UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the quarterly period ended
Commission file number
THE
A
IRS Employer Identification No.
(
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
The Michaels Companies, Inc. (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.
The Michaels Companies, Inc. has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
The Michaels Companies, Inc. is a
The Michaels Companies, Inc. is not (1) a
As of November 26, 2019,
THE MICHAELS COMPANIES, INC.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
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Part I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MICHAELS COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of sales and occupancy expense |
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Gross profit |
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Selling, general and administrative |
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Restructure and impairment charges | | — | | | ||||||||
Store pre-opening costs |
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Operating income |
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Interest expense |
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Losses on early extinguishments of debt and refinancing costs | | — | | | ||||||||
Other expense (income), net |
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| ( |
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Income before income taxes |
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Income taxes |
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Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income, net of tax: |
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Foreign currency and interest rate swaps | | | ( | ( | ||||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
Earnings per common share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | |
See accompanying notes to consolidated financial statements.
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THE MICHAELS COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
November 2, | February 2, | November 3, | |||||||
ASSETS | 2019 | 2019 | 2018 | ||||||
Current Assets: | |||||||||
Cash and equivalents | $ | | $ | | $ | | |||
Merchandise inventories |
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Prepaid expenses and other |
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Accounts receivable, net | | | | ||||||
Income taxes receivable |
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Total current assets |
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Property and equipment, at cost |
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Less accumulated depreciation and amortization | ( | ( | ( | ||||||
Property and equipment, net | | | | ||||||
Operating lease assets | | — | — | ||||||
Goodwill |
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Other intangible assets, net | | | | ||||||
Deferred income taxes |
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Other assets |
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Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||
Current Liabilities: | |||||||||
Accounts payable | $ | | $ | | $ | | |||
Accrued liabilities and other |
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Current portion of operating lease liabilities | | — | — | ||||||
Current portion of long-term debt |
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Income taxes payable |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities | | — | — | ||||||
Other liabilities |
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Total liabilities |
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Commitments and contingencies | |||||||||
Stockholders’ Deficit: | |||||||||
Common stock, $ |
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Additional paid-in-capital |
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| — | ||||
Treasury stock | — | — | ( | ||||||
Accumulated deficit |
| ( | ( |
| ( | ||||
Accumulated other comprehensive loss |
| ( | ( |
| ( | ||||
Total stockholders’ deficit |
| ( |
| ( |
| ( | |||
Total liabilities and stockholders’ deficit | $ | | $ | | $ | |
See accompanying notes to consolidated financial statements.
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THE MICHAELS COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
39 Weeks Ended | ||||||
November 2, | November 3, | |||||
| 2019 | 2018 | ||||
Cash flows from operating activities: | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Amortization of operating lease assets | | — | ||||
Depreciation and amortization |
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Share-based compensation |
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Debt issuance costs amortization |
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Loss on write-off of investment | | — | ||||
Accretion of long-term debt, net |
| ( |
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Restructure and impairment charges | | | ||||
Deferred income taxes | ( | | ||||
Losses on early extinguishments of debt and refinancing costs | | | ||||
Changes in assets and liabilities: | ||||||
Merchandise inventories |
| ( |
| ( | ||
Prepaid expenses and other |
| ( |
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Accounts receivable | | ( | ||||
Other assets | ( | ( | ||||
Operating lease liabilities | ( | — | ||||
Accounts payable |
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Accrued interest |
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Accrued liabilities and other |
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Income taxes |
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Other liabilities |
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Net cash provided by operating activities |
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Cash flows used in investing activities: | ||||||
Additions to property and equipment |
| ( |
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Cash flows from financing activities: | ||||||
Common stock repurchased | ( | ( | ||||
Payments on term loan credit facility |
| ( |
| ( | ||
Payment of 2020 senior subordinated notes | ( | — | ||||
Issuance of 2027 senior notes | | — | ||||
Borrowings on asset-based revolving credit facility |
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Payments on asset-based revolving credit facility |
| ( |
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Payment of debt refinancing costs |
| ( |
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Payment of dividends | — | ( | ||||
Proceeds from stock options exercised | | | ||||
Net cash used in financing activities | ( | ( | ||||
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Net change in cash and equivalents |
| ( |
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Cash and equivalents at beginning of period | | | ||||
Cash and equivalents at end of period | $ | | $ | | ||
Supplemental cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Cash paid for taxes | $ | | $ | |
See accompanying notes to consolidated financial statements.
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THE MICHAELS COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
(Unaudited)
13 Weeks Ended | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Number of | Additional | Other | ||||||||||||||||||
Common | Common | Treasury | Paid-in | Accumulated | Comprehensive | |||||||||||||||
Shares |
| Stock |
| Stock |
| Capital |
| Deficit |
| Loss |
| Total | ||||||||
Balance at August 3, 2019 |
| | $ | | $ | — | $ | — | $ | ( | $ | ( | $ | ( | ||||||
Net income | — | — | — | — | | — |
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Foreign currency and interest rate swaps | — | — | — | — | — | |
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Share-based compensation | — | — | — | | — | — |
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Exercise of stock options and other awards | | | — | ( | — | — | ( | |||||||||||||
Repurchase of stock and retirements | ( | ( | — | ( | ( | — |
| ( | ||||||||||||
Issuance of restricted stock awards | | — | — | — | — | — | — | |||||||||||||
Balance at November 2, 2019 | | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | |||||||
Balance at August 4, 2018 |
| | $ | | $ | — | $ | — | $ | ( | $ | ( | $ | ( | ||||||
Net income | — | — | — | — | | — |
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Foreign currency and interest rate swaps | — | — | — | — | — | |
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Share-based compensation | — | — | — | | — | — |
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Exercise of stock options and other awards | | | — | | — | — | | |||||||||||||
Repurchase of stock and retirements | ( | ( | ( | ( | ( | — |
| ( | ||||||||||||
Balance at November 3, 2018 | | $ | | $ | ( | $ | — | $ | ( | $ | ( | $ | ( |
39 Weeks Ended | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Number of | Additional | Other | ||||||||||||||||||
Common | Common | Treasury | Paid-in | Accumulated | Comprehensive | |||||||||||||||
Shares |
| Stock |
| Stock |
| Capital |
| Deficit |
| Loss |
| Total | ||||||||
Balance at February 2, 2019 | | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | |||||||
Net income | — | — | — | — | | — |
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Foreign currency and interest rate swaps | — | — | — | — | — | ( |
| ( | ||||||||||||
Share-based compensation | — | — | — | | — | — |
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Exercise of stock options and other awards | | | — | | — | — | | |||||||||||||
Repurchase of stock and retirements | ( | ( | — | ( | ( | — |
| ( | ||||||||||||
Issuance of restricted stock awards | | — | — | — | — | — | — | |||||||||||||
Balance at November 2, 2019 | | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | |||||||
Balance at February 3, 2018 | | $ | | $ | — | $ | | $ | ( | $ | ( | $ | ( | |||||||
Net income | — | — | — | — | | — |
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Foreign currency and interest rate swaps | — | — | — | — | — | ( |
| ( | ||||||||||||
Share-based compensation | — | — | — | | — | — |
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Exercise of stock options and other awards | | | — | | — | — | | |||||||||||||
Repurchase of stock and retirements | ( | ( | ( | ( | ( | — |
| ( | ||||||||||||
Balance at November 3, 2018 | | $ | | $ | ( | $ | — | $ | ( | $ | ( | $ | ( |
See accompanying notes to consolidated financial statements.
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THE MICHAELS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to The Michaels Companies, Inc. and our consolidated, wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires. Our consolidated financial statements include the accounts of The Michaels Companies, Inc. and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included.
We report on the basis of a
Restructure and Impairment Charges
In March 2018 and January 2019, we closed our Aaron Brothers and Pat Catan’s stores, respectively. In the first nine months of fiscal 2019, we recorded a restructure charge related to Pat Catan’s totaling $
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually in the fourth quarter, or more frequently if events occur which indicate the carrying value of these assets may not be recoverable. In addition, long-lived assets and definite-lived intangible assets that are subject to amortization are evaluated for indicators of impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable. If indications of impairment exist, fair value is generally determined using the present value of future cash flows using updated financial projections and a weighted-average cost of capital.
During the third quarter of fiscal 2019, the Company identified impairment indicators within our Darice wholesale business that were primarily due to a deterioration in sales associated with overall declining demand from customers. These indicators have led the Company to revise Darice’s forecasted sales expectations downwards resulting in a significantly lower projected operating plan. As a result, the Company performed interim impairment tests as of November 2, 2019 on Darice’s goodwill, indefinite and definite-lived intangible assets and long-lived assets, including operating lease assets.
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As a result of the interim impairment testing, the Company recorded an impairment charge of $
Share Repurchase Program
In September 2018, the Board of Directors authorized a new share repurchase program for the Company to purchase $
Accounting Pronouncement Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). Under ASU 2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The lease standard requires companies to use a modified retrospective transition approach as of the beginning of the earliest comparable period presented in the company’s financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” which provided an additional transition option that allows companies to continue applying the guidance under the current lease standard in the comparative periods presented in the consolidated financial statements. We utilized the additional transition option to adopt ASU 2016-02 in the first quarter of fiscal 2019. As a result, the standard was
Recent Accounting Pronouncement Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”) which makes significant changes to the accounting for credit losses on financial assets and disclosures. The standard requires immediate recognition of management’s estimates of current expected credit losses. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. ASU 2016-13 permits only a modified retrospective approach without restatement. We do not anticipate a material impact to the consolidated financial statements once implemented.
