UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-23157
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A.C. MOORE ARTS & CRAFTS, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 22-3527763
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 University Court, Blackwood, NJ 08012
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(Address of principal executive offices)
(Zip Code)
(856) 228-6700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 6, 2000
- ----- -------------------------------
Common Stock, no par value 7,405,333
A.C. MOORE ARTS & CRAFTS, INC.
TABLE OF CONTENTS
Page
Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for the three
and nine month periods ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT 13
2
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,104 $14,553
Inventories 72,931 59,327
Prepaid expenses and other current assets 2,021 1,394
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77,056 75,274
Property and equipment, net 19,601 14,711
Other assets 698 632
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$97,355 $90,617
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 7,750 $ --
Current portion of capital leases 369 369
Accounts payable to trade and others 21,344 20,224
Accrued payroll and payroll taxes 2,358 3,019
Accrued expenses 3,264 3,005
Income taxes payable 31 2,032
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35,116 28,649
Long-term liabilities:
Capital leases 926 1,199
Deferred taxes 1,720 1,720
Other long-term liabilities 2,448 2,077
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40,210 33,645
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SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, none issued
Common stock, no par value, 20,000,000 shares
authorized, 7,405,333 shares outstanding 43,221 43,116
Retained earnings 13,924 13,856
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57,145 56,972
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$97,355 $90,617
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See accompanying notes to financial statements
3
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 60,906 $ 50,245 $ 168,876 $ 143,841
Cost of sales (including buying and
distribution costs) 38,550 31,908 106,844 91,300
----------- ----------- ----------- -----------
Gross margin 22,356 18,337 62,032 52,541
Selling, general and administrative expenses 21,778 18,138 60,295 51,910
Store pre-opening expenses 576 281 1,532 281
----------- ----------- ----------- -----------
Income (loss) from operations 2 (82) 205 350
Net interest expense (income) 149 48 95 (33)
----------- ----------- ----------- -----------
Income (loss) before income taxes (147) (130) 110 383
Income tax expense (benefit) (56) (51) 42 149
----------- ----------- ----------- -----------
Net income (loss) $ (91) $ (79) $ 68 $ 234
=========== =========== =========== ===========
Basic net income (loss) per share $ (0.01) $ (0.01) $ 0.01 $ 0.03
=========== =========== =========== ===========
Weighted average shares outstanding 7,405,167 7,405,000 7,405,067 7,405,000
=========== =========== =========== ===========
Diluted net income (loss) per share $ (0.01) $ (0.01) $ 0.01 $ 0.03
=========== =========== =========== ===========
Weighted average shares outstanding
plus impact of stock options 7,471,765 7,405,000 7,440,978 7,405,000
=========== =========== =========== ===========
See accompanying notes to financial statements
4
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net Income $ 68 $ 234
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 2,717 2,089
Compensation expense related to stock options 102 104
Changes in assets and liabilities:
Inventories (13,604) (8,549)
Prepaid expenses and other current assets (627) 567
Accounts payable and accrued expenses (1,283) (456)
Other long-term liabilities 371 299
Other (90) (23)
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Net cash (used in) operating activities (12,346) (5,735)
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Cash flows (used in) investing activities: Capital expenditures (7,580) (4,007)
-------- --------
Cash flows from financing activities:
Repayment of bank overdraft -- (2,523)
Proceeds from line of credit 7,750 500
Proceeds from redemption of marketable securities -- 3,894
Repayment of capital leases (273) (261)
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Net cash provided by financing activities 7,477 1,610
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Net (decrease) in cash (12,449) (8,132)
Cash and cash equivalents at beginning of period 14,553 9,475
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Cash and cash equivalents at end of period $ 2,104 $ 1,343
======== ========
See accompanying notes to financial statements
5
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively
the "Company"). The Company is a chain of 49 retail stores selling arts and
crafts merchandise. The stores are located throughout the Eastern United States.
These financial statements have been prepared by management without audit and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. Due to the seasonality of the Company's business, the
results for the interim periods are not necessarily indicative of the results
for the year. The accompanying consolidated financial statements reflect, in the
opinion of management, all adjustments necessary for a fair presentation of the
interim financial statements. In the opinion of management, all such adjustments
are of a normal and recurring nature.
(2) Management Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reported period and related disclosures. Significant estimates made as of
and for the three and nine month periods ended September 30, 2000 and 1999
include provisions for shrinkage, capitalized buying, warehousing and
distribution costs related to inventory and markdowns of merchandise
inventories. Actual results could differ materially from those estimates.
