UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 2004
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
A.C. MOORE ARTS & CRAFTS, INC.
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(Exact name of registrant as specified in charter)
Pennsylvania 22-3527763
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 A.C. Moore Drive, Berlin, NJ 08009
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(Address of principal executive offices) (Zip Code)
(856) 768-4930
-------------------------------
(Registrant's telephone number,
including area code)
N/A
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(Former name, former address and former fiscal year, if
changed since last report)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] 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 NOVEMBER 5, 2004
-------------------------- -------------------------------
Common Stock, no par value 19,604,785
EXPLANATORY NOTE
As previously disclosed in our Form 8-K filed on March 3, 2005 and in our Form
10-K for the year ended December 31, 2004, following a review of our
lease-related accounting policies, we determined that our method of accounting
for leasehold improvements funded by landlord incentives or allowances (tenant
improvement allowances) and our method of accounting for rent holidays were not
in accordance with accounting principles generally accepted in the United States
of America. As a result, we have restated, by means of our Annual Report on Form
10-K for the year ended December 31, 2004, filed on March 16, 2005, our
consolidated balance sheet at December 31, 2003, and our consolidated statements
of income, cash flows, and shareholders' equity for the years ended December 31,
2003 and 2002. The restatement also affected periods prior to 2002. Note 2 to
the financial statements included in our 2004 Form 10-K shows the impact of the
restatement adjustments to retained earnings as of January 1, 2002, to reflect
the impact of the restatement on periods prior to 2002. For information on the
impact of the restatement on the years 2001 and 2000, reference is made to Item
6. Selected Financial Data in our 2004 Form 10-K. Concurrently with the filing
of this Form 10-Q/A, we are filing quarterly reports on Form 10-Q/A for the
quarterly periods March 31, 2004 and June 30, 2004 to reflect restated amounts
for the first and second quarters of 2004 and the comparable interim periods in
2003.
We have historically accounted for tenant improvement allowances as a reduction
of the property, plant and equipment account on our balance sheet, amortized the
allowances as a reduction to depreciation expense in our income statement and
reflected the cash received within investing activities in our statement of cash
flows. FASB Technical Bulletin 88-1 ("FTB 88-1"), "Issues Relating to Accounting
for Leases," requires these allowances to be recorded as deferred rent
liabilities on the consolidated balance sheets and amortized as a reduction to
rent expense on the income statement. In addition, the cash received by us
should have been recorded as a component of operating activities on our
consolidated statements of cash flows. Depreciation of the leasehold improvement
begins effective with the opening of the store as we have accounted for it in
the past. However, amortization of the landlord allowance commences on the date
we have the right to control the use of the leased property, which is consistent
with the recording of rent expense as described below. Previously, we had
commenced amortization on the date the store was opened.
We have historically recognized rent holiday periods on a straight-line basis
over the lease term commencing with the opening date for each store. The period
during which the store was being fixtured and stocked with merchandise was
excluded from the straight-line rent schedule. FASB Technical Bulletin 85-3
("FTB 85-3"), "Accounting for Operating Leases with Scheduled Rent Increases,"
states that rent holidays should be recognized on a straight-line basis over the
lease term, which commences on the date we have the right to control the use of
the leased property. For us, this is generally one to three months prior to a
store opening date. The amount of rent expensed prior to store opening will be
included in "Pre-opening expenses" on our consolidated statements of income.
This Amendment No. 1 on Form 10-Q/A to our quarterly report on Form 10-Q for the
quarter ended September 30, 2004 ("Original Filing"), initially filed with the
Securities and Exchange Commission ("SEC") on November 8, 2004, is being filed
to reflect restatements of our consolidated balance sheet at September 30, 2004
and our consolidated statements of income and consolidated cash flows for the
three and nine month periods ended September 30, 2004 and 2003 and the notes
related thereto. For a more detailed description of these restatements, see Note
2, "Restatement of Financial Statements" to the accompanying consolidated
financial statements and the section entitled "Restatement" in Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in this Form 10-Q/A.
i
For the convenience of the reader, this Form 10-Q/A includes the Original Filing
in its entirety. However, this Form 10-Q/A only amends and restates Items 1, 2
and 4 of Part I and Item 5 of Part II of the Original Filing and no other
material information in the Original Filing is amended hereby. The foregoing
items have not been updated to reflect other events concerning our business or
financial condition occurring after the Original Filing or to modify or update
those disclosures affected by subsequent events. In addition, pursuant to the
rules of the SEC, Item 6 of Part II of the Original Filing has been amended to
contain currently-dated certifications from our Chief Executive Officer and
Chief Financial Officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer
and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1,
31.2 and 32, respectively.
