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 calendar year ending December 31, 1997
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 Administration Committee has 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 29, 1998 By: /s/ H. Kevin Rutherford
________________________
H. Kevin Rutherford
Senior Vice President-
Human Resources
and member of Administration
Committee
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
In February 1987, Michaels Stores, Inc. (the "Employer" or the
"Company") established the Michaels Stores, Inc. Employees 401(k) Plan
(the "Plan"). Plan year 1997 and all subsequent years begin January 1 and end
December 31. Plan year 1996 began on February 1 and ended on December 31.
Prior to 1996, the plan year was 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 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 Plan. There were no changes in the provisions of
the Plan during the year ending December 31, 1997.
Changes in Investment Policy. There were no changes in the
investment policy of the Plan during the year ending December 31, 1997.
Contributions Under the Plan. The Company makes biweekly employer
matching contributions to the 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, 1997, there were 3,208
employees participating in the Plan.
Administration of the Plan. The 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 on such Committee. The members
of the Administration Committee are:
Evan A. Wyly Managing Director
H. Kevin Rutherford Senior Vice President
of Human Resources
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 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 Plan.
- 1 -
<PAGE>
Custodian of Investments. The assets of the Plan are held in a
trust and managed by a trustee ("Trustee"), who may be an employee of the
Company. At present, Wachovia Bank of North Carolina, N.A. serves as the
Trustee. The Company pays the fees and expenses of the Trustee.
Reports to Participating Employees. Each participant and retired
participant having an interest in the Plan receives quarterly statements of
their accounts each plan year.
-2-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
_____________________________
PAGE
____
Report of Ernst & Young LLP, Independent Auditors F-1
_________________________________________________
Audited 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 Schedules: Schedule
_____________________ ________
Line 27a-Schedule of Assets Held
for Investment Purposes 1 F-12
Line 27b-Schedule of Loans or
Fixed Income Obligations 2 F-13
Line 27d-Schedule of Reportable
Transactions 3 F-14
Consent of Independent Auditors F-15
_______________________________
-3-
<PAGE>
REPORT OF ERNST & YOUNG LLP, 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 the Michaels Stores, Inc. Employees 401(k) Plan (the "Plan") as of
December 31, 1997 and December 31, 1996, and the related statements of
changes in net assets available for plan benefits for the year ended December
31, 1997 and for the period from February 1, 1996 to December 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, 1997 and December 31, 1996, and the changes in its net assets
available for plan benefits for the year ended December 31, 1997 and for the
period from February 1, 1996 to December 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, 1997
(Schedule 1), Loans or Fixed Income Obligations as of December 31, 1997
(Schedule 2), and Reportable Transactions for the year then ended (Schedule 3),
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 26, 1998
F-1
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1997
(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 $13,427 $13,427
Investment in mutual funds $2,823 $4,802 $2,415 10,040
Participant loans
receivable - - - - -
Contributions receivable:
Participants 46 20 33 11 110
Employer 12 8 12 5 37
_______ ______ ______ ______ _______
58 28 45 16 147
Cash and cash
equivalents 815 - - - 815
_______ ______ ______ ______ _______
Net assets available
for plan benefits $14,300 $2,851 $4,847 $2,431 $24,429
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</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, 1997
(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 $13,427 $13,427
Investment in mutual
funds 10,040 $4,895 $2,773 17,708
Participant loans
receivable - - - $1,546 1,546
Contributions receivable:
Participants 110 28 20 - 158
Employer 37 10 7 - 54
_______ ______ ______ ______ _______
147 38 27 - 212
Cash and cash
equivalents 815 - - - 815
_______ ______ ______ ______ _______
Net assets available
for plan benefits $24,429 $4,933 $2,800 $1,546 $33,708
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</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
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-3 (1 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF
NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1996
(In thousands)
[CAPTION]
<TABLE>
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-3 (2 of 2)
<PAGE>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
STATEMENT OF CHANGES IN
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Year Ended December 31, 1997
(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 $ 50 $ 10 $ 18 $ 16 $ 94
Dividends - 88 30 153 271
Capital gain
distributions - 213 478 - 691
Net appreciation in fair
value of investments 8,552 167 453 10 9,182
_______ ______ ______ ______ _______
8,602 478 979 179 10,238
Contributions:
Participants 804 587 931 307 2,629
Employer-participant