(3) Earnings Per Share
The weighted average shares outstanding plus impact of stock options for the
three and nine month periods ended September 30, 1999 excludes potentially
dilutive shares as the result would be antidilutive.
(4) New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will require that all derivative
financial instruments be recognized as either assets or liabilities in the
balance sheet. SFAS No. 133 will be effective no later than for the Company's
first quarter of 2001. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's consolidated results of operation, financial
position or cash flows.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements. These forward-looking statements do not constitute historical facts
and involve risks and uncertainties. Actual results could differ materially from
those referred to in the forward-looking statements due to a number of factors,
including, but not limited to, the following: customer demand, the effect of
economic conditions, the impact of competitors' locations or pricing, the
availability of acceptable real estate locations for new stores, difficulties
with respect to new information system technologies, supply constraints or
difficulties, the effectiveness of advertising strategies and the ability to
meet capital needs. For additional information concerning factors that could
cause actual results to differ materially from the information contained herein,
reference is made to the information under the heading "Cautionary Statement
Relating to Forward Looking Statements" in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
Due to the importance of the fall selling season, the fourth quarter has
historically contributed, and the Company expects it will continue to
contribute, disproportionately to the Company's profitability for the entire
year. As a result, the Company's quarterly results of operations may fluctuate.
In addition, results of a period shorter than a full year may not be indicative
of results expected for the entire year.
Results of Operations
The following table sets forth, for the periods indicated, selected statement of
operations data expressed as a percentage of net sales and the number of stores
open at the end of each such period:
Three months ended Nine months ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 63.3% 63.5% 63.3% 63.5%
---------- ---------- ---------- ----------
Gross Margin 36.7% 36.5% 36.7% 36.5%
Selling, general and administrative expenses 35.8% 36.1% 35.7% 36.1%
Store pre-opening expenses 0.9% 0.6% 0.9% 0.2%
---------- ---------- ---------- ----------
Income (loss) from operations 0.0% (0.2)% 0.1% 0.2%
Net interest (income) 0.2% 0.1 % 0.1% (0.1)%
---------- ---------- ---------- ----------
Income (loss) before income taxes (0.2)% (0.3)% 0.0% 0.3%
Income tax expense (benefit) (0.1)% (0.1)% 0.0% 0.1%
---------- ---------- ---------- ----------
Net income (loss) (0.1)% (0.2)% 0.0% 0.2%
========== ========== ========== ==========
Number of stores open at end of period 48 38
7
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net Sales. Net sales increased $10.7 million, or 21.2%, to $60.9 million
in the three months ended September 30, 2000 from $50.2 million in the
comparable 1999 period. This increase resulted from (i) net sales of $8.5
million from stores opened in 1999 and 2000 not included in the comparable store
base, and (ii) a comparable store sales increase of $2.2 million, or 4%. Stores
are added to the comparable store base at the beginning of the fourteenth full
month of operation.
Gross Margin. Cost of sales includes the cost of merchandise, plus
certain distribution and purchasing costs. Cost of sales increased $6.6 million,
or 20.8%, to $38.6 million in the three months ended September 30, 2000 from
$31.9 million in the three months ended September 30, 1999. The gross margin
increased $4.0 million, or 21.9%, to $22.4 million in the three months ended
September 30, 2000 from $18.3 million in the three months ended September 30,
1999. The gross margin increased to 36.7% of net sales in the three months ended
September 30, 2000 from 36.5% in the three months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include (a) direct store level expenses, including rent
and related operating costs, payroll, advertising, depreciation and other direct
costs, and (b) corporate level costs not directly associated with or allocable
to cost of sales including executive salaries, accounting and finance, corporate
information systems, office facilities and other corporate expenses. Selling,
general and administrative expenses increased $3.6 million, or 20.1%, in the
three months ended September 30, 2000 to $21.8 million from $18.1 million in the
three months ended September 30, 1999. Of the increase, $2.9 million was
attributable to the stores opened in 2000 which were not open during 1999 and
the stores opened in 1999 not in the comparable store base. Of the remainder,
$200,000 is due to increases in the comparable stores and $500,000 is
attributable to the increase in corporate costs to support the growth of the
Company. As a percentage of sales, selling, general and administrative costs
decreased to 35.8% of net sales in the three months ended September 30, 2000
from 36.1% of net sales in the three months ended September 30, 1999. This
decrease is primarily due to leveraging store and corporate expenses as a result
of increased sales.
