SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the period February 1, 1996 to December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
_________ __________
Commission file number 0-11822
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
B. Name of issuer of the securities held pursuant to the
plan and the address of its principal executive office:
MICHAELS STORES, INC.
8000 Bent Branch Drive, Irving, Texas 75063
P.O. Box 619566, DFW, Texas 75261-9566
Pursuant to the requirements of the Securities Exchange
Act of 1934, the trustees have duly caused this annual report to be
signed on behalf of the Plan by the undersigned thereunto duly
authorized.
MICHAELS STORES, INC.
EMPLOYEES 401(K) PLAN
Date: June 27, 1997 By: /s/ John G. Greene
____________________________
John G. Greene
Director of Human Resources
and member of Administration
Committee
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
In February 1987, Michaels Stores, Inc. (the "Company") established
the Michaels Stores, Inc. Employees 401(k) Plan (the "401(k) Plan").
The plan year begins on February 1 and ends on December 31. All subsequent
years will begin January 1 and end December 31. Prior to 1996, the plan year
was on a fiscal year beginning February 1 and ending on the following
January 31. The name of the issuer of the securities held pursuant to the
401(k) Plan and the address of its principal executive office is Michaels
Stores, Inc., 8000 Bent Branch Drive, Irving, Texas 75063, P.O. Box 619566,
DFW, Texas 75261-9566.
Changes in the 401(k) Plan. Effective October 1, 1996, the
following changes were made to the provisions of the 401(k) Plan:
Employees are eligible to participate in the Plan after completing 500
hours of service in a six-month eligibility period.
The employer matching contribution is applied to participant
accounts based on participant investment fund elections.
A subsidiary of the issuer, Aaron Brothers, Inc., adopted the 401(k) Plan
as a participating employer.
Participants were granted pass-through voting rights with respect to
shares of Michaels common stock held in their accounts in the 401(k) Plan.
The 401(k) Plan adopted a daily valuation approach rather than a monthly
"balance forward" approach to plan accounting.
Changes in Investment Policy. There were no changes in the
investment policy of the 401(k) Plan during fiscal 1996.
Contributions Under the 401(k) Plan. The Company makes biweekly
employer matching contributions to the 401(k) Plan for the account of each
participating employee in an amount equal to $.50 for each $1.00 of salary
reduction contributed by such employee, up to a maximum Company contribution
equal to 3% of the employee's compensation.
Participating Employees. As of December 31, 1996, there were 2,982
employees participating in the 401(k) Plan.
Administration of the Plan. The 401(k) Plan is administered by an
Administration Committee currently consisting of two members, both employees
of the Employer, appointed by the Employer's Board of Directors. The members
of the Administration Committee serve at the discretion of the Board of
Directors without compensation for services. The members of the
Administration Committee are:
Evan A. Wyly Managing Director
John G. Greene Director of Human Resources
-1-
<PAGE>
The address of the members of the Administration Committee listed above
is Michaels Stores, Inc., 8000 Bent Branch Drive, Irving, Texas 75063, P.O.
Box 619566, DFW, Texas 75261-9566. The Administration Committee directs the
operation of the 401(k) Plan and may make administrative and procedural
regulations. Certain administrative functions may be delegated to officers
or employees of the Company. Administration Committee members, officers and
employees do not receive compensation from the 401(k) Plan.
Custodian of Investments. The assets of the 401(k) Plan are held
in a trust and managed by a trustee ("Trustee"). At present, Wachovia Bank of
North Carolina serves as the Trustee. The Company furnishes the 401(k) Plan
with employee dishonesty insurance coverage, to comply with ERISA, in the amount
of $500,000 covering the Trustee and others who handle funds of the 401(k) Plan.
The Company also furnishes coverage under an employee benefit liability
endorsement in the amount of $1,000,000. The Trustee receives no compensation
from the 401(k) Plan.
Reports to Participating Employees. Participants and retired
participants having an interest in the 401(k) Plan receive quarterly
statements of their accounts each plan year.
