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 March 31, 2001
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
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 University Court, Blackwood, NJ 08012
-----------------------------------------
(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) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 4, 2001
----- ----------------------------
Common Stock, no par value 7,425,833
A.C. MOORE ARTS & CRAFTS, INC.
TABLE OF CONTENTS
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Consolidated Statements of Income for the three
months ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 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 Disclosure About
Market Risk 9
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 10
SIGNATURES 11
2
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2001 2000
----------------- -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,918 $ 10,310
Inventories 76,233 72,786
Prepaid expenses and other current assets 1,984 2,052
----------------- -------------------
80,135 85,148
Property and equipment, net 23,202 21,517
Other assets 743 727
----------------- -------------------
$ 104,080 $ 107,392
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 4,750 $ -
Current portion of capital leases 389 389
Accounts payable to trade and others 22,814 26,237
Accrued payroll and payroll taxes 2,367 3,822
Accrued expenses 4,023 4,274
Income taxes payable 308 3,258
----------------- -------------------
34,651 37,980
----------------- -------------------
Long-term liabilities:
Capital leases 717 812
Deferred taxes 2,320 2,320
Other long-term liabilities 2,725 2,599
----------------- -------------------
5,762 5,731
----------------- -------------------
40,413 43,711
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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, 7,425,500 shares outstanding at March 31, 43,316 43,268
2001 and 7,415,333 outstanding at December 31, 2000
Retained earnings 20,351 20,413
----------------- -------------------
63,667 63,681
----------------- -------------------
$ 104,080 $ 107,392
================= ===================
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
March 31,
------------------------------------------
2001 2000
------------------ ------------------
Net sales $ 66,423 $ 52,783
Cost of sales (including buying
and distribution costs) 41,978 33,375
------------------ ------------------
Gross Margin 24,445 19,408
Selling, general and administrative expenses 23,439 18,596
Store pre-opening expenses 1,075 645
------------------ ------------------
Income (loss) from operations (69) 167
Net interest expense (income) 32 (66)
------------------ ------------------
Income (loss) before income taxes (101) 233
Income tax expense (benefit) (39) 89
------------------ ------------------
Net income (loss) $ (62) $ 144
================== ==================
Basic net income (loss) per share $ (0.01) $ 0.02
================== ==================
Weighted average shares outstanding 7,422,958 7,405,000
================== ==================
Diluted net income (loss) per share $ (0.01) $ 0.02
================== ==================
Weighted average shares outstanding plus
impact of stock options 7,505,850 7,411,000
================== ==================
See accompanying notes to financial statements
4
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three months ended
March 31,
--------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $ (62) $ 144
Adjustments to reconcile net income (loss) to net cash (used in) operating
activities:
Depreciation and amortization 1,134 834
Compensation expense related to stock options -- 34
Changes in assets and liabilities:
Inventories (3,447) (2,153)
Prepaid expenses and other current assets 68 (94)
Accounts payable, accrued payroll
payroll taxes and accrued expenses (7,326) (6,256)
Income taxes payable (2,950) (1,810)
Other long-term liabilities 126 111
Other (23) 3
-------- --------
Net cash (used in) operating activities (12,480) (9,187)
-------- --------
Cash flows (used in) investing activities: Capital expenditures (2,812) (2,757)
-------- --------
Cash flows from financing activities:
Proceeds from bank overdraft 2,197 223
Proceeds from line of credit 4,750 --
Exercise of stock options 48 --
Repayment of capital leases (95) (89)
-------- --------
Net cash provided by financing activities 6,900 134
-------- --------
Net (decrease) in cash (8,392) (11,810)
Cash and cash equivalents at beginning of period 10,310 14,553
-------- --------
Cash and cash equivalents at end of period $ 1,918 $ 2,743
======== ========
See accompanying notes to financial statements
5
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 54 retail superstores 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, 2000. 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 month periods ended March 31, 2001 and 2000 include provisions
for shrinkage, capitalized buying, warehousing and distribution costs related to
inventory and markdowns of merchandise inventories. Actual results could differ
from those estimates.
(3) 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 requires that all derivative financial
instruments be recognized as either assets or liabilities in the balance sheet.