2. FAIR VALUE MEASUREMENTS
As defined in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect
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market data obtained from independent sources, while unobservable inputs reflect less transparent active market data, as well as internal assumptions. These two types of inputs create the following fair value hierarchy:
● | Level 1—Quoted prices for identical instruments in active markets; |
● | Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and |
● | Level 3—Instruments with significant unobservable inputs. |
Impairment losses related to store-level operating lease assets and property and equipment are calculated using significant unobservable inputs including the present value of future cash flows expected to be generated using a risk-adjusted weighted-average cost of capital and comparable store sales growth assumptions and, therefore, are classified as a Level 3 measurement in the fair value hierarchy.
Impairment losses related to goodwill and other indefinite-lived intangible assets are calculated based on the estimated fair value of each reporting unit, which is determined using significant unobservable inputs including the present value of future cash flows expected to be generated by the reporting unit using a weighted-average cost of capital, terminal values and updated financial projections for the next five years and are classified as Level 3 measurements in the fair value hierarchy.
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments.
The table below provides the fair values of our senior secured term loan facility (“Amended and Restated Term Loan Credit Facility”), our
November 2, | February 2, | November 3, | |||||||
2019 | 2019 | 2018 | |||||||
(in thousands) | |||||||||
Assets | |||||||||
Interest rate swaps | $ | — | $ | — | $ | | |||
Liabilities | |||||||||
Term loan credit facility | $ | | $ | | $ | | |||
Senior notes | | — | — | ||||||
Senior subordinated notes |
| — | |
| | ||||
Short-term portion of interest rate swaps | | | | ||||||
Long-term portion of interest rate swaps | | | — |
The fair values of our Amended and Restated Term Loan Credit Facility, our 2027 Senior Notes and our 2020 Senior Subordinated Notes were determined based on quoted market prices which are considered Level 1 inputs within the fair value hierarchy.
The fair value of our interest rate swaps was calculated using significant observable inputs including the present value of estimated future cash flows using the applicable interest rate curves and, therefore, were classified as Level 2 inputs within the fair value hierarchy. The short-term and long-term interest rate swap liabilities are recorded in accrued liabilities and other liabilities, respectively, in our consolidated balance sheets. The interest rate swap asset in fiscal 2018 is recorded in other assets in our consolidated balance sheets.
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3. REVENUE RECOGNITION
Our revenue is primarily associated with sales of merchandise to customers within our stores, customers utilizing our e-commerce platforms and through our Darice wholesale business (“Darice”). Revenue from sales of our merchandise is recognized when the customer takes possession of the merchandise. Payment for our retail sales is typically due at the time of the sale.
Right of Return
A sales return reserve is established using historical customer return behavior and reduces both revenue and cost of goods sold. The Company presents the gross sales return reserve in other current liabilities and the estimated value of the merchandise expected to be returned in prepaid expenses and other in the consolidated balance sheets.
Customer Receivables
As of November 2, 2019, February 2, 2019 and November 3, 2018, receivables from customers, which consist primarily of trade receivables related to Darice, were approximately $
Gift Cards
The gift card liability is included in accrued liabilities and other in the consolidated balance sheets. The following table includes activity related to gift cards (in thousands):
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Issuance of gift cards | | | | | ||||||||
Revenue recognized (1) | ( | ( | ( | ( | ||||||||
Gift card breakage | ( | ( | ( | ( | ||||||||
Balance at end of period | $ | | $ | | $ | | $ | |
(1) | Revenue recognized from the beginning liability during the third quarters of fiscal 2019 and fiscal 2018 totaled $ |
4. LEASES
We lease our retail store locations, distribution centers, office facilities and certain equipment under non-cancelable operating leases. Substantially all store leases have initial lease terms of approximately
Our operating lease assets represent our right to use an underlying asset for the lease term and our operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. In addition, operating lease assets exclude lease incentives received. As most of our leases do not contain an implicit rate of return, we use our estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. For operating leases that commenced prior to the adoption date of the new lease accounting standard, we used the incremental borrowing rate as of the adoption date. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
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We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Our short-term non-real estate leases, which have a non-cancelable lease term of less than one year, are not included in the operating lease assets or liabilities. Short-term lease expense is recognized on a straight-line basis over the lease term.
The components of lease costs are as follows (in thousands):
13 Weeks Ended | 39 Weeks Ended | |||||
November 2, | November 2, | |||||
2019 | 2019 | |||||
Operating lease cost (1) |
| $ | | $ | | |
Variable lease cost (2) |
| |
| | ||
Total lease cost | $ | | $ | |
(1) | Includes an immaterial amount related to short-term non-real estate leases. |
(2) | Includes taxes, insurance and common areas maintenance costs for our leased facilities which are paid based on actual cost incurred by the lessor. Also includes contingent rent which is immaterial in the periods presented. |
Additional information related to our operating leases is as follows (in thousands, except weighted-average data):
39 Weeks Ended | |||
November 2, | |||
2019 | |||
Operating cash outflows included in the measurement of lease liabilities | $ | | |
Operating lease assets obtained in exchange for new operating lease liabilities | $ | | |
Weighted-average remaining lease term | |||
Weighted-average discount rate |
Maturities of our lease liabilities are as follows as of November 2, 2019 (in thousands):
Fiscal Year | |||
2019 | $ | | |
2020 |
| | |
2021 |
| | |
2022 |
| | |
2023 |
| | |
Thereafter |
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Total lease payments | $ | | |
Less: Interest | ( | ||
Present value of lease liabilities | $ | |
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5. DEBT
Long-term debt consists of the following (in thousands):
November 2, | February 2, | November 3, | ||||||||
Interest Rate | 2019 | 2019 | 2018 | |||||||
Term loan credit facility | Variable | $ | | $ | | $ | | |||
Asset-based revolving credit facility | Variable |
| — |
| — |
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Senior notes | % |
| |
| — |
| — | |||
Senior subordinated notes | % |
| — |
| |
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Total debt |
| |
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Less unamortized discount/premium and debt costs | ( | ( | ( | |||||||
Total debt, net | | | | |||||||
Less current portion |
| ( |
| ( |
| ( | ||||
Long-term debt | $ | | $ | | $ | |
Revolving Credit Facility
As of November 2, 2019 and November 3, 2018, the borrowing base under our senior secured asset-based revolving credit facility (“Amended Revolving Credit Facility”) was $
On August 30, 2019, MSI, as borrower, and Michaels Funding, Inc. and certain of MSI’s subsidiaries, as guarantors, entered into an amended and restated credit agreement with Wells Fargo Bank, National Association and other lenders. The amendment extends the maturity date of the Amended Revolving Credit Facility to
As of November 2, 2019, net debt issuance costs totaled $
8% Senior Notes due 2027
On July 8, 2019, MSI issued $
The net proceeds from the offering and sale of the 2027 Senior Notes, together with cash on hand, were used to redeem MSI’s outstanding 2020 Senior Subordinated Notes.
The 2027 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of MSI’s subsidiaries that guarantee indebtedness under the Amended Revolving Credit Facility and the Amended and Restated Term Loan Credit Facility (collectively defined as the “Senior Secured Credit Facilities”).
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The 2027 Senior Notes are general, unsecured obligations of MSI, and the guarantees of the 2027 Senior Notes are general, unsecured obligations of the guarantors. They (i) rank equally in right of payment with all of MSI’s and the guarantors’ existing and future senior debt, including the Senior Secured Credit Facilities, (ii) are effectively subordinated to any of MSI’s and the guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt, including the Senior Secured Credit Facilities, (iii) are structurally subordinated to all of the liabilities of MSI’s subsidiaries that are not guaranteeing the 2027 Senior Notes, and (iv) are senior in right of payment with all of MSI’s and the guarantors’ existing and future subordinated debt.
At any time prior to July 15, 2022, MSI may redeem (a) up to
Year | Percentage | ||
2022 | % | ||
2023 | % | ||
2024 and thereafter | % |
Upon a change in control, MSI is required to offer to purchase the 2027 Senior Notes at
Subject to certain exceptions and qualifications, the 2027 Senior Notes Indenture contains covenants that, among other things, limit MSI’s ability and the ability of its restricted subsidiaries, including the guarantors, to:
● | incur additional indebtedness or issue certain disqualified stock or preferred stock; |
● | create liens; |
● | pay dividends on MSI’s capital stock or make distributions or redeem or repurchase MSI’s capital stock; |
● | prepay subordinated debt or make certain investments, loans, advances, and acquisitions; |
● | transfer or sell assets; |
● | engage in consolidations, amalgamations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets; and |
● | enter into certain transactions with affiliates. |
The 2027 Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would require or permit the principal of and accrued interest on the 2027 Senior Notes to become or to be declared due and payable. As of November 2, 2019, MSI was in compliance with all covenants.
