, The Capital Group Companies, Inc. and its operating
subsidiary, Capital Research & Management Company, a registered investment
adviser, have the sole power to dispose or to direct the disposition of
1,705,000 shares of Common Stock and have no right to vote or direct the
vote of those shares.
(13) Based on a Schedule 13G filed with the Securities and Exchange Commission
dated February 13, 1996, LGT Asset Management, Inc., a registered investment
adviser, has the sole power to vote or to direct the vote of 2,092,000
shares of Common Stock and has the sole power to dispose or to direct the
disposition of 2,092,000 shares of Common Stock.
(14) Includes 69,000 shares subject to presently exercisable options held, in
the aggregate, by 4 executive officers not named in the table.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Jones, Day, Reavis & Pogue, a law firm for which Michael C. French is
currently a consultant, provides legal services to the Company. The Company is
not charged by such firm for any time spent by Mr. French on Company matters.
Jackson & Walker, L.L.P., a law firm of which Mr. French was a partner until
August 1995, provided legal services to the Company in 1995. The Company was not
charged by such firm for any time spent by Mr. French on Company matters.
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:
19
<PAGE>
The exhibits filed as a part of this report are listed under
"Exhibits" at subsection (c) of this Item 14.
(b) Reports of 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:
<TABLE>
<C> <C> <S>
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. (13)
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. (14)
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. (15)
2.4 -- Amendment No. 1 to Stock Purchase Agreement (15)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores,
Inc. and the other parties listed therein. (13)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 31, 1994,
among Michaels Stores, Inc. and the other parties listed therein. (13)
2.7 -- Stock Purchase Agreement, dated as of March 8, 1995, among Aaron Brothers
Holdings, Inc., ABAM Investors Limited Partnership, and Michaels Stores, Inc.
(16)
3.1 -- Bylaws of the Registrant, as amended and restated. (16)
3.2 -- Restated Certificate of Incorporation of the Registrant. (3)
4.1 -- Form of Common Stock Certificate. (4)
4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels
Stores, Inc. and Peoples Restaurants, Inc., including form of Warrant. (10)
4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984
between the First Dallas Group, Ltd. and Michaels Stores, Inc. (10)
4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984
between First Dallas Investments-Michaels I, Ltd. and Michaels Stores, Inc. (10)
4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985
between First Dallas Investments-Michaels I, Ltd., The First Dallas Group, Ltd.,
Sam Wyly, Charles J. Wyly, Jr. and Michaels Stores, Inc. (2)
4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and
NationsBank of Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4%
Step-up Convertible Subordinated Note included therein. (10)
4.7 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels
Stores, Inc. and Qualye Limited. (1)
4.8 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels
Stores, Inc. and Locke Limited. (1)
4.9 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels
Stores, Inc. and Fugue Limited. (1)
10.1 -- Michaels Stores, Inc. Employees 401(k) Plan. (8)
10.2 -- Michaels Stores, Inc. Employees 401(k) Trust. (6)
</TABLE>
20
<PAGE>
<TABLE>
<C> <C> <S>
10.3 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers
and directors of the Registrant. (10)
10.4 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors
of the Registrant. (7)(12)
10.5 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors
of the Registrant.(7)(12)
10.6 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key
executives of the Registrant.(7)(12)
10.7 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)
10.8 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended
effective January 25, 1992.(3)(12)
10.9 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1,
1992.(3)(12)
10.10 -- Form of Non-Statutory Stock Option Agreement covering options granted to certain
directors and consultants of the Company other than pursuant to the Michaels
Stores, Inc. Key Employee Stock Compensation Program and the Michaels Stores,
Inc. 1992 Non-Statutory Stock Option Plan.(10)(12)
10.11 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and
NationsBank of Texas, N.A. (the "Credit Agreement")(8)
10.12 -- First Amendment to Credit Agreement dated April 26, 1995.(16)
10.13 -- Second Amendment to Credit Agreement dated as of September 1, 1995.(17)
10.14 -- Third Amendment to Credit Agreement dated as of February 12, 1996.(1)
10.15 -- Fourth Amendment to Credit Agreement dated as of March 4, 1996.(1)
10.16 -- Michaels Stores, Inc. 1994 Non-Statutory Stock Option Plan dated March 31,
1994.(16)
10.17 -- 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. (1)
10.18 -- Agreement dated as of January 30, 1996 by and between Michaels Stores, Inc. and
Jack E. Bush. (1)
10.19 -- First Amendment to the Michaels Stores, Inc. Employees 401(k) Plan. (1)
11 -- Computation of Earnings Per Common Share.(18)
13 -- Portions of 1995 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 -- Consent of Ernst & Young.(1)
27 -- Financial Data Schedule.(1)
</TABLE>
- ------------------------
(1) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended January 28, 1996 that was filed on April 29, 1996 and
incorporated herein by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-9456) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-54726) and incorporated herein by reference.