directed 74 230 307 117 728
Interfund transfers (101) (64) (70) (77) (312)
_______ ______ ______ ______ _______
Total additions 9,379 1,231 2,147 526 13,283
Distributions
to participants (1,776) (411) (676) (420) (3,283)
_______ ______ ______ ______ _______
Net increase 7,603 820 1,471 106 10,000
Net assets available
for plan benefits:
Beginning of
year 6,697 2,031 3,376 2,325 14,429
_______ ______ ______ ______ _______
End of year $14,300 $2,851 $4,847 $2,431 $24,429
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</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
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Fund Information
___________________________________________
Investment
Previous Company of New Participant
Page America Perspective Loan
Subtotal Fund Fund Receivable Total
________ __________ ___________ ___________ _______
<S> <C> <C> <C> <C> <C>
Investment income:
Interest $ 94 $ 18 $ 9 $ - $ 121
Dividends 271 78 39 - 388
Capital gain
distributions 691 413 161 - 1,265
Net appreciation in
fair value of
investments 9,182 619 164 - 9,965
_______ ______ ______ ______ _______
10,238 1,128 373 _ 11,739
Contributions:
Participants 2,629 771 609 - 4,009
Employer-participant
directed 728 262 176 - 1,166
Interfund transfers (312) 21 (190) 481 -
_______ ______ ______ ______ _______
Total additions 13,283 2,182 968 481 16,914
Distributions
to participants (3,283) (842) (445) (236) (4,806)
_______ ______ ______ ______ _______
Net increase 10,000 1,340 523 245 12,108
Net assets available
for plan benefits:
Beginning of
year 14,429 3,593 2,277 1,301 21,600
_______ ______ ______ ______ _______
End of year $24,429 $4,933 $2,800 $1,546 $33,708
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</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
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 gain
distributions - 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 period 7,162 1,479 2,472 2,462 13,575
______ ______ ______ ______ _______
End of period $6,697 $2,031 $3,376 $2,325 $14,429
______ ______ ______ ______ _______
______ ______ ______ ______ _______
</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
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 gain
distributions 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 period 13,575 2,623 1,569 1,004 18,771
_______ ______ ______ ______ _______
End of period $14,429 $3,593 $2,277 $1,301 $21,600
_______ ______ ______ ______ _______
_______ ______ ______ ______ _______
</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, 1997
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 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 to the Company within a six-month eligibility period. The
Employer Matching Contribution (as defined below) is applied to the
participants' accounts based on the participants' investment fund
elections.
References to 1997 and 1996 throughout these notes pertain to the year
ended December 31, 1997 and the period from February 1, 1996 to
December 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 - The plan was amended effective October 1, 1996, so
that employees become eligible to participate in the Plan once they have
reached the age of 21 and have completed 500 hours of service to the
Company during the previous six months. Prior to October 1, 1996,
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. The Administration Committee has developed and
implemented a system to notify each employee upon his or her initial
eligibility to participate in the Plan. Eligible employees who desire
to participate in the Plan must elect to participate by phoning the
voice response system maintained by the Plan's recordkeeper to authorize the
Employer to make payroll deductions for contributions to the Plan.
Contributions - Each participant may elect to have his or her
compensation 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
1997 and 1996). 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. However, 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
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 $221,000 and $169,000 were applied against Employer
Matching Contributions to the Plan for 1997 and 1996, respectively.
Participants may elect investment of their entire Plan account in one
of, or in any combination of, the following investment options 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 facilitate the daily
processing of investment transactions in all investment
options. All Employer Matching Contributions were invested in
the General Fund prior to 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.
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 their services.
A separate account is maintained in the Plan for each participant. The
account balances for participants are adjusted periodically as follows:
(a) All contributions are allocated to participants' accounts
biweekly with each Company payroll. Prior to October 1, 1996, the
Employer Matching Contributions were allocated quarterly.
F-7
<PAGE>
(b) Daily withdrawal requests are processed weekly.
(c) Income and gains and losses from investments are allocated to
the participants' accounts daily.
(d) Transfers are processed on a daily basis.
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 the participant completing six years of
service (five years of service for individuals employed before May 1,
1992); attaining the age of 65; or dying. Salary Reduction Contributions and
Employee Contributions are 100% vested and nonforfeitable at all times.