As of November 2, 2019, net debt issuance costs totaled $
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Interest Rate Swaps
In April 2018, we executed
6. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table includes detail regarding changes in the composition of accumulated other comprehensive loss (in thousands):
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
2019 |
| 2018 |
| 2019 |
| 2018 | ||||||
Beginning of period |
| $ | ( | $ | ( |
| $ | ( | $ | ( | ||
Foreign currency translation |
| |
| ( |
| |
| ( | ||||
Interest rate swaps | | | ( | | ||||||||
End of period | $ | ( | $ | ( | $ | ( | $ | ( |
7. INCOME TAXES
The effective tax rate was
8. EARNINGS PER SHARE
The Company’s unvested restricted stock awards contain non-forfeitable rights to dividends and meet the criteria of a participating security as defined by ASC 260, “Earnings Per Share”. In applying the two-class method, net income is allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding plus the potential dilutive impact from stock options and restricted stock units. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There were
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The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data):
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Basic earnings per common share: | ||||||||||||
Net income | $ | | $ | | $ | |
| $ | | |||
Less income related to unvested restricted shares |
| ( |
| ( |
| ( |
| ( | ||||
Income available to common shareholders - Basic | $ | | $ | | $ | | $ | | ||||
Weighted-average common shares outstanding - Basic | | | | | ||||||||
Basic earnings per common share | $ | $ | $ | $ | ||||||||
Diluted earnings per common share: |
|
| ||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Less income related to unvested restricted shares |
| ( | ( |
| ( | ( | ||||||
Income available to common shareholders - Diluted | $ | | $ | | $ | | $ | | ||||
Weighted-average common shares outstanding - Basic | | | | | ||||||||
Effect of dilutive stock options and restricted stock units | | | | | ||||||||
Weighted-average common shares outstanding - Diluted | | | | | ||||||||
Diluted earnings per common share | $ | $ | $ | $ |
9. SEGMENTS AND GEOGRAPHIC INFORMATION
We consider Michaels-U.S., Michaels-Canada, Pat Catan’s and Darice to be our operating segments for purposes of determining reportable segments based on the criteria of ASC 280, Segment Reporting (“ASC 280”). We determined that Michaels-U.S., Michaels-Canada and Pat Catan’s have similar economic characteristics and meet the aggregation criteria set forth in ASC 280. Therefore, we combine these operating segments into
Our net sales by country are as follows (in thousands):
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
United States(1) | $ | | $ | | $ | | $ | | ||||
Canada |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | |
(1) | In the first quarter of fiscal 2018 we closed our Aaron Brothers stores and in the fourth quarter of fiscal 2018 we closed our Pat Catan’s stores. In the third quarter of fiscal 2018, Pat Catan’s sales totaled approximately $ |
10. RELATED PARTY TRANSACTIONS
Affiliates of, or funds advised by, Bain Capital Private Equity, L.P. (“Bain Capital”) and The Blackstone Group L.P. (“The Blackstone Group”) owned approximately
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The Blackstone Group owns a majority equity position in RGIS, a vendor we utilized until February 2018 to count our store inventory. There were
The Blackstone Group owns a majority equity position in ShopCore Properties, LP, Blackstone Real Estate DDR Retail Holdings III, LLC and Blackstone Real Estate RC Retail Holdings, LLC and has significant influence over Edens Limited Partnership, vendors we utilize to lease certain properties. Payments associated with these vendors during the third quarters of fiscal 2019 and fiscal 2018 were $
The Blackstone Group owns a majority equity position in JDA Software Group, Inc., a vendor we utilize for transportation and supply chain software. Payments associated with this vendor during the third quarters of fiscal 2019 and fiscal 2018 were $
16
11. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Our debt covenants restrict MSI, and certain subsidiaries of MSI, from various activities including the incurrence of additional debt, payment of dividends and the repurchase of MSI’s capital stock (subject to certain exceptions), among other things. The following condensed consolidated financial information represents the financial information of MSI and its wholly-owned subsidiaries subject to these restrictions. The information is presented in accordance with the requirements of Rule 12-04 under the SEC’s Regulation S-X.
Michaels Stores, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
November 2, | February 2, | November 3, | |||||||
ASSETS |
| 2019 | 2019 | 2018 | |||||
Current assets: | |||||||||
Cash and equivalents | $ | | $ | | $ | | |||
Merchandise inventories |
| |
| |
| | |||
Prepaid expenses and other current assets |
| |
| |
| | |||
Total current assets |
| |
| |
| | |||
Property and equipment, net |
| |
| |
| | |||
Operating lease assets | | — | — | ||||||
Goodwill |
| |
| |
| | |||
Other assets |
| |
| |
| | |||
Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | | $ | | $ | | |||
Accrued liabilities and other |
| |
| |
| | |||
Current portion of operating lease liabilities | | — | — | ||||||
Current portion of long-term debt |
| |
| |
| | |||
Other current liabilities |
| |
| |
| | |||
Total current liabilities |
| |
| |
| | |||
Long-term debt |
| |
| |
| | |||
Long-term operating lease liabilities | | — | — | ||||||
Other liabilities |
| |
| |
| | |||
Total stockholders’ deficit |
| ( |
| ( |
| ( | |||
Total liabilities and stockholders’ deficit | $ | | $ | | $ | |
17
Michaels Stores, Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | |||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of sales and occupancy expense |
| |
| |
| |
| | ||||
Gross profit |
| |
| |
| |
| | ||||
Selling, general and administrative |
| |
| |
| |
| | ||||
Restructure and impairment charges | | — | | | ||||||||
Store pre-opening costs |
| |
| |
| |
| | ||||
Operating income |
| |
| |
| |
| | ||||
Interest and other expense, net |
| |
| |
| |
| | ||||
Losses on early extinguishment of debt and refinancing costs |
| |
| — | | | ||||||
Income before income taxes |
| |
| |
| |
| | ||||
Income taxes |
| |
| |
| |
| | ||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income, net of tax: | ||||||||||||
Foreign currency and interest rate swaps |
| |
| |
| ( |
| ( | ||||
Comprehensive income | $ | | $ | | $ | | $ | |
Michaels Stores, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
39 Weeks Ended | ||||||
November 2, | November 3, | |||||
2019 | 2018 | |||||
Cash flows from operating activities: | ||||||
Net cash provided by operating activities | $ | | $ | | ||
Cash flows used in investing activities: | ||||||
Additions to property and equipment |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Net repayments of debt |
| ( |
| ( | ||
Net borrowings of debt | | | ||||
Payment of debt refinancing costs | ( | ( | ||||
Payment of dividend to Michaels Funding, Inc. | ( | ( | ||||
Net cash used in financing activities |
| ( |
| ( | ||
Net change in cash and equivalents |
| ( |
| ( | ||
Cash and equivalents at beginning of period |
| |
| | ||
Cash and equivalents at end of period | $ | | $ | |
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12. SUBSEQUENT EVENT
On November 22, 2019, the Company entered into an asset purchase agreement with A.C. Moore Incorporated, and certain of its affiliates, to acquire intellectual property and the right to lease up to
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements of the Company (and the related notes thereto included elsewhere in this quarterly report), the audited consolidated financial statements of the Company (and the related notes thereto) and the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on March 19, 2019.
All of the “Company”, “us”, “we”, “our”, and similar expressions are references to The Michaels Companies, Inc. (“Michaels”) and our consolidated wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires.
We report on the basis of a 52-week or 53-week fiscal year, which ends on the Saturday closest to January 31. All references to fiscal year mean the year in which that fiscal year began. References to “fiscal 2019” relate to the 52 weeks ending February 1, 2020 and references to “fiscal 2018” relate to the 52 weeks ended February 2, 2019. In addition, all references to “the third quarter of fiscal 2019” relate to the 13 weeks ended November 2, 2019 and all references to “the third quarter of fiscal 2018” relate to the 13 weeks ended November 3, 2018. Finally, all references to “the nine months ended November 2, 2019” relate to the 39 weeks ended November 2, 2019 and all references to “the nine months ended November 3, 2018” relate to the 39 weeks ended November 3, 2018. Because of the seasonal nature of our business, the results of operations for the 13 and 39 weeks ended November 2, 2019 are not indicative of the results to be expected for the entire year.
Overview
We are the largest arts and crafts specialty retailer in North America (based on store count) providing materials, project ideas and education for creative activities under the Michaels retail brand. We also operate a wholesale business under the Darice brand name and a market-leading, vertically-integrated custom framing business under the Artistree brand name. As of November 2, 2019, we operated 1,274 Michaels stores.
Net sales for the third quarter of fiscal 2019 decreased 4.1% compared to the same period in the prior year. The decrease in net sales was due primarily to a 2.2% decrease in comparable store sales and the closure of our Pat Catan’s stores in fiscal 2018. The decrease was partially offset by net sales related to 18 additional Michaels stores opened (net of closures) since November 3, 2018. Gross profit as a percent of net sales decreased 150 basis points to 36.1% during the third quarter of fiscal 2019 due to an increase in promotional activity, the impact of tariffs on inventory we purchase from China, a change in sales mix and deleveraging occupancy and distribution related costs. The decrease was partially offset by benefits from our ongoing pricing and sourcing initiatives and a decrease in inventory reserves. Operating income as a percent of net sales decreased to 6.2% for the third quarter of fiscal 2019 compared to 10.8% in the same period in the prior year. The decrease in operating income was due to a $40.1 million impairment charge recorded during the third quarter of fiscal 2019 as a result of lower than expected operating performance in our wholesale business and lower retail sales.
Certain products that we import from China have been impacted by tariffs. During the first nine months of fiscal 2019, we successfully mitigated a substantial amount of the financial impact of these tariffs. Our mitigation efforts included, among other things, selectively increasing prices on certain of our products, sourcing products from alternative countries and negotiating lower prices with our suppliers in China. If additional tariffs are implemented, we cannot provide any assurances that our mitigation efforts will be successful and, as a result, such tariffs could have a material impact on our business.
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Comparable Store Sales
Comparable store sales represents the change in net sales for stores open the same number of months in the comparable period of the previous year, including stores that were relocated or expanded during either period, as well as e-commerce sales. A store is deemed to become comparable in its 14th month of operation in order to eliminate grand opening sales distortions. A store temporarily closed more than two weeks is not considered comparable during the month it is closed. If a store is closed longer than two weeks but less than two months, it becomes comparable in the month in which it reopens, subject to a mid-month convention. A store closed longer than two months becomes comparable in its 14th month of operation after its reopening.