21
<PAGE>
(4) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Peoples Restaurants, Inc. Registration
Statement on Form S-1 (No. 2-85737) and incorporated herein by reference.
(6) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-11985) and incorporated herein by reference.
(7) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1989 and incorporated herein by
reference.
(8) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 30, 1994 and incorporated herein by
reference.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended February 2, 1992 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 1, 1993 and incorporated herein by
reference.
(12) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c).
(13) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-53639) and incorporated herein by reference.
(14) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended March 1, 1994 and incorporated herein by
reference.
(15) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(16) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1995 and incorporated herein by
reference.
(17) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended July 30, 1995 and incorporated herein by
reference.
(18) Filed herewith.
22
<PAGE>
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 28, 1996 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 28, 1996
Sam Wyly Directors
/s/ CHARLES J. WYLY, JR.
- ----------------------------------- Vice Chairman of the May 28, 1996
Charles J. Wyly, Jr. Board of Directors
/s/ R. MICHAEL ROULEAU Chief Executive Officer
- ----------------------------------- (Principal Executive May 28, 1996
R. Michael Rouleau Officer)
Executive Vice President
/s/ R. DON MORRIS and Chief Financial
- ----------------------------------- Officer (Principal May 28, 1996
R. Don Morris Financial and Accounting
Officer)
/s/ EVAN A. WYLY
- ----------------------------------- Vice President and May 28, 1996
Evan A. Wyly Director
- ----------------------------------- Director
F. Jay Taylor
- ----------------------------------- Director
Richard E. Hanlon
- ----------------------------------- Vice President-Market
Donald R. Miller, Jr. Development and Director
/s/ MICHAEL C. FRENCH
- ----------------------------------- Director May 28, 1996
Michael C. French
23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ----------- ---------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
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. (13)
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. (14)
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. (15)
2.4 -- Amendment No. 1 to Stock Purchase Agreement (15)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and
the other parties listed therein. (13)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 31, 1994, among
Michaels Stores, Inc. and the other parties listed therein. (13)
2.7 -- Stock Purchase Agreement, dated as of March 8, 1995, among Aaron Brothers Holdings,
Inc., ABAM Investors Limited Partnership, and Michaels Stores, Inc. (16)
3.1 -- Bylaws of the Registrant, as amended and restated. (16)
3.2 -- Restated Certificate of Incorporation of the Registrant. (3)
4.1 -- Form of Common Stock Certificate. (4)
4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores,
Inc. and Peoples Restaurants, Inc., including form of Warrant. (10)
4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between the
First Dallas Group, Ltd. and Michaels Stores, Inc. (10)
4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between
First Dallas Investments-Michaels I, Ltd. and Michaels Stores, Inc. (10)
4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between
First Dallas Investments-Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly,
Charles J. Wyly, Jr. and Michaels Stores, Inc. (2)
4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank
of Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible
Subordinated Note included therein. (10)
4.7 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc.
and Qualye Limited. (1)
4.8 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc.
and Locke Limited. (1)
4.9 -- Stock Purchase Agreement entered into as of March 27, 1996 between Michaels Stores, Inc.
and Fugue Limited. (1)
10.1 -- Michaels Stores, Inc. Employees 401(k) Plan. (8)
10.2 -- Michaels Stores, Inc. Employees 401(k) Trust. (6)
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S> <C>
10.3 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers and
directors of the Registrant. (10)
10.4 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors of the
Registrant. (7)(12)
10.5 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors of the
Registrant.(7)(12)
10.6 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key executives of
the Registrant.(7)(12)
10.7 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)
10.8 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended effective
January 25, 1992.(3)(12)
10.9 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1, 1992.(3)(12)
10.10 -- Form of Non-Statutory Stock Option Agreement covering options granted to certain
directors and consultants of the Company other than pursuant to the Michaels Stores,
Inc. Key Employee Stock Compensation Program and the Michaels Stores, Inc. 1992
Non-Statutory Stock Option Plan.(10)(12)
10.11 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and NationsBank of
Texas, N.A. (the "Credit Agreement")(8)
10.12 -- First Amendment to Credit Agreement dated April 26, 1995.(16)
10.13 -- Second Amendment to Credit Agreement dated as of September 1, 1995.(17)
10.14 -- Third Amendment to Credit Agreement dated as of February 12, 1996.(1)
10.15 -- Fourth Amendment to Credit Agreement dated as of March 4, 1996.(1)
10.16 -- Michaels Stores, Inc. 1994 Non-Statutory Stock Option Plan dated March 31, 1994.(16)
10.17 -- 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.