Withdrawals - Upon death or termination of employment with the Company,
participants are entitled to, and may withdraw from the Plan, the vested
portion of Employer Matching Contributions and 100% of Salary Reduction
Contributions and Employee Contributions. In-service withdrawal provisions
of the Plan allow for early withdrawal of Employee Contributions and rollover
contributions at any time and for any reason. Hardship withdrawals of Salary
Reduction Contributions may be made under certain limited circumstances while
employed by the Company. However, in-service withdrawals may be subject to
ordinary income taxes and early distribution penalty taxes. Participants may
request distribution of their account any time after their employee termination
date, and must begin receiving payments from their account balance by April 1
of the calendar year following the later of the year of employment termination
or the year in which they reach age 70-1/2. Active participants of the
Plan may obtain loans from their account balance subject to certain
requirements without incurring income taxes or penalty taxes.
Income tax status - The Internal Revenue Service ruled on February 20,
1997 that the Plan is 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 Plan accounts of all
participants would become fully vested.
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 quoted
through The Nasdaq Stock Market. 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 quoted through
The Nasdaq Stock Market.
Security transactions are recorded on a trade date basis.
Contributions and interest income are recorded on an accrual basis.
Use of estimates
________________
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the 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, 1997, are as follows:
Number (In thousands)
of Shares Fair Value
_________ __________
Michaels Stores, Inc. common stock* 459,038 $13,427
American Mutual Funds:
American Balanced Fund* 180,034 2,823
The Growth Fund of America* 255,683 4,802
Intermediate Bond Fund of America* 179,328 2,415
The Investment Company of America
Fund* 173,285 4,895
New Perspective Fund* 143,148 2,773
_______
$31,135
_______
_______
Investments at December 31, 1996, are as follows:
Number (In thousands)
of Shares Fair Value
_________ __________
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
_______
_______
* 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 administrative expenses and fees of the
Plan are paid by the Employer. The Employer paid approximately $321,000 and
$429,000, respectively, for administrative expenses and fees on behalf of the
Plan for 1997 and 1996, respectively.
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)
1997 1996
_______ _______
<S> <C> <C>
Net assets available for plan
benefits per the financial
statements $33,708 $21,600
Amounts allocated to withdrawn
participants (149) (33)
_______ _______
Net assets available for plan
benefits per the Form 5500 $33,559 $21,567
_______ _______
_______ _______
</TABLE>
The following is a reconciliation of distributions paid to participants per
the financial statements to the Form 5500:
<TABLE>
<CAPTION>
(In thousands)
1997
______
<S> <C>
Distributions to participants
per the financial statements $4,806
Add: Amounts allocated to withdrawn
participants at December 31, 1997 149
Less: Amounts allocated to withdrawn
participants at December 31, 1996 (33)
______
Distributions to participants
per the Form 5500 $4,922
______
______
</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.
6. Year 2000 Issue (unaudited)
___________________________
The Company has developed a plan to modify its internal information technology
to be ready for the year 2000 Issue and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Company currently expects the project to be substantially complete by early
1999. The Company does not expect this project to have a significant effect on
the operations of the Plan.
F-11
<PAGE>
Schedule 1
__________
EIN 75-1943604
PLAN #1
<TABLE>
<CAPTION>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As Of December 31, 1997
c. Description
of Investment
Including
Maturity
Date, Rate of
b. Identity of Issuer, Interest,
Borrower, Lessor Collateral, Par e. Current
a. or Similar Party or Maturity Value d. Cost Value