ii
A.C. MOORE ARTS & CRAFTS, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2004 (Restated)
and December 31, 2003.......................................................................1
Consolidated Statements of Income for the three and nine month periods ended
September 30, 2004 and 2003 (Restated)......................................................2
Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 2004 and 2003 (Restated)......................................................3
Notes to Consolidated Financial Statements..................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................16
Item 4. Controls and Procedures........................................................................16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....................................17
Item 3. Defaults Upon Senior Securities................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................17
Item 6. Exhibits.......................................................................................18
SIGNATURES...................................................................................................19
iii
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- -------------
(as restated,
See Note 2)
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,730 $ 43,700
Marketable securities 13,368 --
Inventories 137,976 121,493
Prepaid income taxes 4,706 --
Prepaid expenses and other current assets 5,560 2,962
------------- -------------
189,340 168,155
Non-current assets:
Marketable securities -- 14,132
Property and equipment, net 80,762 51,075
Other assets 1,742 1,801
------------- -------------
$ 271,844 $ 235,163
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,571 $ 504
Trade accounts payable 40,602 33,558
Accrued payroll and payroll taxes 3,935 4,501
Accrued expenses 8,390 10,015
Income taxes payable -- 6,826
------------- -------------
55,498 55,404
------------- -------------
Long-term liabilities:
Long-term debt 27,429 --
Deferred tax liability 6,969 3,977
Other long-term liabilities 12,321 10,523
------------- -------------
46,719 14,500
------------- -------------
102,217 69,904
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized, none issued
Common stock, no par value, 40,000,000 shares
authorized; issued and outstanding 19,505,215 shares at
September 30, 2004 and 19,357,541 at December 31, 2003 106,963 105,023
Retained earnings 62,664 60,236
------------- -------------
169,627 165,259
------------- -------------
$ 271,844 $ 235,163
============= =============
See accompanying notes to financial statements
1
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,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
(as restated, (as restated, (as restated, (as restated,
See Note 2) See Note 2) See Note 2) See Note 2)
Net sales $ 107,713 $ 98,600 $ 320,376 $ 284,238
Cost of sales (including buying and
distribution costs) 64,010 61,987 195,401 179,297
------------- ------------- ------------- -------------
Gross margin 43,703 36,613 124,975 104,941
Selling, general and administrative expenses 40,795 33,787 118,800 99,100
Store pre-opening expenses 1,488 1,062 2,456 1,944
------------- ------------- ------------- -------------
Income from operations 1,420 1,764 3,719 3,897
Interest expense 133 19 148 70
Interest (income) (119) (111) (377) (389)
------------- ------------- ------------- -------------
Income before income taxes 1,406 1,856 3,948 4,216
Provision for income taxes 541 708 1,520 1,611
------------- ------------- ------------- -------------
Net income $ 865 $ 1,148 $ 2,428 $ 2,605
============= ============= ============= =============
Net income per share:
Basic $ 0.04 $ 0.06 $ 0.12 $ 0.14
============= ============= ============= =============
Diluted $ 0.04 $ 0.06 $ 0.12 $ 0.13
============= ============= ============= =============
See accompanying notes to financial statements
2
A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended
September 30,
------------------------------
2004 2003
------------- -------------
(as restated, (as restated,
See Note 2) See Note 2)
Cash flows from operating activities:
Net income $ 2,428 $ 2,605
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,290 5,228
Provision for deferred income taxes 2,992 790
Changes in assets and liabilities:
Inventories (16,483) (22,587)
Prepaid expenses and other current assets (2,598) (2,925)
Accounts payable, accrued payroll,
payroll taxes and accrued expenses 4,853 7,042
Income taxes (10,308) (1,041)
Other long-term liabilities 1,915 1,639
Other 59 (22)
------------- -------------
Net cash used in operating activities (10,853) (9,271)
------------- -------------
Cash flows from investing activities:
Capital expenditures (36,094) (14,665)
Investment in marketable securities 764 (14,161)
------------- -------------
Cash flows used in investing activities (35,329) (28,826)
------------- -------------
Cash flows from financing activities:
Exercise of stock options 716 2,533
Increase in long-term debt 30,000 -
Repayment of equipment leases (504) (1,031)
------------- -------------
Net cash provided by financing activities 30,212 1,502
------------- -------------
Net decrease in cash (15,970) (36,595)
Cash and cash equivalents at beginning of period 43,700 61,584
------------- -------------
Cash and cash equivalents at end of period $ 27,730 $ 24,989
============= =============
See accompanying notes to financial statements
3
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 91 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, 2003. 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) RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's interim consolidated financial
statements for the period ended September 30, 2004, and following a review of
its lease-related accounting policies, the Company's management determined that
its method of accounting for leasehold improvements funded by landlord
incentives or allowances (tenant improvement allowances) and its method of
accounting for rent holidays were not in accordance with accounting principles
generally accepted in the United States of America. As a result, the Company's
management is restating its interim financial statements as of and for the
quarterly period ended September 30, 2004 in this Amendment No. 1 on Form
10-Q/A.
The Company has historically accounted for tenant improvement allowances as a
reduction of the property, plant and equipment account on its balance sheet,
amortized the allowances as a reduction to depreciation expense in its income
statement and reflected the cash received within investing activities in its
statement of cash flows. FASB Technical Bulletin 88-1 ("FTB 88-1"), "Issues
Relating to Accounting for Leases," requires these allowances to be recorded as
deferred rent liabilities on the consolidated balance sheets and amortized as a
reduction to rent expense on the income statement. In addition, the cash
received by the Company should have been recorded as a component of operating
activities on the consolidated statements of cash flows. Depreciation of the
leasehold improvement begins effective with the opening of the store as the
Company has accounted for it in the past. However, amortization of the landlord
allowance commences on the date the Company has the right to control the use of
the leased property, which is consistent with the recording of rent expense as
described below. Previously, the Company had commenced amortization on the date
the store was opened.