-2-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors F-1
______________________________
Financial Statements:
____________________
Statements of Net Assets Available for Plan Benefits F-2 to F-3
Statements of Changes in Net Assets Available for
Plan Benefits F-4 to F-5
Notes to Financial Statements F-6 to F-11
Supplemental Schedule: Schedule
_____________________ ________
Line 27a-Assets Held for
Investment Purposes 1 F-12
Line 27d-Reportable Transactions 2 F-13
Consent of Independent Auditors F-14
_______________________________
A schedule of party-in-interest transactions has not been presented because
there were no party-in-interest transactions which are prohibited by ERISA
Section 406 and for which there is no statutory or administrative exemption.
-3-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Administration Committee
Michaels Stores, Inc. Employees 401(k)Plan
We have audited the accompanying statements of net assets available for plan
benefits of Michaels Stores, Inc. Employees 401(k) Plan (the "Plan") as of
December 31, 1996 and January 31, 1996, and the related statements of changes
in net assets available for plan benefits for the period from February 1,
1996 to December 31, 1996 and the year ended January 31, 1996. These
financial statements are the responsibility of the Plan's Administration
Committee. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan
at December 31, 1996 and January 31, 1996, and the changes in its net assets
available for plan benefits for the period from February 1, 1996 to December
31, 1996 and the year ended January 31, 1996, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental
schedules of Assets Held for Investment Purposes as of December 31, 1996
(Schedule 1) and Reportable Transactions for the period from February 1, 1996
to December 31, 1996 (Schedule 2) are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the basic financial statements. The fund information
in the statements of net assets available for plan benefits and the
statements of changes in net assets available for plan benefits is presented
for purposes of additional analysis rather than to present the net assets
available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedules and fund information have
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Ernst & Young LLP
______________________
ERNST & YOUNG LLP
Dallas, Texas
June 24, 1997
F-1
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
_________________________________________________
Inter-
American Growth mediate
General Balanced Fund of Bond Fund
Fund Fund America of America Subtotal
_______ ________ _______ __________ ________
ASSETS
______
<S> <C> <C> <C> <C> <C>
Investment in Michaels
Stores, Inc. common
stock $6,384 $ 6,384
Investment in mutual
funds $2,005 $3,330 $2,306 7,641
Participant loans
receivable - - - - -
Contributions receivable:
Participants 35 19 34 14 102
Employer 11 7 12 5 35
______ ______ ______ ______ _______
46 26 46 19 137
Cash and cash
equivalents 267 - - - 267
______ ______ ______ ______ _______
Net assets available for
plan benefits $6,697 $2,031 $3,376 $2,325 $14,429
______ ______ ______ ______ _______
______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-2 (1 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
___________________________________________________
Investment New
Previous Company of Perspec- Participant
Page America tive Loans
Subtotal Fund Fund Receivable Total
________ __________ ________ __________ _______
ASSETS
______
<S> <C> <C> <C> <C> <C>
Investment in Michaels
Stores, Inc. common
stock $ 6,384 $ 6,384
Investment in mutual
funds 7,641 $3,555 $2,250 13,446
Participant loans
receivable - - - $1,301 1,301
Contributions receivable:
Participants 102 28 20 - 150
Employer 35 10 7 - 52
_______ ______ ______ ______ _______
137 38 27 - 202
Cash and cash
equivalents 267 - - - 267
_______ ______ ______ ______ _______
Net assets available
for plan benefits $14,429 $3,593 $2,277 $1,301 $21,600
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-2 (2 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
January 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
_________________________________________________
Inter-
American Growth mediate
General Balanced Fund of Bond Fund
Fund Fund America of America Subtotal
_______ ________ _______ __________ ________
ASSETS
______
<S> <C> <C> <C> <C> <C>
Investment in Michaels
Stores, Inc. common
stock
Non-participant
directed $3,598 $ 3,598
Participant