Operating Information
The following table sets forth certain operating data:
13 Weeks Ended | 39 Weeks Ended | ||||||||||||
November 2, | November 3, | November 2, | November 3, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Michaels stores: | |||||||||||||
Open at beginning of period | 1,262 |
| 1,251 |
| 1,258 |
| 1,238 |
| |||||
New stores | 13 |
| 6 |
| 21 |
| 21 |
| |||||
Relocated stores opened | 5 |
| 4 |
| 13 |
| 20 |
| |||||
Closed stores | (1) |
| (1) |
| (5) |
| (3) |
| |||||
Relocated stores closed | (5) |
| (4) |
| (13) |
| (20) |
| |||||
Open at end of period | 1,274 |
| 1,256 |
| 1,274 |
| 1,256 |
| |||||
Aaron Brothers stores: | |||||||||||||
Open at beginning of period | — |
| — |
| — |
| 97 |
| |||||
Closed stores | — |
| — |
| — |
| (97) |
| |||||
Open at end of period | — |
| — |
| — |
| — |
| |||||
Pat Catan's stores: | |||||||||||||
Open at beginning and end of period | — | 36 | — | 36 | |||||||||
Total store count at end of period | 1,274 | 1,292 | 1,274 | 1,292 | |||||||||
Other Operating Data: | |||||||||||||
Average inventory per Michaels store (in thousands) (1) | $ | 1,069 | $ | 1,039 | $ | 1,069 | $ | 1,039 | |||||
Comparable store sales | (2.2) | % | 3.8 | % | (1.7) | % | 1.4 | % | |||||
Comparable store sales, at constant currency | (2.1) | % | 4.3 | % | (1.4) | % | 1.4 | % |
(1) | The calculation of average inventory per Michaels store excludes our Aaron Brothers and Pat Catan’s stores. |
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Results of Operations
The following table sets forth the percentage relationship to net sales of line items in our consolidated statements of comprehensive income. This table should be read in conjunction with the following discussion and with our consolidated financial statements, including the related notes.
13 Weeks Ended | 39 Weeks Ended | ||||||||
November 2, | November 3, | November 2, | November 3, | ||||||
2019 | 2018 | 2019 | 2018 | ||||||
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Cost of sales and occupancy expense |
| 63.9 | 62.4 | 63.4 | 62.4 | ||||
Gross profit |
| 36.1 | 37.6 | 36.6 | 37.6 | ||||
Selling, general and administrative |
| 26.4 | 26.7 | 27.9 | 27.9 | ||||
Restructure and impairment charges | 3.4 | — | 1.4 | 1.3 | |||||
Store pre-opening costs |
| 0.1 | 0.1 | 0.1 | 0.1 | ||||
Operating income |
| 6.2 | 10.8 | 7.2 | 8.3 | ||||
Interest expense |
| 3.2 | 3.0 | 3.5 | 3.1 | ||||
Losses on early extinguishments of debt and refinancing costs | — | — | — | 0.1 | |||||
Other expense (income), net |
| — | — | 0.1 | (0.1) | ||||
Income before income taxes |
| 3.0 | 7.8 | 3.6 | 5.2 | ||||
Income taxes |
| 0.7 | 1.2 | 0.9 | 1.3 | ||||
Net income |
| 2.3 | % | 6.6 | % | 2.7 | % | 4.0 | % |
13 Weeks Ended November 2, 2019 Compared to the 13 Weeks Ended November 3, 2018
Net Sales. Net sales decreased $52.0 million in the third quarter of fiscal 2019, or 4.1%, to $1,222.0 million compared to the third quarter of fiscal 2018. The decrease in net sales was primarily due to a $26.8 million decrease in comparable store sales, a $26.7 million decrease related to the closure of our Pat Catan’s stores during the fourth quarter of fiscal 2018 and a $10.4 million decrease in wholesale revenue. The decrease was partially offset by an $11.7 million increase related to 18 additional Michaels stores opened (net of closures) since November 3, 2018. Comparable store sales decreased 2.2%, or 2.1% at constant exchange rates, compared to the third quarter of fiscal 2018 due to a decrease in customer transactions, partially offset by an increase in average ticket.
Gross Profit. Gross profit was 36.1% of net sales in the third quarter of fiscal 2019 compared to 37.6% in the third quarter of fiscal 2018. The 150 basis point decrease was primarily due to an increase in promotional activity, the impact of tariffs on inventory we purchase from China, a change in sales mix and deleveraging occupancy and distribution related costs. The decrease was partially offset by benefits from our ongoing pricing and sourcing initiatives and a decrease in inventory reserves.
Selling, General and Administrative. Selling, general and administrative (“SG&A”) was 26.4% of net sales in the third quarter of fiscal 2019 compared to 26.7% in the third quarter of fiscal 2018. SG&A decreased $17.8 million to $322.8 million in the third quarter of fiscal 2019. The decrease was primarily due to a $9.9 million decrease in performance-based compensation and other payroll-related costs and a $7.4 million decrease related to the closure of our Pat Catan’s stores during the fourth quarter of fiscal 2018. The decrease was partially offset by $2.4 million associated with operating 18 additional Michaels stores (net of closures) since November 3, 2018.
Restructure and Impairment Charges. We recorded an impairment charge of $40.1 million in the third quarter of fiscal 2019 as a result of lower than expected operating performance in our wholesale business. In addition, we recorded a $1.3 million restructure charge in the third quarter of fiscal 2019 related to the closure of our Pat Catan’s stores during the fourth quarter of fiscal 2018.
Interest Expense. Interest expense increased $1.0 million to $38.8 million in the third quarter of fiscal 2019 compared to the same period in the prior year. The increase was primarily due to $2.4 million related to a higher interest rate associated with our senior notes issued in July 2019. The increase was partially offset by a $1.1 million decrease
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related to reduced borrowings on our senior secured asset-based revolving credit facility (“Amended Revolving Credit Facility”).
Losses on Early Extinguishments of Debt and Refinancing Costs. We recorded a loss on the early extinguishment of debt of $0.2 million during the third quarter of fiscal 2019 related to the refinancing of our Amended Revolving Credit Facility.
Income Taxes. The effective tax rate was 22.5% in the third quarter of fiscal 2019 compared to 15.8% in the third quarter of fiscal 2018. The effective tax rate in the third quarter of fiscal 2019 was higher than the same period in the prior year primarily due to $7.1 million of tax benefits recognized in the third quarter of fiscal 2018 associated with the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Act”).
39 Weeks Ended November 2, 2019 Compared to the 39 Weeks Ended November 3, 2018
Net Sales. Net sales decreased $133.4 million in the first nine months of fiscal 2019, or 3.8%, to $3,349.4 million compared to the first nine months of fiscal 2018. The decrease in net sales was primarily due to an $88.4 million decrease related to the closure of our Pat Catan’s and Aaron Brothers stores during fiscal 2018, a $55.3 million decrease in comparable store sales and a $19.1 million decrease in wholesale revenue. The decrease was partially offset by $29.9 million of net sales related to 18 additional Michaels stores opened (net of closures) since November 3, 2018. Comparable store sales decreased 1.7%, or 1.4% at constant exchange rates, compared to the first nine months of fiscal 2018 due to a decrease in customer transactions, partially offset by an increase in average ticket.
Gross Profit. Gross profit was 36.6% of net sales in the first nine months of fiscal 2019 compared to 37.6% in the first nine months of fiscal 2018. The 100 basis point decrease was primarily due to the impact of tariffs on inventory we purchase from China, a change in sales mix, an increase in promotional activity and deleveraging occupancy and distribution related costs. The decrease was partially offset by benefits from our ongoing pricing and sourcing initiatives.
Selling, General and Administrative. SG&A was 27.9% of net sales in the first nine months of fiscal 2019 and fiscal 2018. SG&A decreased $36.7 million to $933.5 million in the first nine months of fiscal 2019. The decrease was primarily due to a $24.8 million decrease related to the closure of our Pat Catan’s and Aaron Brothers stores during fiscal 2018, a $19.9 million decrease in performance-based compensation and other payroll-related costs and a $4.4 million decrease in marketing expenses. The decrease was partially offset by $6.8 million associated with operating 18 additional Michaels stores (net of closures) since November 3, 2018 and $5.6 million of CEO severance expense.
Restructure and Impairment Charges. We recorded an impairment charge of $40.1 million in the third quarter of fiscal 2019 as a result of lower than expected operating performance in our wholesale business. In addition, we recorded a restructure charge of $8.2 million in the first nine months of fiscal 2019 related to the closure of our Pat Catan’s stores during the fourth quarter of fiscal 2018 and a restructure charge of $44.3 million in the first nine months of fiscal 2018 primarily related to the closure of our Aaron Brothers stores during the first quarter of fiscal 2018.
Interest Expense. Interest expense increased $6.8 million to $116.3 million in the first nine months of fiscal 2019 compared to the same period in the prior year. The increase was primarily due to $7.0 million related to higher interest rates associated with our term loan credit facility and our senior notes issued in July 2019 and $1.7 million of interest paid on our senior subordinated notes during the period between the issuance of our senior notes and the redemption of the senior subordinated notes. The increase was partially offset by a $1.0 million decrease related to reduced borrowings on our Amended Revolving Credit Facility and a $0.5 million decrease in settlement payments associated with our interest rate swaps.
Losses on Early Extinguishments of Debt and Refinancing Costs. We recorded a loss on the early extinguishment of debt of $1.3 million during the first nine months of fiscal 2019 related to the redemption of our senior subordinated notes and the refinancing of our Amended Revolving Credit Facility. We recorded a loss on the early extinguishment of debt of $1.8 million during the first nine months of fiscal 2018 related to the refinancing of our term loan credit facility.
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Other Expense (Income), Net. Other expense (income), net increased $5.6 million in the first nine months of fiscal 2019 compared to the same period in the prior year. The increase was primarily due to a $5.0 million charge related to the write-off of an investment in a liquidated business.
Income Taxes. The effective tax rate was 23.9% in the first nine months of fiscal 2019 compared to 24.0% in the first nine months of fiscal 2018. The effective tax rate in the first nine months of fiscal 2019 was slightly lower than the same period in the prior year primarily due to a tax benefit associated with a state income tax settlement in fiscal 2019 and a $1.0 million charge in fiscal 2018 associated with the enactment of the Tax Act, partially offset by the vesting and expiration of share-based compensation awards.