The Company has historically recognized rent holiday periods on a straight-line
basis over the lease term commencing with the opening date for each store. The
period during which the store was being fixtured and stocked with merchandise
was excluded from the straight-line rent schedule. FASB Technical Bulletin 85-3
("FTB 85-3"), "Accounting for Operating Leases with Scheduled Rent Increases,"
states that rent holidays should be recognized on a straight-line basis over the
lease term, which commences on the date the Company has the right to control the
use of the leased property. For our Company, this is generally one to three
months prior to a store opening date. The amount of rent expensed prior to store
opening will be included in "Pre-opening expenses" on the Company's consolidated
statements of income. The correction of this accounting resulted in the Company
recording additional deferred rent in "Accrued lease liability," additional
leasehold improvements in "property and equipment, net" and to
4
adjust "Retained earnings" on the consolidated balance sheets, as well as to
correct "Pre-opening expenses" and "Selling, general, and administrative
expenses" in the consolidated statements of income.
The following is a summary of the impact of the restatement on the consolidated
statements of income for the three month and nine month periods ended September
30, 2004 and 2003, the consolidated balance sheets at December 31, 2003 and
September 30, 2004 and the consolidated statements of cash flows for the nine
month periods ended September 30, 2004 and 2003.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS PREVIOUSLY
REPORTED ADJUSTMENT AS RESTATED
------------- ---------- -----------
Three months ended September 30, 2004
Selling, general and administrative expenses .......... 40,857 (62) 40,795
Store pre-opening expenses ............................ 1,229 259 1,488
Income from operations ................................ 1,617 (197) 1,420
Income before income taxes ............................ 1,603 (197) 1,406
Provision for income taxes ............................ 617 (76) 541
Net income ............................................ 986 (121) 865
Basic net income per share ............................ 0.05 (0.01) 0.04
Diluted net income per share .......................... 0.05 (0.01) 0.04
Nine months ended September 30, 2004
Selling, general and administrative expenses .......... 118,986 (186) 118,800
Store pre-opening expenses ............................ 2,048 408 2,456
Income from operations ................................ 3,941 (222) 3,719
Income before income taxes ............................ 4,170 (222) 3,948
Provision for income taxes ............................ 1,605 (85) 1,520
Net income ............................................ 2,565 (136) 2,429
Basic net income per share ............................ 0.13 (0.01) 0.12
Diluted net income per share .......................... 0.13 (0.01) 0.12
Three months ended September 30, 2003
Selling, general and administrative expenses .......... 33,842 (55) 33,787
Store pre-opening expenses ............................ 821 241 1,062
Income from operations ................................ 1,950 (186) 1,764
Income before income taxes ............................ 2,042 (186) 1,856
Provision for income taxes ............................ 780 (72) 708
Net income ............................................ 1,262 (114) 1,148
Basic net income per share ............................ 0.07 (0.01) 0.06
Nine months ended September 30, 2003
Selling, general and administrative expenses .......... 99,266 (166) 99,100
Store pre-opening expenses ............................ 1,571 373 1,944
Income from operations ................................ 4,104 (207) 3,897
Income before income taxes ............................ 4,423 (207) 4,216
Provision for income taxes ............................ 1,690 (79) 1,611
Net income ............................................ 2,733 (128) 2,605
Diluted net income per share .......................... 0.14 (0.01) 0.13
5
CONSOLIDATED BALANCE SHEETS
---------------------------------------------
(DOLLARS IN THOUSANDS)
AS PREVIOUSLY
REPORTED ADJUSTMENT AS RESTATED
------------- ---------- -----------
September 30, 2004
Property and equipment, net............................ 76,588 4,174 80,762
Deferred tax liability................................. 8,027 (1,058) 6,969
Other long-term liabilities............................ 5,500 6,821 12,321
Retained earnings...................................... 64,253 (1,589) 62,664
Shareholders' equity................................... 171,216 (1,589) 169,627
Total liabilities and shareholders' equity............. 267,670 4,174 271,844
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------
(DOLLARS IN THOUSANDS)
AS PREVIOUSLY
REPORTED ADJUSTMENT AS RESTATED
------------- ---------- -----------
Nine months ended September 30, 2004
Net cash (used in) operating activities................ (12,110) 1,257 (10,853)
Cash flows (used in) investing activities.............. (34,072) (1,257) (35,329)
Nine months ended September 30, 2003
Net cash (used in) operating activities................ (10,395) 1,124 (9,271)
Cash flows (used in) investing activities.............. (27,702) (1,124) (28,826)
(3) 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, 2004 and 2003
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.
(4) MARKETABLE SECURITIES
Marketable securities represent investments in fixed financial instruments, are
classified as held-to-maturity and recorded at amortized cost. Securities with
maturities in excess of 12 months are classified as long-term.
(5) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets. Buildings and
building improvements are depreciated over periods of twenty to forty years,
furniture, fixtures and equipment are depreciated over periods of five to ten
years and leasehold improvements are depreciated over the shorter of their
estimated useful lives or the term of the related lease.
(6) LONG-TERM DEBT
On October 28, 2003 we signed two mortgage agreements with Wachovia Bank
relating to the new corporate offices and distribution center. The mortgages
totaling $30.0 million, all of which was
6
outstanding at September 30, 2004, are secured by land, building, and equipment.
Of the $30 million, $22.5 million is repayable over 15 years and $7.5 million is
repayable over 7 years. Monthly payments totaling $214,000 started in October
2004. The mortgages bear interest at rates that will vary between LIBOR plus 85
basis points and LIBOR plus 135 basis points, depending on the debt service
coverage ratio and the length of the mortgage payment. We have the option of
fixing the interest rate at any time. The mortgages contain covenants that,
among other things, restrict the Company's ability to incur additional
indebtedness or guarantee obligations in excess of $8 million, engage in mergers
or consolidations, dispose of assets, make acquisitions requiring a cash outlay
in excess of $10 million, make loans or advances in excess of $1 million, or
change the nature of its business. The company is restricted in capital
expenditures, paying dividends and making other distributions unless certain
financial covenants are maintained including those relating to tangible net
worth, funded debt and a current ratio. The mortgages also define various events
of default, including cross default provisions, defaults for any material
judgments or a change in control. At September 30, 2004 the Company was in
compliance with these agreements.