Store Pre-Opening Expenses. The Company expenses store pre-opening
expenses as incurred. Pre-opening expense for the three new stores opened in the
third quarter of 2000 amounted to $576,000. In the third quarter of 1999, the
Company opened one store and incurred pre-opening expenses of $281,000.
Net Interest Expense (Income). In the third quarter of 2000, the Company
had interest expense of $149,000 compared with interest expense of $48,000 in
1999. The increase is due to higher bank borrowing resulting from the use of
cash to fund the new stores added in 1999 and 2000.
Income Tax Expense (Benefit). The Company's effective income tax rate
was 38% for the third quarter ended September 30, 2000 and 39% for the third
quarter ended September 30, 1999.
8
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net Sales. Net sales increased $25.0 million, or 17.4%, to $168.9
million in the nine months ended September 30, 2000 from $143.8 million in the
comparable 1999 period. This increase resulted from (i) net sales of $18.1
million from stores opened in 1999 and 2000 not included in the comparable store
base, and (ii) a comparable store sales increase of $6.9 million, or 5%.
Gross Margin. Cost of sales increased $15.5 million, or 17.0%, to $106.8
million in the nine months ended September 30, 2000 from $91.3 million in the
nine months September 30, 1999. The gross margin increased $9.5 million, or
18.1%, to $62.0 million in the nine months ended September 30, 2000 from $52.5
million in the nine months ended September 30, 1999. The gross margin increased
to 36.7% of net sales in the nine months ended September 30, 2000 from 36.5% in
the nine months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.4 million, or 16.2% in the nine months
ended September 30, 2000 to $60.3 million from $51.9 million in the nine months
ended September 30, 1999. Of the increase, $6.4 million was attributable to the
stores opened in 2000 which were not open during 1999 and the stores opened in
1999 not in the comparable store base. Of the remainder, $800,000 is due to
increases in the comparable stores and $1.1 million is attributable to the
increase in corporate costs to support the growth of the Company. As a
percentage of sales, selling, general and administrative costs decreased to
35.7% of net sales in the nine months ended September 30, 2000 from 36.1% of net
sales in the nine months ended September 30, 1999. This decrease is primarily
due to the leveraging of store and corporate expenses as a result of increased
sales.
Store Pre-Opening Expenses. Pre-opening expenses for the eight new
stores opened in the first nine months of 2000 amounted to $1.5 million. In the
first nine months of 1999, the Company opened one store and incurred pre-opening
expenses of $281,000.
Net Interest Expense (Income). In the first nine months of 2000 the
Company had interest expense of $95,000 compared with interest income of $33,000
in 1999. The increase is due to higher bank borrowing resulting from the use of
cash to fund the new stores added in 1999 and 2000.
Income Tax Expense (Benefit). The Company's effective income tax rate
was 38% for first nine months ended September 30, 2000 and 39% for the first
nine months ended September 30, 1999.
Liquidity and Capital Resources
The Company's cash needs are primarily for working capital to support
its inventory requirements and capital expenditures, store pre-opening costs and
beginning inventory for new stores.
At September 30, 2000 and December 31, 1999, the Company's working
capital was $41.9 million and $46.6 million, respectively. Cash used in
operations was $12.3 million for the nine months ended September 30, 2000 as a
result of an increase in inventory in the amount of $13.6 million for new stores
and for the buildup of imported product for the fall and Christmas selling
seasons.
9
Net cash used in investing activities during the nine months ended
September 30, 2000 was $7.6 million. This use of cash was for capital
expenditures, primarily related to new stores and the implementation of a new
point of sale system. In 2000, the Company expects to spend approximately $8.5
million on capital expenditures, which includes approximately $4.7 million for
new store openings, $2.6 million for remodeling and systems in existing stores,
and the remainder for warehouse equipment and systems development. There are no
other material commitments for capital expenditures other than new store
openings in the next 12 months.
Net cash provided by financing activities principally represents
$7,750,000 borrowed against its $25 million revolving credit facility. The
proceeds were used to fund new store openings, including related capital
expenditures.
The Company believes the cash generated from operations during the year
and available borrowings under the financing agreement will be sufficient to
finance its working capital and capital expenditure requirements for at least
the next 12 months.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all derivative
financial instruments be recognized as either assets or liabilities in the
balance sheet. SFAS No. 133 will be effective no later than for the Company's
first quarter of 2001. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's consolidated results of operation, financial
position or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
September 30, 2000.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A.C. MOORE ARTS & CRAFTS, INC.
Date: November 8, 2000 By: /s/ Leslie H. Gordon
-------------------------------
Executive Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
12