Liquidity and Capital Resources
We require cash principally for day-to-day operations, to finance capital investments (including possible acquisitions), purchase inventory, service our outstanding debt and for seasonal working capital needs. We expect that our available cash, cash flow generated from operating activities and funds available under our Amended Revolving Credit Facility will be sufficient to fund planned capital expenditures, working capital requirements, debt repayments, debt service requirements and anticipated growth for the foreseeable future. Our ability to satisfy our liquidity needs and continue to refinance or reduce debt could be adversely affected by the occurrence of any of the events described under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 or our failure to meet our debt covenants. Our Amended Revolving Credit Facility provides senior secured financing of up to $850 million, subject to a borrowing base. As of November 2, 2019, the borrowing base was $850.0 million, of which we had $82.0 million of outstanding standby letters of credit and $768.0 million of unused borrowing capacity. Our cash and cash equivalents totaled $118.4 million at November 2, 2019.
On November 22, 2019, the Company entered into an asset purchase agreement with A.C. Moore Incorporated, and certain of its affiliates, to acquire intellectual property and the right to lease up to 40 store locations for $58 million, subject to certain purchase price adjustments. In connection with the acquisition we also leased a distribution facility in New Jersey. The store locations are expected to be reopened under the Michaels brand name in fiscal 2020 and will include the relocation of certain existing Michaels stores. The transaction is intended to expand our presence in strategic markets and better serve our customers both online and in stores.
We had total outstanding debt of $2,689 million at November 2, 2019, of which $2,189 million was subject to variable interest rates and $500 million was subject to fixed interest rates. In April 2018, we executed two interest rate swaps with an aggregate notional value of $1 billion associated with our outstanding Amended and Restated Term Loan Credit Facility. The swaps replaced the one-month LIBOR with a fixed interest rate of 2.7765%.
On August 30, 2019, Michaels Stores, Inc. (“MSI”), as borrower, and Michaels Funding, Inc. and certain of MSI’s subsidiaries, as guarantors, entered into an amended and restated credit agreement with Wells Fargo Bank, National Association and other lenders. The amendment extends the maturity date of the Amended Revolving Credit Facility to August 30, 2024, subject to an earlier springing maturity date if certain of our outstanding indebtedness has not been repaid, redeemed, refinanced or cash collateralized or if the necessary availability reserves have not been established prior to such time. MSI is required to pay a commitment fee on the unutilized commitments under the Amended Revolving Credit Facility which is 0.25% per annum, subject to reduction to 0.20% when excess availability is less than 50% of the loan cap. The loan cap is defined as the lesser of the commitment amount and the borrowing base. All other significant terms of the Amended Revolving Credit Facility have remained unchanged.
On July 8, 2019, MSI issued $500 million in principal amount of 8% senior notes maturing in 2027 (“2027 Senior Notes”). The 2027 Senior Notes were issued pursuant to an indenture among MSI, certain subsidiaries of MSI, as guarantors, and U.S. Bank National Association, as trustee (the “2027 Senior Notes Indenture”). The 2027 Senior Notes mature on July 15, 2027 and bear interest at a rate of 8% per year, with interest payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2020.
The net proceeds from the offering and sale of the 2027 Senior Notes, together with cash on hand, were used to redeem MSI’s outstanding senior subordinated notes.
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The 2027 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of MSI’s subsidiaries that guarantee indebtedness under the Amended Revolving Credit Facility and the senior secured term loan facility (“Amended and Restated Term Loan Credit Facility”) (collectively defined as the “Senior Secured Credit Facilities”).
The 2027 Senior Notes are general, unsecured obligations of MSI, and the guarantees of the 2027 Senior Notes are general, unsecured obligations of the guarantors. They (i) rank equally in right of payment with all of MSI’s and the guarantors’ existing and future senior debt, including the Senior Secured Credit Facilities, (ii) are effectively subordinated to any of MSI’s and the guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt, including the Senior Secured Credit Facilities, (iii) are structurally subordinated to all of the liabilities of MSI’s subsidiaries that are not guaranteeing the 2027 Senior Notes, and (iv) are senior in right of payment with all of MSI’s and the guarantors’ existing and future subordinated debt.
At any time prior to July 15, 2022, MSI may redeem (a) up to 40% of the aggregate principal amount of the 2027 Senior Notes with the gross proceeds from one or more Equity Offerings, as defined in the 2027 Senior Notes Indenture, at a redemption price of 108% of the principal amount plus accrued and unpaid interest thereon to, but excluding, the redemption date and/or (b) all or part of the 2027 Senior Notes at 100% of the principal amount plus any accrued and unpaid interest thereon to, but excluding, the redemption date plus a make-whole premium. Thereafter, MSI may redeem all or part of the 2027 Senior Notes at the redemption prices set forth below (expressed as percentages of the principal amount of the 2027 Senior Notes to be redeemed) plus any accrued and unpaid interest thereon to, but excluding, the applicable date of redemption, if redeemed during the twelve month period beginning on July 15 of each of the years indicated below:
Year | Percentage | ||
2022 | 104 | % | |
2023 | 102 | % | |
2024 and thereafter | 100 | % |
Upon a change in control, MSI is required to offer to purchase the 2027 Senior Notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest thereon to, but excluding, the date of purchase.
Subject to certain exceptions and qualifications, the 2027 Senior Notes Indenture contains covenants that, among other things, limit MSI’s ability and the ability of its restricted subsidiaries, including the guarantors, to:
● | incur additional indebtedness or issue certain disqualified stock or preferred stock; |
● | create liens; |
● | pay dividends on MSI’s capital stock or make distributions or redeem or repurchase MSI’s capital stock; |
● | prepay subordinated debt or make certain investments, loans, advances, and acquisitions; |
● | transfer or sell assets; |
● | engage in consolidations, amalgamations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets; and |
● | enter into certain transactions with affiliates. |
The 2027 Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would require or permit the principal of and accrued interest on the 2027 Senior Notes to become or to be declared due and payable. As of November 2, 2019, MSI was in compliance with all covenants.
25
Our substantial indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. Management reacts strategically to changes in economic conditions and monitors compliance with debt covenants to seek to mitigate any potential material impacts to our financial condition and flexibility.
In September 2018, the Board of Directors authorized a new share repurchase program for the Company to purchase $500 million of the Company’s common stock on the open market or through accelerated share repurchase transactions. The share repurchase program does not have an expiration date, and the timing and number of repurchase transactions under the program will depend on market conditions, corporate considerations, debt agreements and regulatory requirements. Shares repurchased under the program are held as treasury shares until retired. During the nine months ended November 2, 2019, we repurchased 11.6 million shares for an aggregate amount of $105.1 million. As of November 2, 2019, we had $293.5 million of availability remaining under our current share repurchase program.
We intend to use excess operating cash flows to invest in growth opportunities (including possible acquisitions), repurchase outstanding shares and repay portions of our indebtedness, depending on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. As such, we and our subsidiaries, affiliates and significant shareholders may, from time to time, seek to retire or purchase our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. If we use our excess cash flows to repay our debt, it will reduce the amount of excess cash available for additional capital expenditures.
Cash Flow from Operating Activities
Cash flows provided by operating activities were $106.4 million in the first nine months of fiscal 2019 compared to $25.8 million in the first nine months of fiscal 2018. The increase in cash provided by operating activities was primarily due to additional collections of outstanding receivables and lower tax payments.
Inventory at the end of the third quarter of fiscal 2019 decreased $17.5 million, or 1.2%, to $1,423.4 million, compared to $1,440.9 million at the end of the third quarter of fiscal 2018. The decrease in inventory was primarily related to the closure of our Pat Catan’s stores in the fourth quarter of fiscal 2018. The decrease was partially offset by tariffs enacted on product that we purchase from China, lower sales and additional inventory associated with the operation of 18 additional Michaels stores (net of closures) since November 3, 2018. Average inventory per Michaels store (inclusive of distribution centers, in-transit and inventory for the Company’s e-commerce site) increased 2.9% to $1,069,000 at November 2, 2019 from $1,039,000 at November 3, 2018.
Cash Flow from Investing Activities
The following table includes capital expenditures paid during the periods presented (in thousands):
39 Weeks Ended | ||||||
November 2, | November 3, | |||||
| 2019 |
| 2018 | |||
New and relocated stores including stores not yet opened (1) | $ | 10,787 |
| $ | 27,399 | |
Existing stores |
| 23,257 |
| 32,694 | ||
Information systems |
| 40,132 |
| 43,602 | ||
Corporate and other |
| 15,456 |
| 15,858 | ||
$ | 89,632 | $ | 119,553 |
(1) | In the first nine months of fiscal 2019, we incurred capital expenditures related to the opening of 34 Michaels stores, including the relocation of 13 stores. In the first nine months of fiscal 2018, we incurred capital expenditures related to the opening of 41 Michaels stores, including the relocation of 20 stores. |
26
Non-GAAP Measures
The following table sets forth certain non-GAAP measures used by the Company to manage our performance and measure compliance with certain debt covenants. The Company defines “EBITDA” as net income before interest, income taxes, depreciation and amortization. The Company defines “Adjusted EBITDA” as EBITDA adjusted for certain defined amounts in accordance with the Company’s Senior Secured Credit Facilities.
The Company has presented EBITDA and Adjusted EBITDA to provide investors with additional information to evaluate our operating performance and our ability to service our debt. Adjusted EBITDA is a required calculation under the Company’s Senior Secured Credit Facilities that is used in the calculations of fixed charge coverage and leverage ratios, which, under certain circumstances determine mandatory repayments or maintenance covenants and may restrict the Company’s ability to make certain payments (characterized as restricted payments), investments (including acquisitions) and debt repayments.