(7) REVENUE RECOGNITION
The Company recognizes revenue at the time of sale of merchandise to its
customers. The value of point of sale coupons, which have a very limited life,
and other discounts that result in a reduction of the price paid by the customer
are recorded as a reduction of sales. Sales returns, which are reserved for
based on historical experience, are provided for in the period that the related
sales are recorded. Proceeds from the sale of gift cards are recorded as gift
card liability and recognized as revenue when redeemed by the holder.
(8) INSURANCE CLAIMS
The Company records any insurance claim receivable based upon their net
realizable value when the amounts are estimable and the recovery is probable.
Gains on recovery of inventory in excess of cost are recognized in gross margin.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
(as restated) (as restated) (as restated) (as restated)
(in thousands, except per share data)
Net Income ..................................... $ 865 $ 1,148 $ 2,428 $ 2,605
============= ============= ============= =============
Weighted average shares:
Basic ..................................... 19,491 19,248 19,435 19,043
Incremental shares from assumed
exercise of stock option ................ 623 732 620 613
------------- ------------- ------------- -------------
Diluted ................................... 20,114 19,980 20,055 19,656
============= ============= ============= =============
Basic net income per share ..................... $ 0.04 $ 0.06 $ 0.12 $ 0.14
============= ============= ============= =============
Diluted net income per share ................... $ 0.04 $ 0.06 $ 0.12 $ 0.13
============= ============= ============= =============
Stock options excluded from calculation
because exercise price was greater than
average market price ...................... 314 322 314 620
------------- ------------- ------------- -------------
7
(10) STOCK-BASED COMPENSATION
The Company accounts for its employee stock options using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Compensation cost for stock options is
measured as the excess of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock. No
stock based compensation has been included in the determination of net income.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans, consistent with the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," net income and earnings per share would have been
reduced to the following pro-forma amounts:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income (as restated).... As reported $ 865,000 $ 1,148,000 $ 2,428,000 $ 2,605,000
Compensation cost, net 403,000 305,000 1,274,000 860,000
Pro forma 462,000 843,000 1,154,000 1,745,000
Basic earnings per share.... As reported $ .04 $ .06 $ .12 $ .14
Pro forma .02 .04 .06 .09
Diluted earnings per share.. As reported $ .04 $ .06 $ .12 $ .13
Pro forma .02 .04 .06 .09
The pro forma results may not be representative of the effects on reported
operations for future years. The fair value of the options was calculated using
a Black-Scholes options pricing model with the following weighted-average
assumptions:
2004 2003 2002 2001
------------- ------------- ------------- -------------
Average fair value
of options granted ............................ $ 11.15 $ 12.99 $ 10.08 $ 4.59
Risk free interest rate ........................ 3.8% 3.2% 4.1% 5.1%
Dividend yield ................................. -- -- -- --
Average expected life .......................... 4.9 yrs 4.5 yrs 7 yrs 7 yrs
Expected stock price volatility ................ 54.9% 56% 45.2% 48.4%
(11) CHANGE IN ACCOUNTING PRINCIPLE
For all vendor contracts entered into or modified after January 1, 2003, the
Company has adopted the Emerging Issues Task Force (EITF) 02-16, Accounting by a
Customer (including a Reseller) for Cash Consideration Received from a Vendor.
EITF 02-16 addresses the accounting for cash consideration received by a
customer from a vendor (e.g., slotting fees, cooperative advertising payments,
buydowns) and rebates or refunds from a vendor that is payable only if the
customer completes a specified cumulative level of purchases or remains a
customer for a specified time period. The change in accounting means that vendor
monies which support the Company's advertising programs are now being recorded
as a reduction in the cost of inventory, and are recognized as a reduction of
cost of goods sold when the inventory is sold. Previously, they were accounted
for as an offset to advertising costs. This
8
accounting change results in a timing difference as to when these monies are
recognized in the Company's income statement. The adoption of EITF 02-16 reduced
the Company's third quarter net income by $0.7 million or $0.04 per share and
the nine months net income by $2.4 million or $0.12 per share. In the third
quarter, the change increased gross margin by $2.7 million, increased selling,
general and administrative costs by $4.0 million, and decreased inventory by
$1.2 million. For the nine months, the change increased gross margin by $5.9
million, increased selling, general and administrative costs by $9.8 million,
and decreased inventory by $3.9 million. In 2003 we recorded vendor advertising
support as a reduction of selling general and administrative expenses in the
amount of $2.8 million in the third quarter and $6.2 million in the nine-month
period.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT
Following a review of our lease-related accounting policies, management
determined that our method of accounting for leasehold improvements funded by
landlord incentives or allowances (tenant improvement allowances) and our method
of accounting for rent holidays were not in accordance with accounting
principles generally accepted in the United States of America. As a result, we
are restating our interim financial statements as of and for the quarterly
period ended September 30, 2004 in this Amendment No. 1 on Form 10-Q/A.