directed 840 840
Investment in mutual funds $1,617 $2,772 $2,946 7,335
Participant loans
receivable - - - - -
Contributions receivable:
Participants 149 77 117 59 402
Employer 415 - - - 415
______ ______ ______ ______ _______
564 77 117 59 817
Interfund due to/(from) 1,516 (215) (417) (543) 341
Cash and cash
equivalents 644 - - - 644
______ ______ ______ ______ _______
Net assets available
for plan benefits $7,162 $1,479 $2,472 $2,462 $13,575
______ ______ ______ ______ _______
______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-3 (1 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
January 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
___________________________________________________
Investment New
Previous Company of Perspec- Participant
Page America tive Loans
Subtotal Fund Fund Receivable Total
_________ __________ ________ ___________ _______
ASSETS
______
<S> <C> <C> <C> <C>
Investment in Michaels
Stores, Inc. common
stock
Non-participant
directed $ 3,598 $ 3,598
Participant
directed 840 840
Investment in mutual
funds 7,335 $2,756 $1,597 11,688
Participant loans
receivable - - - $1,004 1,004
Contributions receivable:
Participants 402 100 80 - 582
Employer 415 - - - 415
_______ ______ ______ ______ _______
817 100 80 - 997
Interfund due to/(from) 341 (233) (108) - -
Cash and cash
equivalents 644 - - - 644
_______ ______ ______ ______ _______
Net assets available
for plan benefits $13,575 $2,623 $1,569 $1,004 $18,771
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-3 (2 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF CHANGES IN
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Period from February 1, 1996 to December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
_______________________________________________________
Inter-
mediate
American Growth Bond
General Balanced Fund of Fund of
Fund Fund America America Subtotal
_______ ________ _______ ________ ________
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $ 47 $ 6 $ 9 $ 12 $ 74
Dividends - 69 21 168 258
Capital Gains - 109 165 - 274
Net appreciation
(depreciation) in
fair value of
investments (764) 17 153 (82) (676)
______ ______ ______ ______ _______
(717) 201 348 98 (70)
Contributions:
Participants 731 468 815 318 2,332
Employer-participant
directed 68 95 239 77 479
Employer-non-
participant directed 439 - - - 439
Interfund transfers (311) 59 (47) (243) (542)
______ ______ ______ ______ _______
Total additions 210 823 1,355 250 2,638
Distributions to
participants (675) (271) (451) (387) (1,784)
______ ______ ______ ______ _______
Net increase
(decrease) (465) 552 904 (137) 854
Net assets available
for plan benefits:
Beginning of year 7,162 1,479 2,472 2,462 13,575
______ ______ ______ ______ _______
End of year $6,697 $2,031 $3,376 $2,325 $14,429
______ ______ ______ ______ _______
______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-4 (1 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF CHANGES IN
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Period from February 1, 1996 to December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
_______________________________________________________
Investment
Previous Company of New Participant
Page America Perspective Loans
Subtotal Fund Fund Receivable Total
________ __________ ___________ ___________ ________
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $ 74 $ 7 $ 4 $ - $ 85
Dividends 258 67 37 - 362
Capital Gains 274 144 79 - 497
Net appreciation
(depreciation) in
fair value of
investments (676) 253 143 - (280)
_______ ______ ______ ______ _______
(70) 471 263 - 664
Contributions:
Participants 2,332 630 470 - 3,432
Employer-participant
directed 479 144 130 - 753
Employer-non-
participant directed 439 - - - 439
Interfund transfers (542) 147 16 379 -
_______ ______ ______ ______ _______
Total additions 2,638 1,392 879 379 5,288
Distributions to
participants (1,784) (422) (171) (82) (2,459)
_______ ______ ______ ______ _______
Net increase
(decrease) 854 970 708 297 2,829
Net assets available
for plan benefits:
Beginning of year 13,575 2,623 1,569 1,004 18,771
_______ ______ ______ ______ _______
End of year $14,429 $3,593 $2,277 $1,301 $21,600
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-4 (2 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF CHANGES IN
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Year Ended January 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
_________________________________________________
Inter-