As EBITDA and Adjusted EBITDA are not measures of liquidity calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), these measures should not be considered in isolation of, or as substitutes for, net cash provided by operating activities as an indicator of liquidity. Our computation of EBITDA and Adjusted EBITDA may differ from similarly titled measures used by other companies.
27
The following table shows a reconciliation of EBITDA and Adjusted EBITDA to net income and net cash provided by operating activities (in thousands):
13 Weeks Ended | 39 Weeks Ended | |||||||||||
November 2, | November 3, | November 2, | November 3, | |||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||
Net cash provided by operating activities | $ | 108,475 | $ | 112,376 | $ | 106,367 | $ | 25,814 | ||||
Amortization of operating lease assets | (81,397) | — | (244,258) | — | ||||||||
Depreciation and amortization |
| (31,295) |
| (30,879) |
| (94,025) |
| (89,933) | ||||
Share-based compensation |
| (6,658) |
| (8,446) |
| (18,664) |
| (20,780) | ||||
Debt issuance costs amortization |
| (970) |
| (1,237) |
| (3,509) |
| (3,759) | ||||
Loss on write-off of investment | — | — | (5,036) | — | ||||||||
Accretion of long-term debt, net |
| (67) |
| 129 |
| 195 |
| 385 | ||||
Restructure and impairment charges | (41,376) | — | (48,332) | (44,278) | ||||||||
Deferred income taxes | 10,023 | (6,940) | 9,984 | (7,710) | ||||||||
Losses on early extinguishments of debt and refinancing costs | (161) | — | (1,316) | (1,835) | ||||||||
Changes in assets and liabilities |
| 72,131 |
| 18,766 |
| 389,537 |
| 280,238 | ||||
Net income |
| 28,705 |
| 83,769 |
| 90,943 |
| 138,142 | ||||
Interest expense |
| 38,781 |
| 37,798 |
| 116,274 |
| 109,493 | ||||
Income taxes |
| 8,324 |
| 15,719 |
| 28,615 |
| 43,557 | ||||
Depreciation and amortization |
| 31,295 |
| 30,879 |
| 94,025 |
| 89,933 | ||||
Interest income |
| (297) |
| (137) |
| (2,012) |
| (2,385) | ||||
EBITDA | 106,808 |
| 168,028 | 327,845 |
| 378,740 | ||||||
Adjustments: | ||||||||||||
Losses on early extinguishments of debt and refinancing costs | 161 | — | 1,316 | 1,835 | ||||||||
Share-based compensation |
| 6,658 |
| 8,446 |
| 18,664 |
| 20,780 | ||||
Restructure and impairment charges | 41,376 | — | 48,332 | 44,278 | ||||||||
Severance costs |
| 1,683 |
| — |
| 10,744 |
| 902 | ||||
Store pre-opening costs |
| 1,402 |
| 1,196 |
| 4,370 |
| 3,995 | ||||
Store remodel costs |
| 174 |
| 1,325 |
| 242 |
| 5,079 | ||||
Foreign currency transaction losses (gains) |
| 192 |
| (149) |
| 659 |
| (950) | ||||
Store closing costs |
| 478 |
| (328) |
| (469) |
| 3,321 | ||||
Other (1) |
| 1,788 |
| 754 |
| 4,489 |
| 2,035 | ||||
Adjusted EBITDA | $ | 160,720 | $ | 179,272 | $ | 416,192 | $ | 460,015 |
(1) | Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes, sign-on bonuses, directors fees and CEO search costs. |
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Disclosure Regarding Forward-Looking Information
The above discussion, as well as other portions of this Quarterly Report on Form 10-Q, contains forward-looking statements that reflect our plans, estimates and beliefs. Statements regarding sufficiency of capital resources and planned uses of excess cash flow as well as any other statements contained herein (including, but not limited to, statements to the effect that Michaels or its management “anticipates”, “plans”, “estimates”, “expects”, “believes”, “intends” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our Annual Report. Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance or achievements to be materially different from anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements. Most of these factors are outside of our control and are difficult to predict. Such risks and uncertainties include, but are not limited to the following:
● | risks related to the effect of economic uncertainty; |
● | risks related to our substantial indebtedness; |
● | restrictions in our debt agreements that limit our flexibility in operating our business; |
● | changes in customer demand could materially adversely affect our sales, results of operations and cash flow; |
● | competition, including internet-based competition, could negatively impact our business; |
● | a weak fourth quarter would materially adversely affect our results of operations; |
● | unexpected or unfavorable consumer responses to our promotional or merchandising programs could materially adversely affect our sales, results of operations, cash flow and financial condition; |
● | evolving foreign trade policy (including tariffs imposed on certain foreign-made goods) may adversely affect our business; |
● | our reliance on foreign suppliers increases our risk of obtaining adequate, timely and cost-effective product supplies; |
● | our results may be adversely affected by serious disruptions or catastrophic events, including geo-political events and weather; |
● | our failure to adequately maintain security and prevent unauthorized access to electronic and other confidential information, which could result in an additional data breach, could materially adversely affect our financial condition and operating results; |
● | we may be subject to information technology system failures or network disruptions, or our information systems may prove inadequate, resulting in damage to our reputation, business operations and financial condition; |
● | our failure to increase comparable store sales and open new stores could impair our ability to improve our sales, profitability and cash flows; |
● | damage to the reputation of the Michaels brand or our private and exclusive brands could adversely affect our sales; |
● | risks associated with the suppliers from whom our products are sourced and transitioning to other qualified vendors could materially adversely affect our revenue and profit growth; |
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● | changes in regulations or enforcement, or our failure to comply with existing or future regulations, may adversely impact our business; |
● | significant increases in inflation or commodity prices such as petroleum, natural gas, electricity, steel, wood, and paper may adversely affect our costs, including cost of merchandise; |
● | improvements to our supply chain may not be fully successful; |
● | we are exposed to fluctuations in exchange rates between the U.S. and Canadian dollar, which is the functional currency of our Canadian subsidiaries; |
● | the Company’s ability to execute its strategic initiatives could be impaired if it fails to retain its senior management team; |
● | any difficulty executing or integrating an acquisition, a business combination or a major business initiative could adversely affect our business or results of operations; |
● | our marketing programs, e-commerce initiatives and use of consumer information are governed by an evolving set of laws and enforcement trends and unfavorable changes in those laws or trends, or our failure to comply with existing or future laws, could substantially harm our business and results of operations; |
● | product recalls and/or product liability, as well as changes in product safety and other consumer protection laws, may adversely impact our operations, merchandise offerings, reputation, results of operation, cash flow, and financial condition; |
● | changes in estimates or projections used to assess fair value of intangible assets, goodwill and property and equipment may cause us to incur impairment charges that could adversely affect our results of operations; |
● | disruptions in the capital markets could increase our costs of doing business; |
● | our real estate leases generally obligate us for long periods, which subjects us to various financial risks; |
● | we have co-sourced certain of our information technology, accounts payable, payroll, accounting and human resources functions, and may co-source other administrative functions, which makes us more dependent upon third parties; |
● | failure to attract and retain quality sales, distribution center and other team members in appropriate numbers as well as experienced buying and management personnel could adversely affect our performance; |
● | affiliates of, or funds advised by, Bain Capital Private Equity, L.P. and The Blackstone Group L.P. own approximately 36% and 14%, respectively, of the outstanding shares of our common stock and as a result will have the ability to strongly influence our decisions, and they may have interests that differ from those of other stockholders; and |
● | our holding company structure makes us, and certain of our direct and indirect subsidiaries, dependent on the operations of our, and their, subsidiaries to meet our financial obligations. |
For more details on factors that may cause actual results to differ materially from such forward-looking statements see the Risk Factors section of our Annual Report. Except as required by applicable law, we disclaim any intention to, and undertake no obligation to, update or revise any forward-looking statement.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We are exposed to fluctuations in exchange rates between the U.S. and Canadian dollar, which is the functional currency of our Canadian subsidiaries. Our sales, costs and expenses of our Canadian subsidiaries, when translated into U.S. dollars, can fluctuate due to exchange rate movement. A 10% increase or decrease in the exchange rate of the Canadian dollar would have increased or decreased net income by approximately $9 million for the 39 weeks ended November 2, 2019.
Interest Rate Risk
We have market risk exposure arising from changes in interest rates on our Amended and Restated Term Loan Credit Facility and our Amended Revolving Credit Facility. The interest rates on our Amended and Restated Term Loan Credit Facility and our Amended Revolving Credit Facility will reprice periodically, which will impact our earnings and cash flow. In April 2018, we executed two interest rate swap agreements with an aggregate notional value of $1 billion which are intended to mitigate interest rate risk associated with future changes in interest rates for borrowings under our Amended and Restated Term Loan Credit Facility. As a result of these interest rate swaps, our exposure to interest rate volatility for $1 billion of our Amended and Restated Term Loan Credit Facility was eliminated beginning in the second quarter of fiscal 2018. The interest rate on our 2027 Senior Notes is fixed. Based on our overall interest rate exposure to variable rate debt outstanding as of November 2, 2019, a 100 basis point change in interest rates would impact income before income taxes by approximately $12 million for fiscal 2019. A 100 basis point change in interest rates would impact the fair value of our long-term fixed rate debt by approximately $13 million. A change in interest rates would not materially affect the fair value of our variable rate debt as the debt reprices periodically.
Inflation Risk
We do not believe inflation and changing commodity prices have had a material impact on our net sales, income from continuing operations, plans for expansion or other capital expenditures for any period presented in this report. However, we cannot be sure inflation and changing commodity prices will not have an adverse impact on our operating results, financial condition, plans for expansion or other capital expenditures in future periods.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated by the SEC under the Exchange Act) designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. We note the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms.