We have historically accounted for tenant improvement allowances as a reduction
of the property, plant and equipment account on our balance sheet, amortized the
allowances as a reduction to depreciation expense in our income statement and
reflected the cash received within investing activities in our statement of cash
flows. FASB Technical Bulletin 88-1 ("FTB 88-1"), "Issues Relating to Accounting
for Leases," requires these allowances to be recorded as deferred rent
liabilities on the consolidated balance sheets and amortized as a reduction to
rent expense on the income statement. In addition, the cash received by us
should have been recorded as a component of operating activities on the
consolidated statements of cash flows. Depreciation of the leasehold improvement
begins effective with the opening of the store as we have accounted for it in
the past. However, amortization of the landlord allowance commences on the date
we have the right to control the use of the leased property, which is consistent
with the recording of rent expense as described below. Previously, we had
commenced amortization on the date the store was opened.
We have historically recognized rent holiday periods on a straight-line basis
over the lease term commencing with the opening date for each store. The period
during which the store was being fixtured and stocked with merchandise was
excluded from the straight-line rent schedule. FASB Technical Bulletin 85-3
("FTB 85-3"), "Accounting for Operating Leases with Scheduled Rent Increases,"
states that rent holidays should be recognized on a straight-line basis over the
lease term, which commences on the date we have the right to control the use of
the leased property. For us, this is generally one to three months prior to a
store opening date. The amount of rent expensed prior to store opening will be
included in "Pre-opening expenses" in our consolidated statements of income.
The effects of the restatement adjustments are discussed in Note 2 in the notes
to the consolidated financial statements. The following has been updated to give
effect to the restatement.
OVERVIEW
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: the impact of the adoption of EITF
Issue 02-16, customer demand, the effect of economic conditions, the impact of
adverse weather 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, achieving the expected
efficiencies in our new distribution center, supply constraints or difficulties,
the effectiveness of advertising strategies, the impact of the threat of
terrorist attacks and war, and the uncertainty of the final resolution of the
insurance claim relating to the roof collapse. 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
10
Forward-Looking Statements" in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
Due to the importance of our peak selling season, which includes Fall/Halloween,
Thanksgiving and Christmas, the fourth quarter has historically contributed, and
we expect it will continue to contribute, disproportionately to our
profitability for the entire year. As a result, our 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.
Our quarterly results of operations also may fluctuate based upon such factors
as the length of holiday seasons, the date on which holidays fall, the number
and timing of new store openings, the amount of store pre-opening expenses, the
amount of net sales contributed by new and existing stores, the mix of products
sold, the amount of sales returns, the timing and level of markdowns and other
competitive factors.
Starting in 2004, vendor monies which support our advertising programs are now
being recorded as a reduction in the cost of inventory, and are being recognized
as a reduction to cost of goods sold when the inventory is sold. Through 2003,
they were accounted for as an offset to advertising costs. This accounting
change results in a timing difference as to when these monies are recognized in
our income statement. The accounting change related to the adoption of EITF
02-16 reduced our third quarter net income by $0.7 million or $0.04 per share.
For the nine months, the accounting change reduced our net income by $2.4
million or $0.12 per share.
On July 27, 2004 a section of the roof on the Company's Blackwood, New Jersey
warehouse and corporate headquarters facility collapsed. The facility employs
over 150 team members, none of whom were injured in the incident.
At the time of the incident, the Company had been in the process of moving into
a new distribution center in Winslow Township, New Jersey. The move of the
offices was expedited and completed on August 4th.
The roof collapse in our then existing distribution center was a major
disruption to our business. We lost the ability to ship any merchandise from our
warehouses for one week. During the next seven weeks, over $7 million in
merchandise at cost was unavailable to be shipped to the stores as we had to
relocate the merchandise to the new distribution center and ensure that the
merchandise was salable.
The effort of recovering from the roof collapse resulted in delaying our ability
to bring our new facility up to the level of operation that we had anticipated.
We did not ship merchandise to stores in our customary manner. We lost a great
deal of imported fall ribbon, flags, fall seasonal and basic floral merchandise
that could not be replaced domestically. As we could not ensure merchandise
availability, we reduced two key promotions in August and September. We estimate
the unavailability of merchandise and the reduction in promotional events
negatively impacted third quarter sales in excess of $4 million. The events
surrounding the roof collapse also required us to add to staff and will delay
our ability to achieve the productivity we anticipated in the new facility in
the fourth quarter.
The Company insures its warehouse inventory at selling value and therefore
anticipates collection on their insurance claim at amounts significantly in
excess of cost. Included in the third quarter results is an estimate of the
insurance claim recovery for lost merchandise and other expenses related to the
roof collapse of $3.0 million, which exceeded claims related costs by $1.3
million. This $1.3 million has been recorded as a reduction in the cost of goods
sold during the third quarter.
The Financial Accounting Standards Board is working on a project to develop a
new standard for accounting for stock-based compensation. On October 13, 2004 in
a public announcement, the FASB
11
indicated that expensing of stock options will be required beginning for periods
beginning after June 15, 2005. The FASB expects to issue its final standard in
the fourth quarter of 2004.