American Growth mediate
General Balanced Fund of Bond Fund
Fund Fund America of America Subtotal
_______ ________ _______ __________ ________
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $ 84 $ 6 $ 11 $ 20 $ 121
Dividends - 50 24 174 248
Capital Gains - 53 190 - 243
Net appreciation
(depreciation) in fair
value of investments (7,048) 191 341 141 (6,375)
_______ ______ ______ ______ _______
(6,964) 300 566 335 (5,763)
Contributions:
Participants 859 389 548 324 2,120
Employer-
non-participant
directed 1,442 - - - 1,442
Interfund transfers (43) 165 184 267 573
_______ ______ ______ ______ _______
Total additions (4,706) 854 1,298 926 (1,628)
Distributions
to participants (1,305) (162) (205) (356) (2,028)
_______ ______ ______ ______ _______
Net increase
(decrease) (6,011) 692 1,093 570 (3,656)
Net assets available
for plan benefits:
Beginning of
year 13,173 787 1,379 1,892 17,231
_______ ______ ______ ______ _______
End of year $ 7,162 $1,479 $2,472 $2,462 $13,575
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-5 (1 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF CHANGES IN
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Year Ended January 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Fund information
____________________________________________________________
Investment
Previous Company of New Leewards Participant
Page America Perspective Conversion Loan
Subtotal Fund Fund Fund Receivable Total
________ __________ ___________ __________ __________ _____
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 121 $ 7 $ 3 $ 37 $ - $ 168
Dividends 248 159 27 - - 434
Capital Gains 243 7 58 - - 308
Net appreciation
(depreciation) in
fair value of
investments (6,375) 431 143 - - (5,801)
_______ ______ ______ ______ ______ ______
(5,763) 604 231 37 - (4,891)
Contributions:
Participants 2,120 523 430 - - 3,073
Employer-
non-participant
directed 1,442 - - - - 1,442
Interfund transfers 573 276 344 (2,197) 1,004 -
_______ ______ ______ ______ ______ ______
Total additions (1,628) 1,403 1,005 (2,160) 1,004 (376)
Distributions
to participants (2,028) (265) (231) (848) - (3,372)
_______ ______ ______ ______ ______ ______
Net increase
(decrease) (3,656) 1,138 774 (3,008) - (3,748)
Net assets available
for plan benefits:
Beginning of
year 17,231 1,485 795 3,008 - 22,519
_______ ______ ______ ______ ______ _______
End of year $13,575 $2,623 $1,569 $ - $1,004 $18,771
_______ ______ ______ ______ ______ _______
_______ ______ ______ ______ ______ _______
</TABLE>
See accompanying notes to financial statements.
F-5 (2 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Description of the Plan and Basis of Presentation
_________________________________________________
The Michaels Stores, Inc. Employees 401(k) Plan (the "Plan") became
effective on February 1, 1987, for eligible employees of Michaels Stores, Inc.
(the "Employer" or the "Company") and certain of its subsidiaries.
The Plan is a defined contribution plan designed to comply with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The following plan amendments were effective October 1, 1996: The Plan
changed its accounting year from a fiscal year, beginning February 1
and ending the following January 31, to a calendar year. Employees are
eligible to participate in the Plan after completing 500 hours of
service in a six-month eligibility period. The Employer Matching
Contribution is applied to the participants' accounts based on the
participants' investment fund elections.
References to 1996 and 1995 throughout these notes pertain to the period
from February 1, 1996 to December 31, 1996 and the year ending January
31, 1996, respectively. The following is a brief description of the
Plan. Participants should refer to the plan document for complete
information regarding the Plan.
Participation - Employees become eligible to participate in the
Plan once they have reached the age of 21 and have completed 500 hours
of service during the previous six months, effective October 1, 1996.
Prior to October, employees became eligible to participate in the plan
once they had reached the age of 21 and had completed 1000 hours of
service during the previous 12 months. Eligible employees who desire to
participate in the Plan must elect to participate by phoning the voice
response system, or prior to October 1, 1996, by completing the form or
forms provided by the Plan's Administration Committee and authorize the
Employer to make payroll deductions for contributions to the Plan.