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Change in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the quarter ended November 2, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material changes to the disclosure made in Note 14 to the consolidated financial statement in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors described in the Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides certain information with respect to our purchases of shares of the Company’s common stock during the third quarter of fiscal 2019:
|
|
|
|
|
|
|
|
| Approximate Dollar Value | |
|
|
|
|
|
|
| Total Number of |
| of Shares That May | |
|
|
|
|
|
|
| Shares Purchased |
| Yet Be Purchased | |
|
| Total Number of |
| Average Price |
| as Part of Publicly |
| Under the Plan (2) | ||
Period |
| Shares Purchased (1) |
| Paid per Share |
| Announced Plan (2) |
| (in thousands) | ||
August 4, 2019 - August 31, 2019 | 3,156 | $ | 5.59 | — | $ | 373,353 | ||||
September 1, 2019 - October 5, 2019 | 8,640,642 | 9.32 | 8,582,771 | 293,524 | ||||||
October 6, 2019 - November 2, 2019 | 3,889 | 8.70 | — | 293,524 | ||||||
Total | 8,647,687 | $ | 9.32 | 8,582,771 | $ | 293,524 |
(1) | These amounts reflect the following transactions during the third quarter of fiscal 2019: (i) the repurchase of shares as part of our publicly announced share repurchase program and (ii) surrender of shares of common stock to the Company to satisfy tax withholding obligations in connection with the vesting of employee restricted stock equity awards. |
(2) | In September 2018, the Board of Directors authorized the Company to purchase up to $500 million of the Company’s common stock on the open market or through accelerated share repurchase transactions. The share repurchase program does not have an expiration date. The Company has retired and intends to continue to retire shares repurchased under the program. |
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ITEM 6. EXHIBITS
(a) | Exhibits: |
Exhibit |
| Description of Exhibit |
---|---|---|
10.1 | ||
10.2 | ||
10.3* | ||
10.4* | ||
10.5* | ||
10.6* | ||
10.7* | ||
31.1 | ||
31.2 | ||
32.1 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Management contract or compensatory plan or agreement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE MICHAELS COMPANIES, INC. | ||
By: | /s/ Mark S. Cosby | |
Mark S. Cosby | ||
Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
By: | /s/ Denise A. Paulonis | |
Denise A. Paulonis | ||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: December 6, 2019
34
Exhibit 10.3
AMENDMENT TO LETTER AGREEMENT
This amendment (this “Amendment”) amends, effective October 21, 2019, the employment letter agreement (the “Letter Agreement”) entered into by and between Mark Cosby (the “Executive” or “you”), Michaels Stores, Inc. (the “Company”) and The Michaels Companies, Inc. (“Parent”) describing the terms and conditions of the Executive’s employment with the Company as set forth below. Capitalized terms not defined in this Amendment have the respective meanings ascribed to them in the Letter Agreement.
In consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties hereto desire to amend the Letter Agreement as follows:
1. The first two sentences of Section 1(a) of the Letter Agreement shall be deleted in their entirety and replaced with the following:
“Effective as of October 21, 2019 (the “Transition Date”), you will be employed by the Company, on a full-time basis, as its Chief Executive Officer. You agree to perform the duties of your position and such other duties as may reasonably be assigned to you by the board of directors (the “Board”) of Parent from time to time.”
2. The following words shall be added to the end of the third sentence of Section 1(b) of the Letter Agreement:
“for the remainder of your term, unless the Board requests your resignation, which you agree to provide.”
3. A new Section 5(f) shall be added to the Letter Agreement as follows:
“Notwithstanding any of the foregoing, each Quarterly Restricted Stock Award granted to you on or after the Transition Date will be made in the form of restricted stock units, evidenced by an award agreement substantially in the form attached hereto as Exhibit A; provided that, the vesting terms of future Quarterly Restricted Stock Awards may reflect the same ratio of time-vesting to performance-vesting as Parent adopts generally for its annual restricted stock unit grants. With respect to each such award granted to you on or after the Transition Date, each reference in this Section 5 to “restricted stock” shall be replaced with “restricted stock units”, and each reference to “Quarterly Restricted Stock Award” shall be replaced with “Quarterly RSU Award.””
4. A new Section 5(g) shall be added to the Letter Agreement as follows:
“On or following the Transition Date, you will be granted an award of 860,000 options to purchase Parent common stock at an exercise price equal to the fair market value of a share of Parent common stock on the date of grant. Such option award will be evidenced by an award agreement substantially in the form attached hereto as Exhibit B.”
5. A new Section 5(h) shall be added to the Letter Agreement as follows:
“On or following the Transition Date, you will also be granted an award of 75,000 restricted stock units of Parent. Such restricted stock unit award will be evidenced by an award agreement substantially in the form attached hereto as Exhibit C.”
6. A new Section 5(i) shall be added to the Letter Agreement as follows:
“You will not be eligible to receive awards pursuant to Parent’s annual equity grant program.”
7. The first sentence of Section 6(b) of the Letter Agreement shall be deleted in its entirety and replaced with the following:
“Any annual bonus to which you may become entitled under the Annual Incentive Plan will be pro-rated based on the number of days that you served as Interim Chief Executive Officer or Chief Executive Officer during the fiscal year to which the annual bonus relates.”
8. The following sentence shall be added to the end of Section 7 of the Letter Agreement:
“During the term of your employment hereunder, the Company shall pay for or reimburse you for all reasonable, customary and necessary business expenses incurred in the performance of your duties and responsibilities hereunder, subject to such reasonable substantiation and documentation as may be specified by the Company from time to time. Such expenses shall include (i) reasonable expenses for travel between the Company’s headquarters and Boston, Massachusetts, (ii) an automobile lease, and (iii) a cell phone and the monthly cost of voice and data service.”
9. By signing this Amendment, the Executive, the Company, and Parent are providing their express written consent to the changes to the terms and conditions of the Executive’s employment described in this Amendment. Except as expressly modified herein, the Letter Agreement remains in full force and effect, and is binding on the Executive, the Company, and Parent in accordance with its terms. The Executive acknowledges and agrees that the Letter Agreement, as amended by this Amendment, constitutes the entire agreement between the Executive, the Company, and Parent with respect to the terms and conditions of his employment and supersedes all other agreements and understandings, whether written or oral.
[Signature page follows immediately]
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IN WITNESS WHEREOF, this Amendment has been executed by the Company, by its duly authorized representative, by Parent, by its duly authorized representative, and by you, as of the date first above written.
MARK COSBY |
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THE COMPANY |
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/s/ Mark Cosby |
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By: |
/s/ Navin Rao |
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Name: |
Navin Rao |
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Title: |
Vice President – Assistant |
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General Counsel & Secretary |
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PARENT |
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By: |
/s/ Navin Rao |
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Name: |
Navin Rao |
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Title: |
Vice President – Assistant |
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General Counsel & Secretary |
-3-
Exhibit A
Form of Quarterly RSU Award
-4-
Exhibit B
Option Award
-5-
Exhibit C
Restricted Stock Unit Award
-6-
Exhibit 10.4
Name: |
Mark Cosby |
Number of Restricted Stock Units: |
75,000 |
Date of Grant: |
October 21, 2019 |
THE MICHAELS COMPANIES, INC.
2014 OMNIBUS LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
This agreement (this “Agreement”) evidences the grant of restricted stock units (the “Restricted Stock Units”) by The Michaels Companies, Inc. (the “Company”) to the individual named above (the “Grantee”), pursuant to and subject to the terms of The Michaels Companies, Inc. 2014 Omnibus Long-Term Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference.
1. Grant of Restricted Stock Units. The Company hereby grants to the Grantee on the date of grant set forth above (the “Date of Grant”) an award (the “Award”) consisting of the right to receive, on the terms provided herein and in the Plan, one share of Stock with respect to each Restricted Stock Unit forming part of the Award, in each case, subject to adjustment pursuant to Section 7(b) of the Plan in respect of transactions occurring after the date hereof.
2. Meaning of Certain Terms. Each initially capitalized term used but not separately defined herein has the meaning assigned to such term in the Plan. The following terms have the following meanings:
(a) “Change of Control” means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any Person and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as in effect from time to time), other than the Investors and their respective affiliated funds, excluding, in any case referred to in clause (i) or (ii) an initial public offering or any bona fide primary or secondary public offering following the occurrence of an initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
(b) “Investors” means Bain Capital Partners, LLC and The Blackstone Group L.P.
(c) “Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
3. Vesting. The term “vest” as used herein with respect to any Restricted Stock Unit means the lapsing of the restrictions described herein with respect to such Restricted Stock Unit. Unless earlier terminated, forfeited, relinquished or expired, the Award shall vest as follows, provided in each case (subject to Section 3(b) below) that the Grantee has remained in continuous Employment as Chief Executive Officer of Michaels Stores, Inc. from the Date of Grant through the applicable vesting date:
(a) Fifty percent (50%) of the Award shall vest on each anniversary of the Date of Grant.
(b) Upon the Grantee’s termination of Employment as Chief Executive Officer of Michaels Stores, Inc. by the Company or Michaels Stores, Inc. without Cause (except where Cause exists), the Award will vest as to that portion that would otherwise vest on the next anniversary of the Date of Grant, pro rated based on the number of days since the last annual vesting date (or the Date of Grant if such termination occurs prior to the first anniversary of the Date of Grant).