SFAS No. 133, which was effective for the Company's first quarter of 2001, has
not had 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 March 31,
----------------------------
2001 2000
----------- ------------
Net sales 100.0 % 100.0 %
Cost of sales 63.2 % 63.2 %
----------- ------------
Gross margin 36.8 % 36.8 %
Selling, general and
administrative expenses 35.3 % 35.2 %
Store pre-opening expenses 1.6 % 1.3 %
----------- ------------
Income (loss) from operations (0.1) % 0.3 %
Net interest expense (income) 0.1 % (0.1) %
----------- ------------
Income (loss) before income taxes (0.2) % 0.4 %
Income tax expense (benefit) (0.1) % 0.1 %
----------- ------------
Net income (loss) (0.1) % 0.3 %
=========== ============
Number of stores open at end of period 53 42
7
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net Sales. Net sales increased $13.6 million, or 25.8%, to $66.4 million
in the three months ended March 31, 2001 from $52.8 million in the comparable
2000 period. This increase resulted from (i) net sales of $2.2 million from
three new stores opened during the period, (ii) net sales of $9.6 million from
superstores opened in 2000 not included in the comparable store base, and (iii)
a comparable store sales increase of $1.8 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 $8.6 million,
or 25.8%, to $42.0 million in the three months ended March 31, 2001 from $33.4
million in the three months ended March 31, 2000. The gross margin increased
$5.0 million, or 26.0%, to $24.4 million in the three months ended March 31,
2001 from $19.4 million in the three months ended March 31, 2000. The gross
margin was 36.8% of net sales in both the three months periods ended March 31,
2001 and March 31, 2000.
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 $4.8 million, or 26.0%, in the
three months ended March 31, 2001 to $23.4 million from $18.6 million in the
three months ended March 31, 2000. Of the increase, $4.0 million was
attributable to the superstores open in 2001 which were not open during 2000 and
the superstores opened in 2000 not in the comparable store base. Of the
remainder, $400,000 is due to increases in the comparable superstores (2.6%) and
$400,000 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 increased to 35.3% of net sales in the three months ended
March 31, 2001 from 35.2% of net sales in the three months ended March 31, 2000.
This increase is primarily due to the newer stores, which, on average, have
higher operating costs as a percent of sales than older stores.
Store pre-opening Expense. The Company expenses store pre-opening
expense as incurred. Pre- opening expense for the three new superstores opened
in the first quarter of 2001, the two new stores which opened in April and one
store which was relocated amounted to $1.1 million. In the first quarter of
2000, the Company incurred store pre-opening costs of $645,000 related to the
two stores opened in that quarter and two stores which opened in the second
quarter.
Net Interest Expense (Income). In the first quarter of 2001 the Company
had net interest expense of $32,000 compared with interest income of $66,000 in
2000. The change is due to the use of short-term borrowing to fund the new
stores added in 2000 and 2001.
Income Taxes. The Company's effective income tax rate was 38.6% for the
first quarter ended March 31, 2001 and 38.2% for the first quarter ended March
31, 2000.
Liquidity and Capital Resources.
The Company's cash needs are primarily for working capital to support
its inventory requirements and capital expenditures, pre-opening costs and
beginning inventory for new superstores.
8
At March 31, 2001 and December 31, 2000 the Company's working capital
was $45.5 million and $47.2 million, respectively. Cash used in operations was
$12.5 million for the three months ended March 31, 2001 as a result of the
seasonal reduction of accounts payable and accrued payroll in the amount of $7.3
million and an increase in inventory of $3.4 million to support the new
superstores.
Net cash used in investing activities during the three months ended
March 31, 2001 was $2.8 million. This use of cash was for capital expenditures,
primarily related to new stores. In 2001, the Company expects to spend
approximately $11.0 million on capital expenditures, which includes
approximately $9.0 million for new store openings, and the remainder for
remodeling and systems in existing stores, 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 includes $4.8 million in
borrowings under the Company's $25 million revolving credit facility and $2.2
million of proceeds from bank overdrafts. The overdrafts represented outstanding
checks at certain banks in excess of funds on deposit at those banks. These
accounts are maintained as zero balance accounts and are covered as required
from funds available at other banks.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
9
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.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits:
None
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 2001.
10
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: May 7, 2001 By: /s/ Leslie H. Gordon
-------------------------------
Executive Vice President
and Chief Financial Officer
(duly authorized officer
and principal financial
officer)
11