Contributions - Participants may elect to have their salary
reduced, in increments of whole percents, at a minimum of 1% up to a
maximum of 15% of the participant's considered compensation, as defined
by the Plan, and have the Employer contribute to the Plan the amount of
such reduction ("Salary Reduction Contribution"). A participant's
Salary Reduction Contribution may not exceed an amount determined by the
Internal Revenue Service each calendar year ($9,500 in 1996 and $9,240
in 1995). Each participant may also elect to make voluntary, after-tax
contributions at a minimum of 1% up to a maximum of 10% of the
participant's considered compensation ("Employee Contributions"). In
addition, the Employer is required to make a biweekly contribution, or
prior to October 1, 1996, an annual contribution ("Employer Matching
Contribution") to the account of each participant in an amount equal to
50% of the participant's Salary Reduction Contribution up to a maximum
of 6% of such participant's considered compensation. The annual
Employer Matching Contribution may not exceed 3% of such participant's
total considered compensation for the year.
F-6
<PAGE>
Employer Matching Contributions are net of forfeitures, as defined in
the Plan, and are to be deposited as soon as administratively feasible
after the end of each payroll period. Effective October 1, 1996, all
current and prior Employer Matching Contributions are invested based
upon the participants investment elections. Prior to October 1, 1996,
all Employer Matching Contributions were invested in the General Fund.
Forfeitures of $169,000 and $54,000 were applied against Employer
Matching Contributions to the Plan for 1996 and 1995, respectively.
Participants may elect investment of their Salary Reduction
Contributions and Employee Contributions in one of, or in any
combination of the following investment options (except the Leewards
Conversion Fund) which have been selected by the Plan's Investment
Committee:
(a) General Fund - investments in the common stock of the
Employer and idle cash utilized to purchase Employer common
stock. All Employer Matching Contributions were invested in
the General Fund through October 1, 1996.
(b) American Balanced Fund - a mutual fund investing in both
domestic growth and income producing securities seeking
conservation of capital, current income, and long term growth
of both capital and income.
(c) Growth Fund of America - a mutual fund investing in
domestic growth equities seeking growth of capital.
(d) Intermediate Bond Fund of America - a mutual fund
investing in intermediate term investment grade corporate
bonds and government instruments seeking current income and
preservation of capital.
(e) Investment Company of America Fund - a mutual fund
investing in common stocks seeking long term growth of capital
and income.
(f) New Perspective Fund - a mutual fund investing in both
domestic and foreign securities, including both equity and
debt instruments, seeking long term growth of capital.
(g) Leewards Conversion Fund - investments with an insurance
company in a guaranteed investment contract and a money market
account. In March 1995 the investments in this fund were
liquidated, and investment balances were re-directed by the
participants to the investment options available, including
the General Fund.
F-7
<PAGE>
Administration of the Plan - The Plan is administered by an
Administration Committee consisting of two people, both employees of the
Employer, appointed by the Employer's Board of Directors. The members
of the Administration Committee serve at the discretion of the Board of
Directors without compensation for services.
A separate account is maintained for each participant. The account
balances for participants are adjusted periodically as follows:
(a) Salary Reduction Contributions and Employee Contributions and any
withdrawals are allocated on a biweekly basis with each payroll.
(b) Employer Matching Contributions are allocated to participants'
accounts biweekly with each payroll. Prior to October 1, 1996, the
Employer Contributions were allocated quarterly on January 31, April 30,
July 31 and October 31.
(c) Income and gains and losses from investments are allocated using a
daily valuation approach.
Vesting - Participants become partially vested in the Employer Matching
Contributions (including investment income and gains and losses thereon)
at the rate of: 20% after two years of service; 40% after three years;
60% after four years; and 80% after five years. Employer Matching
Contributions vest 100% upon completing six years of service (five years
of service for individuals employed before May 1, 1992); attaining the
age of 65; becoming disabled; or death. Salary Reduction Contributions
and Employee Contributions are 100% vested and nonforfeitable at all
times.