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,
-------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales ........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales .................................... 59.4% 62.9% 61.0% 63.1%
-------- -------- -------- --------
Gross margin ..................................... 40.6% 37.1% 39.0% 36.9%
Selling, general and administrative expenses ..... 37.9% 34.3% 37.1% 34.9%
Store pre-opening expenses ....................... 1.4% 1.0% 0.8% 0.6%
-------- -------- -------- --------
Income from operations ........................... 1.3% 1.8% 1.1% 1.4%
Net interest (income) expense .................... 0.0% (0.1)% (0.1)% (0.1)%
-------- -------- -------- --------
Income before income taxes ....................... 1.3% 1.9% 1.2% 1.5%
Income tax expense ............................... 0.5% 0.7% 0.4% 0.6%
-------- -------- -------- --------
Net income ....................................... 0.8% 1.2% 0.8% 0.9%
======== ======== ======== ========
Number of stores open at end of period............ 91 78
Three Months Ended September 30, 2004 Compared to Three Months Ended
September 30, 2003
NET SALES. Net sales increased $9.1 million or 9.2% to $107.7 million in the
three months ended September 30, 2004 from $98.6 million in the comparable 2003
period. This increase is comprised of (i) net sales of $5.5 million from 10 new
stores opened in 2004, (ii) net sales of $3.3 million from stores opened in 2003
not included in the comparable store base, and (iii) a comparable store sales
increase of $300,000 or 0.3%. Sales during the quarter ended September 30, 2004
were significantly impacted by the roof collapse in our former warehouse and the
inability to deliver merchandise to our stores at normal levels. We lost over
$800,000 of imported fall ribbon, flags, fall seasonal and basic floral
merchandise that could not be replaced domestically. As we could not ensure
merchandise availability, we reduced two key promotions in August and September.
We estimate the unavailability of merchandise and the reduction in promotional
events negatively impacted third quarter sales in excess of $4 million. For the
quarter, customer transactions in comparable stores were flat compared with 2003
and the average sale increased by 0.3%. Sales growth was strongest in our
scrapbooking, yarn and jewelry making categories.
GROSS MARGIN. Gross margin is net sales minus the cost of merchandise which
includes purchasing and receiving costs, inbound freight, duties related to
import purchases, internal transfer costs and warehousing costs. Gross margin as
a percent of net sales increased 3.5% in the three months ended September 30,
2004, to 40.6% from 37.1% in the three months ended September 30, 2003. The
impact of the change in accounting in accordance with EITF 02-16 increased gross
margin by $2.7 million, which represents 2.5% of this increase. An additional
1.2% is attributable to an estimated $1.3 million of insurance proceeds in
excess of cost from the insurance claim associated with the roof collapse in our
former warehouse. Fewer sales at promotional prices increased margins by 0.5%.
Additional
12
distribution costs associated with the move to our new distribution center and a
loss of productivity due to the events surrounding the roof collapse reduced our
gross margin by 0.7%.
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, as a percent of sales, increased
3.6% in the three months ended September 30, 2004, to 37.9% from 34.3% in the
three months ended September 30, 2003. The impact of the change in accounting in
accordance with EITF 02-16 increased expenses by $3,950,000, which represents
3.7% of this increase. There was a 0.2% increase attributable to new stores
opened in 2004 and stores opened in 2003 that were not in the comparable stores
base which have higher selling, general and administrative expenses as a
percentage of sales than existing stores. As a percent to sales, corporate
office costs decreased by 0.3% as such costs were leveraged over the larger
sales base.
STORE PRE-OPENING EXPENSES. We expense store pre-opening expenses as they are
incurred which would include rent holidays prior to store opening. Pre-opening
expenses for the seven stores we opened in the third quarter of 2004 amounted to
$1.5 million. In the third quarter of 2003, we incurred store pre-opening
expenses of $1.1 million related to the four stores opened in that quarter and
the store which we relocated in August 2003.
NET INTEREST (INCOME). In the third quarter of 2004, we had net interest expense
of $14,000 compared with net interest income of $92,000 in 2003. The third
quarter of 2004 includes $119,000 in interest expense related to our mortgages
on which interest expense commenced in August.
INCOME TAXES. Our effective income tax rate was 38.5% for the third quarter
ended September 30, 2004 and 38.2% for the third quarter ended September 30,
2003.
Nine Months Ended September 30, 2004 Compared to Nine Months Ended
September 30, 2003
NET SALES. Net sales increased $36.2 million, or 12.7%, to $320.4 million in the
nine months ended September 30, 2004 from $284.2 million in the comparable 2003
period. This increase is comprised of (i) net sales of $9.4 million from 10 new
stores opened in 2004, (ii) net sales of $19.0 million from stores opened in
2003 not included in the comparable store base, and (iii) a comparable store
sales increase of $7.8 million, or 3%. Sales during the nine months ended
September 30, 2004 benefited from positive weather conditions in the first
quarter but were negatively impacted by weather conditions in the second quarter
compared with the comparable periods in 2003. Sales in the third quarter were
impacted by the roof collapse. For the nine months, customer transactions in
comparable stores increased by 1% compared with 2003 and the average sale
increased 2%. Sales growth was strongest in our scrapbooking, yarn, wedding and
jewelry making categories.
GROSS MARGIN. The gross margin as a percent of net sales increased 2.1% in the
nine months ended September 30, 2004, to 39.0% from 36.9% in the nine months
ended September 30, 2003. The impact of the change in accounting in accordance
with EITF 02-16 increased gross margin by $5.8 million, which represent 1.8% of
this increase. An additional 0.4% is attributable to an estimated $1.3 million
of insurance proceeds in excess of cost from the insurance claim associated with
the roof collapse. There was a 0.4% increase due to fewer sales at promotional
prices. Additional distribution costs associated with the move to our new
distribution center and a loss of productivity due to the events surrounding the
roof collapse reduced our gross margin by 0.5%.