__ ______________________ _________________ ________ __________
<S> <C> <C> <C> <C>
* Michaels Stores, Inc. Common Stock $ 5,354 $13,427
American Funds Group American Balanced
Fund: invests in
growth and income
securities 2,702 2,823
American Funds Group Growth Fund
of America:
invests in
growth equities 4,408 4,802
American Funds Group Intermediate Bond
Fund of America:
invests in
corporate bonds
and government
instruments 2,397 2,415
American Funds Group Investment Company
of America
Fund: invests in
common stocks 4,298 4,895
American Funds Group New Perspective
Fund: invests in
equity and debt
securities 2,623 2,773
Wachovia Bank Short Term
Investment Fund 815 815
* Participant Loans
Receivable 7% to 10% - 1,546
_______ _______
$22,597 $33,496
_______ _______
_______ _______
</TABLE>
* Indicates party-in-interest to the Plan
F-12
<PAGE>
Schedule 2
__________
EIN 75-1943604
PLAN #1
<TABLE>
<CAPTION>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
LINE 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
Year Ended December 31, 1997
AMOUNTS RECEIVED DURING THE YEAR DESCRIPTION OF LOAN AMOUNT OVERDUE
_________________________________ ___________________________ ____________________
ORIG. UNPAID BALANCE DATE OF LOAN INTEREST
SSN PARTICIPANT LOAN AMT PRINCIPAL INTEREST AS OF 12/31/97 LOAN DURATION RATE PRINCIPAL INTEREST
___________ ______________ ________ _________ ________ ______________ _______ ________ ________ _________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
###-##-#### Zarbock, J. $ 1,300 $ 232 $ 42 $ 1,068 4/14/97 2 9.25% $ 1,068 0
###-##-#### Carpenter, F. 1,700 152 64 1,548 4/07/97 4 9.25 1,548 0
###-##-#### Fiore, C. 2,500 33 9 2,467 1/13/97 3 9.25 2,467 0
6,000 1,040 192 4,960 8/31/96 3 9.25 4,960 0
###-##-#### Smole, D. 2,000 0 0 2,000 3/31/96 5 9.25 2,000 0
###-##-#### Chrusciel, N. 2,600 0 0 2,600 4/30/96 3 9.25 2,600 0
###-##-#### Williams, B. 1,700 1,676 0 24 11/06/92 3 7.00 24 0
###-##-#### Motte, C. 1,778 1,027 98 751 4/30/96 2 9.25 751 0
3,000 73 43 2,927 4/14/97 5 9.50 2,927 0
###-##-#### Graham, D. 2,165 0 0 2,165 1/04/96 1.5 9.75 2,165 0
###-##-#### Dorado, M. 7,930 636 0 7,294 1/16/95 5 9.50 7,294 0
###-##-#### East, V. 1,000 0 0 1,000 12/06/95 1 9.75 1,000 0
1,000 81 44 914 10/14/96 5 9.25 914 0
###-##-#### Jones, D. 14,500 1,631 880 12,849 9/28/92 5 9.25 12,849 0
###-##-#### Schenkman, P. 5,000 2,209 8 2,794 6/01/93 5 7.00 2,794 0
###-##-#### Ledesma, A. 2,300 0 0 2,300 11/10/97 5 9.75 2,300 0
###-##-#### Wells, C. 6,000 370 208 5,630 6/30/96 5 9.25 5,630 0
###-##-#### Muniz, R. 7,125 2,024 558 5,101 12/15/94 6 9.50 5,101 0
###-##-#### Sainz, C. 10,333 0 0 10,333 12/06/95 6 9.75 10,333 0
</TABLE>
F-13
<PAGE>
Schedule 3
__________
EIN 75-1943604
PLAN #1
<TABLE>
<CAPTION>
MICHAELS STORES, INC. EMPLOYEES 401(K) PLAN
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
Year Ended December 31, 1997
(In thousands)
_________________________________________________
a. Identity of party involved c. Purchase d. Sales g. Cost of i. Net
b. Description of assets price (1) price (2) assets sold gain or (loss)
_____________________________ ___________ _________ ___________ ______________
Category (iii) - Series of securities transactions in excess of 5% of the Plan
______________________________________________________________________________
assets at January 1, 1997
_________________________
<S> <C> <C> <C> <C>
American Mutual Funds:
American Balanced Fund $1,228 $ 577 $ 307 $ 270
WB DTF Short Term
Investment Fund 9,675 9,127 9,127 -
Growth Fund of America 2,073 1,054 483 571
Intermediate Bond Fund
of America 823 723 744 (21)
Investment Company of
America Fund 1,667 946 275 671
New Perspective Fund 1,051 694 433 261
Michaels Stores, Inc.
Common Stock 1,201 2,710 1,625 1,085
</TABLE>
There were no category (i), (ii) or (iv) reportable transactions during fiscal
1997.
(1) Cost (column g.) and current value of asset on transaction date
(column h.) are the same amount as the purchase price.
(2) Current value of asset on transaction date (column h.) is the same
amount as the selling price.
Note: Columns e. and f. are not applicable.
F-14
<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 26, 1998, 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 year
ended December 31, 1997.
/s/ Ernst & Young LLP
______________________
ERNST & YOUNG LLP
Dallas, Texas
June 26, 1998
F-15