Withdrawals - Upon death, disability or termination of employment with
the Company, participants are entitled to the vested portion of Employer
Matching Contributions and 100% of Salary Reduction Contributions and
Employee Contributions.
Income tax status - The Internal Revenue Service ruled on February 20,
1997 that the Plan qualified under Section 401 (a) of the Internal
Revenue Code, (IRC) and , therefore, the related trust is not subject to
tax under present income tax law. Once qualified, the Plan is required
to operate in conformity with the IRC to maintain its qualification.
The Administration Committee believes that the Plan is designed and
currently operated in compliance with the applicable requirements of the
IRC.
Salary Reduction Contributions and Employer Matching Contributions are
not included in the participant's gross income for federal income tax
purposes in the year such contributions are made. A participant will
not be subject to federal income taxes with respect to these
contributions until the amounts are withdrawn or distributed.
Termination of the Plan - While the Employer has not expressed any
intent to discontinue the Plan, the Employer may terminate the Plan at
any time. In the event the Plan is terminated, the participants would
become fully vested, and the net assets would be distributed to
participants in proportion to their account balances.
F-8
<PAGE>
2. Summary of significant accounting policies
__________________________________________
Investments in the common stock of the Employer are valued at the last
reported sales price on the last business day of the Plan year as
reported on the NASDAQ National Market System. Investments in the
mutual funds of American Funds Service Company are valued at the last
reported net asset value (NAV) on the last business day of the Plan year
as reported on the NASDAQ automated quotation system.
Security transactions are recorded on a trade date basis.
Contributions and interest income are recorded on an accrual basis.
Certain amounts presented in the financial statements for the year ended
January 31, 1996 have been reclassified to conform to the 1996
presentation.
Use of estimates
________________
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
3. Investments
___________
Investments at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Number (In thousands)
of shares Fair Value
_________ ______________
<S> <C> <C>
Michaels Stores, Inc. common stock* 532,037 $ 6,384
American Mutual Funds:
American Balanced Fund* 137,825 2,005
The Growth Fund of America* 200,996 3,330
Intermediate Bond Fund of America* 171,853 2,306
The Investment Company of America
Fund* 146,735 3,555
New Perspective Fund* 123,861 2,250
_______
$19,830
_______
_______
Investments at January 31, 1996, are as follows:
Number (In thousands)
of shares Fair Value
_________ ______________
Michaels Stores, Inc. common stock* 348,039 $ 4,438
American Mutual Funds:
American Balanced Fund* 112,523 1,617
The Growth Fund of America* 88,456 2,772
Intermediate Bond Fund of America* 213,823 2,946
The Investment Company of America
Fund* 123,744 2,756
New Perspective Fund* 95,083 1,597
_______
$16,126
_______
_______
</TABLE>
* Investment represents 5 percent or more of Plan's net assets available
for benefits.
4. Related party transactions
__________________________
Under the terms of the Plan, all expenses and fees of the Plan are to be
paid by the Employer. The Employer paid approximately $429,000 and $160,000,
respectively, for administrative and accounting fees on behalf of the Plan
for 1996 and 1995, respectively.
During 1995, the Plan transferred 107,886 shares of the Employer's
common stock to the Employer in settlement of a series of arms-length sales
of shares pursuant to which the Employer had previously remitted
approximately $3,560,000 to the Plan to fund amounts withdrawn by terminating
participants from the General Fund.