13
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, as a percent of sales, increased 2.2% in the nine
months ended September 30, 2004, to 37.1% from 34.9% in the nine months ended
September 30, 2003. The impact of the change in accounting in accordance with
EITF 02-16 increased expenses by $9.8 million, which represents 3.1% of this
increase. As a percent of sales, store costs decreased by 0.8% due to the
leveraging of our costs with the comp store sales increase. As a percent of
sales, corporate office costs decreased by 0.1%.
STORE PRE-OPENING EXPENSES. Pre-opening expenses for the 10 new stores opened in
the first nine months of 2004 and the two stores we relocated amounted to $2.5
million. In the first nine months of 2003, we incurred store pre-opening
expenses of $1.9 million related to the seven stores opened during that period
and the one store we relocated.
NET INTEREST (INCOME). In the first nine months of 2004, we had net interest
income of $230,000 compared with net interest income of $319,000 in 2003. The
decrease is principally due to interest expense from our mortgages which expense
commenced in August 2004.
INCOME TAXES. Our effective income tax rate was 38.5% for the first nine months
of 2004 and 38.2% for the first nine months of 2003.
LIQUIDITY AND CAPITAL RESOURCES
Our cash is used primarily for working capital to support inventory requirements
and capital expenditures, pre-opening expenses and beginning inventory for new
stores. In recent years, we have financed our operations and new store openings
primarily with cash from operations, the net proceeds we received from our
initial public offering in 1997 and from a secondary offering in 2002. In the
first half of 2004 we borrowed $30 million under two mortgage agreements we have
with Wachovia Bank to finance our new corporate offices and distribution center.
At September 30, 2004 and December 31, 2003 our working capital was $133.8
million and $112.8 million, respectively. Cash used in operations was $10.9
million for the nine months ended September 30, 2004 as a result of an increase
in inventory of $16.5 million to support the new stores and the normal seasonal
increase to support our fourth quarter sales, an increase in accounts payable
and other accrued expenses of $4.9 million, income tax payments of $8.9 million
and the establishment of a claim receivable relating to our roof collapse in the
amount of $3.0 million.
Net cash used in investing activities during the nine months ended September 30,
2004 was $35.3 million of which $36.1 million was for capital expenditures. In
2004, we expect to spend approximately $41.0 million on capital expenditures,
which includes approximately $27.5 million related to the building, equipment
and systems for our new distribution center, $10.5 million for new store
openings, and the remainder for remodeling existing stores, upgrading systems in
existing stores, and corporate systems development. The total cost of the new
distribution center is $45.0 million, including capitalized interest of
$202,000.
On October 28, 2003 we signed two mortgage agreements with Wachovia Bank
relating to the new corporate offices and distribution center. The mortgages
totaling $30.0 million, all of which was outstanding at September 30, 2004, are
secured by land, building, and equipment. Of the $30 million, $22.5 million is
repayable over 15 years and $7.5 million is repayable over 7 years. Monthly
payments totaling $214,000 started in October 2004. The mortgages bear interest
at rates that will vary between LIBOR plus 85 basis points and LIBOR plus 135
basis points, depending on the debt service coverage ratio and the length of the
mortgage payment. We have the option of fixing the interest rate at any time.
The mortgages contain covenants that, among other things, restrict our ability
to incur additional indebtedness or guarantee obligations in excess of $8
million, engage in mergers or consolidations,
14
dispose of assets, make acquisitions requiring a cash outlay in excess of $10
million, make loans or advances in excess of $1 million, or change the nature of
its business. We are restricted in capital expenditures, paying dividends and
making other distributions unless certain financial covenants are maintained
including those relating to tangible net worth, funded debt and a current ratio.
The mortgages also define various events of default, including cross default
provisions, defaults for any material judgments or a change in control. At
September 30, 2004 the Company was in compliance with these agreements.
We currently have a $25.0 million line of credit agreement with Wachovia Bank,
which expires on May 1, 2006. Borrowing under this line will bear interest at
LIBOR plus 95 basis points and is subject to the same covenants as the mortgages
described above. At September 30, 2004 there were no borrowings outstanding
under this agreement.
We believe the cash generated from operations during the year, funds received
through the financing of the new distribution center and available borrowings
under the line of credit agreement will be sufficient to finance our working
capital and capital expenditure requirements for at least the next 12 months.
CHANGE IN ACCOUNTING PRINCIPLE
The costs incurred for advertising are expensed the first time the advertising
takes place, and are offset by reimbursements received under cooperative
advertising programs with certain vendors. Co-op advertising funds are only
recognized when we have performed our contractual obligation under a co-op
advertising agreement.
For all vendor contracts entered into or modified after January 1, 2003, the
Company has adopted Emerging Issues Task Force (EITF) 02-16, Accounting by a
Customer (including a Reseller) for Cash Consideration Received from a Vendor.
EITF 02-16 addresses the accounting for cash consideration received by a
customer from a vendor (e.g., slotting fees, cooperative advertising payments,
buydowns) and rebates or refunds from a vendor that is payable only if the
customer completes a specified cumulative level of purchases or remains a
customer for a specified time period. The change in accounting means that vendor
monies which support our advertising programs are now being recorded as a
reduction in the cost of inventory, and are recognized as a reduction of cost of
goods sold when the inventory is sold. Previously, they were accounted for as an
offset to advertising costs. This accounting change results in a timing
difference as to when these monies are recognized in our income statement. The
prospective adoption of EITF 02-16 reduced our net income in the first nine
months by $2.4 million or $0.12 per share. For the full year 2004, we estimate
that the change in the timing of income recognition will reduce EPS by
approximately $0.14 per share.