(1)
10.18 -- Agreement dated as of January 30, 1996 by and between Michaels Stores, Inc. and Jack E.
Bush. (1)
10.19 -- First Amendment to the Michaels Stores, Inc. Employees 401(k) Plan. (1)
11 -- Computation of Earnings Per Common Share.(18)
13 -- Portions of 1995 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 -- Consent of Ernst & Young.(1)
27 -- Financial Data Schedule.(1)
</TABLE>
- ------------------------
(1) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended January 28, 1996 that was filed on April 29, 1996 and
incorporated herein by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-9456) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-54726) and incorporated herein by reference.
<PAGE>
(4) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Peoples Restaurants, Inc. Registration
Statement on Form S-1 (No. 2-85737) and incorporated herein by reference.
(6) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-11985) and incorporated herein by reference.
(7) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1989 and incorporated herein by
reference.
(8) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 30, 1994 and incorporated herein by
reference.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended February 2, 1992 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended August 1, 1993 and incorporated herein by
reference.
(12) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c).
(13) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-53639) and incorporated herein by reference.
(14) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended March 1, 1994 and incorporated herein by
reference.
(15) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(16) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1995 and incorporated herein by
reference.
(17) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended July 30, 1995 and incorporated herein by
reference.
(18) Filed herewith.
<PAGE>
MICHAELS STORES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Weighted
Weighted Average Common
Average and Common
Common Shares Equivalent Shares
Outstanding Outstanding
------------- -----------------
<S> <C> <C>
Fully
Primary Diluted
------- -------
For the year ended January 28, 1996
Weighted average common shares
outstanding 21,451 21,451 21,451
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method - 66 66
------ -------- ---------
Total average outstanding shares 21,451 21,517 21,517
------ -------- --------
------ -------- --------
Net loss $(20,417) $(20,417)
-------- --------
-------- --------
Loss per common share $(0.95) $(0.95)
-------- --------
-------- --------
</TABLE>
<PAGE>
MICHAELS STORES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Weighted
Weighted Average Common
Average and Common
Common Shares Equivalent Shares
Outstanding Outstanding
------------- -----------------
<S> <C> <C>
Fully
Primary Diluted
------- -------
For the year ended January 29, 1995
Weighted average common shares
outstanding 19,405 19,405 19,405
Assumed issuance of shares upon
conversion of convertible
subordinated debt 638
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method 741 764
------ ------ ------
Total average outstanding shares 19,405 20,146 20,807
------ ------ ------
------ ------ ------
Net income $35,647 $35,647
Assumed interest on convertible
subordinated debt less tax
benefit of $607 969
------- -------
Net income for per share computation $35,647 $36,616
------- -------
------- -------
Earnings per common share $1.77 $1.76
----- -----
----- -----
</TABLE>
<PAGE>
MICHAELS STORES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Weighted
Weighted Average Common
Average and Common
Common Shares Equivalent Shares
Outstanding Outstanding
------------- -----------------
<S> <C> <C>
Fully
Primary Diluted
------- -------
For the year ended January 30, 1994
Weighted average common shares
outstanding 16,592 16,592 16,592
Assumed issuance of shares upon
conversion of convertible
subordinated debt at beginning
of year 2,572
Net shares to be issued upon exercise
of dilutive stock options and warrants
after applying treasury stock method 639 645
------ ------- -------
Total average outstanding shares 16,592 17,231 19,809
------ ------- -------
------ ------- -------
Net income $26,287 $26,287
Assumed interest on convertible
subordinated debt less tax
benefit of $2,427 3,902
------- -------
Net income for per share computation $26,287 $30,189
------- -------
------- -------
Earnings per common share $1.53 $1.52
------- -------
------- -------
</TABLE>