F-10
<PAGE>
5. Differences Between Financial Statements and Form 5500:
______________________________________________________
The following is a reconciliation of net assets available for plan benefits
per the financial statements to the Form 5500:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
_______ _______
<S> <C> <C>
Net assets available for plan
benefits per the financial
statements $21,600 $18,771
Amounts allocated to withdrawn
participants (33) (468)
_______ _______
Net assets available for plan
benefits per the Form 5500 $21,567 $18,303
_______ _______
_______ _______
The following is a reconciliation of distributions paid to participants per
the financial statements to the Form 5500:
(In thousands)
1996
______________
<S> <C>
Distributions to participants
per the financial statements $2,459
Add: Amounts allocated to withdrawn
participants at December 31, 1996 33
Less: Amounts allocated to withdrawn
participants at January 31, 1996 (468)
______
Distributions to participants
per the Form 5500 $2,024
______
______
</TABLE>
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
termination distributions that have been processed and approved for payment
prior to year-end but not yet paid.
F-11
<PAGE>
Schedule 1
__________
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As Of December 31, 1996
<TABLE>
<CAPTION>
c. Description
of Investment
Including Number
Maturity of
Date, Rate of Units/
b. Identity of Issuer, Interest, Shares/
Borrower, Lessor Collateral, Par Face e. Current
a. or Similar Party or Maturity Value Value d. Cost Value
__ ______________________ _________________ _______ _______ __________
<S> <C> <C> <C> <C>
* Michaels Stores, Inc. Common Stock 532,037 $ 5,778 $ 6,384
American Funds Group American Balanced
Fund: invests in
growth and income
securities 137,825 1,781 2,005
American Funds Group Growth Fund
of America:
invests in
growth equities 200,996 2,818 3,330
American Funds Group Intermediate Bond
Fund of America:
invests in
corporate bonds
and government
instruments 171,853 2,318 2,306
American Funds Group Investment Company
of America
Fund: invests in
common stocks 146,735 2,906 3,555
American Funds Group New Perspective
Fund: invests in
equity and debt
securities 123,861 2,005 2,250
Wachovia Bank Short Term
Investment Fund 267,438 267 267
* Participant Loans
Receivable 7% to 10% - 1,301
_______ _______
$17,873 $21,398
_______ _______
_______ _______
</TABLE>
* Indicates party-in-interest to the Plan
F-12
<PAGE>
Schedule 2
__________
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
LINE 27d - REPORTABLE TRANSACTIONS
Period from February 1, 1996 to December 31, 1996
<TABLE>
<CAPTION>
(In thousands)
Number of ______________________________________________
transactions
_________________ Purchase Sales Cost of Net
Description of assets Purchases Sales Price price assets sold gain(loss)
_____________________ _________ _____ ________ _____ ___________ __________
Category i - Individual securities transaction in excess of 5% of the Plan
__________________________________________________________________________
assets at February 1, 1996
__________________________
<S> <C> <C> <C> <C> <C>
WB DTF Short Term Investment
Fund - $ 1 - $1,798 $1,798 -
WB DTF Short Term Investment
Fund $ 1 - $1,831 - 1,831 -
WB DTF Short Term Investment
Fund 1 - 2,948 - 2,948 -
Category iii - Series of securities transactions in excess of 5% of the Plan
____________________________________________________________________________
assets at February 1, 1996
__________________________
American Mutual Funds:
American Balanced Fund 40 34 $ 799 $ 469 $ 453 $ 16
WB DTF Short Term
Investment Fund 61 74 7,852 8,229 8,229 -
Growth Fund of America 44 37 1,224 819 795 24
Intermediate Bond Fund
of America 34 39 507 1,145 1,146 (1)
Investment Company of
America Fund 44 38 1,127 611 580 31
New Perspective Fund 44 31 767 267 250 17
Michaels Stores, Inc.
Common Stock 14 7 3,148 435 395 40
</TABLE>
There were no category ii or iv reportable transactions during fiscal 1996.
F-13
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-61055) and related Prospectus pertaining to the Michaels
Stores, Inc. Employees 401(k) Plan of our report dated June 30, 1997, with
respect to the financial statements and supplemental schedules of the Michaels
Stores, Inc. Employees 401(k) Plan included in this Annual Report (Form 11-K)
for the eleven month period ended December 31, 1996.
/s/ Ernst & Young LLP
______________________
ERNST & YOUNG LLP
Dallas, Texas
June 30, 1997
F-14