The adoption of this standard does not change the ultimate cash to be received
under these agreements, only the timing of when it is reflected in our net
income.
CRITICAL ACCOUNTING ESTIMATES
Except for the change in accounting principle described above, our accounting
policies are fully described in Note 1 of our notes to consolidated financial
statements included in our annual report on Form 10-K for the fiscal year ended
December 31, 2003. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions about future events that affect the amounts reported in our
consolidated financial statements and accompanying notes. Since future events
and their effects cannot be determined with absolute certainty, actual results
may differ from those estimates. Management makes adjustments to its assumptions
and judgments when facts and circumstances dictate. The amounts currently
estimated by us are subject to change if different assumptions as to the outcome
of future events were made. We evaluate
15
our estimates and judgments on an ongoing basis and predicate those estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances. Management believes the
following critical accounting estimates encompass the more significant judgments
and estimates used in preparation of our consolidated financial statements:
o merchandise inventories;
o impairment of long-lived assets;
o income taxes; and
o other estimates.
The foregoing critical accounting estimates are more fully described in our
annual report on Form 10-K for the fiscal year ended December 31, 2003. During
the nine months ended September 30, 2004, we did not make any material changes
to our estimates or methods by which estimates are derived with regard to our
critical accounting estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We invest cash balances in excess of operating requirements primarily in money
market mutual funds and to a lesser extent in interest-bearing securities with
maturities of less than two years. The fair value of our cash and equivalents at
September 30, 2004 approximated carrying value. We had no borrowings outstanding
under the line of credit at September 30, 2004. The interest rates on our
mortgages fluctuate with market rates and therefore the value of these financial
instruments will not be impacted by a change in interest rates. Based on the
amounts existing at September 30, 2004, the impact of a hypothetical increase or
decrease in interest rates of 10% compared with the rates in effect at September
30, 2004 would result in an increase or decrease in our interest expense of
$84,000 annually, and an increase or decrease in our interest income of $71,000
annually.
ITEM 4. CONTROLS AND PROCEDURES
In connection with the restatement and the filing of this Form 10-Q/A, our
management, with the participation of our chief executive officer and chief
financial officer, re-evaluated the effectiveness of our disclosure controls and
procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the
period covered by this report. Based on that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 (the "Exchange Act") are recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. In making this evaluation,
our management considered matters relating to our restatement of previously
issued financial statements for the periods covered by this report, including
the process that was undertaken to ensure that all material adjustments
necessary to correct the previously issued financial statements were recorded.
As set forth in Note 2, "Restatement of Financial Statements" to the
accompanying consolidated financial statements, we restated our financial
statements for the periods covered by this report. The restatement resulted from
a deficiency that we identified related to periodic review of the application of
generally accepted accounting principles. Following a review of our
lease-related accounting policies, we determined that our method of accounting
for leasehold improvements funded by landlord incentives or allowances (tenant
improvement allowances) and our method of accounting for rent holidays were not
in accordance with accounting principles generally accepted in the United States
of America. We have remediated the control deficiency by conducting the review
of our lease accounting practices, restating our financial statements and
correcting our accounting practices, all as further described in Note 2.
During the quarter ended September 30, 2004, there has not occurred any change
in our internal control over financial reporting, as defined in Exchange Act
Rule 13a-15(f), that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable.
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
On August 27, 2004, the Board of Directors of the Company approved certain
changes to the compensation payable to all of the Company's non-employee
directors effective January 1, 2005. As a result of Question #5 of the SEC's FAQ
on Current Reports on Form 8-K released on November 23, 2004, the Company filed
a Current Report on 8-K on December 15, 2004 relating to these changes and is
including this information in this Form 10-Q/A. The compensation payable to all
of the Company's non-employee directors, other than William Kaplan, is as
follows:
o An annual cash retainer of $30,000;
o An additional annual cash retainer of $12,500 for the chair of the
Audit Committee and $5,000 for each other member of the Audit
Committee;
o An additional annual cash retainer of $5,000 for the chair of the
Compensation Committee and $2,500 for each other member of the
Compensation Committee;
o An additional annual cash retainer of $3,500 for the chair of the
Nominating and Corporate Governance Committee and $2,500 for each other
member of the Nominating and Corporate Governance Committee; and
o An additional annual cash retainer of $100,000 for the Company's Lead
Director, Eli J. Segal.
In addition, other than Mr. Kaplan, non-employee directors each receive an
annual stock option grant pursuant to the Company's 2002 Stock Option Plan. The
amount of shares subject to the option grant and the exercise price will be
determined by the Company's Board of Directors in August 2005. Mr. Kaplan will
not receive any compensation in 2005 for serving as a director of the Company.
17
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act").
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
promulgated under the Exchange Act.
32 Certification of the Company's Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 on Form 10-Q/A to be signed on
its behalf by the undersigned thereunto duly authorized.
A.C. MOORE ARTS & CRAFTS, INC.
Date: April 19, 2005 By: /s/ John E. Parker
-------------------------------
John E. Parker
Chief Executive Officer (duly
authorized officer and
principal executive officer)
Date: April 19, 2005 By: /s/ Leslie H. Gordon
-------------------------------
Leslie H. Gordon
Executive Vice President
and Chief Financial Officer
(duly authorized officer
and principal financial
officer)
19
EXHIBIT INDEX
Exhibit No. Description
----------- -----------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) promulgated under the Exchange Act.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) promulgated under the Exchange Act.
32 Certification of the Company's Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.