(c) In the event (i) the Restricted Stock Units (or any portion thereof) are outstanding as of immediately prior to a Change of Control and the Administrator provides for the assumption or continuation of, or the substitution of a substantially equivalent award for, the Restricted Stock Units (or any portion thereof) in accordance with Section 7(a)(i) of the Plan (the “Rollover Award”) and (ii) the Grantee’s Employment as Chief Executive Officer of Michaels Stores, Inc. by the Company or Michaels Stores, Inc. is terminated by the Company or Michaels Stores, Inc. (or one of their successors) without Cause within the twelve (12) months following the Change of Control, the Rollover Award to the extent still outstanding will vest in full on the date of the termination of the Grantee’s Employment as Chief Executive Officer of Michaels Stores, Inc. For the avoidance of doubt, if the Administrator does not provide for such assumption, continuation, or substitution in connection with a Change of
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Control, then the treatment of the Restricted Stock Units in such Change of Control will be as provided for by the Administrator in its sole discretion pursuant to Section 7(a)(2) through Section 7(a)(5) of the Plan.
4. Forfeiture Risk. If the Grantee’s Employment as Chief Executive Officer of Michaels Stores, Inc. ceases for any reason, including death, any then outstanding and unvested Restricted Stock Units acquired by the Grantee hereunder shall be automatically and immediately forfeited, subject to Sections 3(b) and 3(c) above.
5. Delivery of Stock. The Company shall deliver to the Grantee as soon as practicable upon the vesting of the Restricted Stock Units (or any portion thereof), but in all events no later than thirty (30) days following the date on which such Restricted Stock Units vest, one share of Stock with respect to each such vested Restricted Stock Unit, subject to the terms of the Plan and this Agreement.
6. Dividends, etc. The Grantee shall have the rights of a shareholder with respect to a share of Stock subject to the Award only at such time, if any, as such share is actually delivered under the Award. Without limiting the generality of the foregoing and for the avoidance of doubt, the Grantee shall not be entitled to vote any share of Stock subject to the Award or to receive or be credited with any dividend or other distribution declared and payable on any such share unless such share has been actually delivered hereunder and is held by the Grantee on the record date for such vote or dividend (or other distribution), as the case may be.
7. Nontransferability. Neither the Award nor the Restricted Stock Units may be transferred.
8. Certain Tax Matters.
(a) The Grantee expressly acknowledges and agrees that the Grantee’s rights hereunder, including the right to be issued shares of Stock upon the vesting of the Restricted Stock Units (or any portion thereof), are subject to the Grantee’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld, if any. No shares of Stock will be required to be transferred pursuant to the vesting of the Restricted Stock Units (or any portion thereof) unless and until the Grantee or the person then holding the Award has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by accepting the Award the Grantee shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. The Grantee also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the
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Grantee, but nothing in this sentence shall be construed as relieving the Grantee of any liability for satisfying his or her obligations under the preceding provisions of this Section.
(b) The Grantee expressly acknowledges that because the Award consists of an unfunded and unsecured promise by the Company to deliver Stock in the future, subject to the terms hereof, it is not possible to make a so-called “83(b) election” with respect to the Award.
9. Forfeiture/Recovery of Compensation. By accepting the Award the Grantee expressly acknowledges and agrees that his or her rights, and those of any permitted transferee, under the Award or to any Stock received following the vesting of the Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision) and Section 10 of this Agreement. Nothing in the preceding sentence shall be construed as limiting the general application of Section 13 of this Agreement.
10. Non-Competition/Non-Solicitation. The Grantee hereby acknowledges that the Company and its Affiliates have invested and continue to invest considerable resources in developing Company Information (as defined below) and trade secrets, and in establishing and maintaining relationships with customers, employees, and vendors. The Grantee hereby further acknowledges that the Award is being furnished to the Grantee as good and valuable consideration, among other consideration, in exchange for the below covenants, which are necessary to protect the Company Information, trade secrets, and goodwill of the Company and its Affiliates:
(a) Non-Competition. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 10(a)) following the termination of the Grantee’s Employment, whether such termination occurs at the insistence of the Company or its Affiliates or the Grantee (for whatever reason), the Grantee will not, directly or indirectly, alone or in association with others, anywhere in the Territory (as defined below), own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (any Person who engages in any such business venture or activity, a “Competitor”), except that nothing contained in this Section 10(a) shall prevent the
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Grantee’s wholly passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company. For purposes of this Section 10(a), the “Business of the Company or any of its Immediate Affiliates” is that of arts and crafts, or framing specialty retailer or wholesaler providing materials, ideas and education for creative activities, or framing, as well as any other business that the Company or any of its Immediate Affiliates conducts or is actively planning to conduct at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following the termination of the Grantee’s Employment the twelve (12) months immediately preceding the termination of the Grantee’s Employment; provided, that the term “Competitor” shall not include any business, venture or activity whose gross receipts derived from the retail or wholesale sale of arts and crafts, or framing products and services (aggregated with the gross receipts derived from the retail and wholesale sale of such products or any related business, venture or activity) are less than ten percent (10%) of the aggregate gross receipts of such businesses, ventures or activities. For purposes of this Section 10(a), the “Territory” is comprised of those states within the United States, those provinces of Canada, and any other geographic area in which the Company or any of its Immediate Affiliates was doing business or actively planning to do business at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following his or her termination of Employment the twelve (12) months immediately preceding the termination of the Grantee’s Employment. For purposes of this Section, “Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or indirect subsidiary of the Company, (ii) a parent to the Company or (iii) a direct or indirect subsidiary of such a parent.
(b) Non-Solicitation. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 10(b)) after the termination of the Grantee’s Employment, whether such termination occurs at the insistence of the Company or the Grantee (for whatever reason), the Grantee shall not, and shall not assist any other Person to, (i) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (ii) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with them; provided, however, that after termination of the Grantee’s Employment, these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or any of its Immediate Affiliates who were such on the date that the Grantee’s Employment
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terminated or at any time during the nine (9) months immediately preceding such termination date.
(c) Goodwill and Company Information. The Grantee acknowledges the importance to the Company and its Affiliates of protecting their legitimate business interests, including without limitation the valuable Company Information and goodwill that they have developed or acquired at considerable expense. The Grantee acknowledges and agrees that in the course of the Grantee’s Employment, the Grantee has acquired: (i) confidential information including without limitation information received by the Company (or any of its Affiliates) from third parties, under confidential conditions, (ii) other technical, product, business, financial or development information from the Company (or any of its Affiliates), the use or disclosure of which reasonably might be construed to be contrary to the interest of the Company (or any of its Affiliates), or (iii) any other proprietary information or data, including but not limited to identities, responsibilities, contact information, performance and/or compensation levels of employees, costs and methods of doing business, systems, processes, computer hardware and software, compilations of information, third-party IT service providers and other Company or its Affiliates’ vendors, records, sales reports, sales procedures, financial information, customer requirements and confidential negotiated terms, pricing techniques, customer lists, price lists, information about past, present, pending and/or planned Company or its Affiliates’ transactions not publicly disclosed and other confidential information which the Grantee may have acquired during the Grantee’s Employment (hereafter collectively referred to as “Company Information”) which are owned by the Company or its Affiliates and regularly used in the operation of its business, and as to which precautions are taken to prevent dissemination to persons other than certain directors, officers and employees and if disclosed, would assist in competition against the Company or any of its Affiliates. The Grantee understands and agrees that such Company Information was and will be disclosed to the Grantee in confidence and for use only in performing work for the Company or its Affiliates. The Grantee understands and agrees that the Grantee: (x) will keep such Company Information confidential at all times, (y) will not disclose or communicate Company Information to any third party, and (z) will not make use of Company Information on the Grantee’s own behalf, or on behalf of any third party. In view of the nature of the Grantee’s Employment and the nature of Company Information the Grantee receives during the course of the Grantee’s Employment, the Grantee agrees that any unauthorized disclosure to third parties of Company Information would cause irreparable damage to the confidential or trade secret status of Company Information. The Grantee further acknowledges and agrees that the restrictions on his or her activities set forth above are necessary to protect the goodwill, Company Information and other legitimate interests of the Company and its Affiliates and that the Grantee’s acceptance of
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these restrictions is a condition of receipt of the Award, to which the Grantee would not otherwise be entitled, and the Award is good and sufficient consideration to support the Grantee’s agreement to and compliance with these covenants.
(d) Remedies. In the event of a breach or threatened breach by the Grantee of any of the covenants contained in Section 10(a), 10(b) or 10(c):
(i) the Grantee hereby consents and agrees that (x) any unvested Restricted Stock Units and (y) all shares of Stock held by the Grantee following the vesting of the Restricted Stock Units shall be forfeited effective as of the date of such breach or threatened breach, unless sooner terminated by operation of another term or condition of this Agreement or the Plan;
(ii) the Grantee hereby consents and agrees that if the Grantee has sold any shares of Stock upon or following the vesting of the Restricted Stock Units within twelve (12) months prior to the date of such breach or threatened breach, the Grantee shall pay to the Company the gross proceeds realized by the Grantee in connection with such sale; and
(iii) the Grantee hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
(e) General. The Grantee agrees that the above restrictive covenants are completely severable and independent agreements supported by good and valuable consideration and, as such, shall survive the termination of this Agreement for whatever reason. The Company and the Grantee agree that any invalidity or unenforceability of any one or more of such restrictions on competition shall not render invalid or unenforceable any remaining restrictive covenants. Should a court of competent jurisdiction determine that the scope of any provision of this Section 10 is too broad to be enforced as written, the Company and the Grantee intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable.
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11. Form S-8 Prospectus. The Grantee acknowledges having received and reviewed a copy of the prospectus required by Part I of Form S-8 relating to shares of Stock that may be issued under the Plan.
12. Governing Law. Notwithstanding anything to the contrary in the Plan, Section 10 of this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction, except where preempted by federal law. Both parties hereby consent and submit to the jurisdiction of the state and federal courts in Dallas County, Texas in all questions and controversies arising out of this Agreement.
13. Acknowledgments. By accepting the Award, the Grantee agrees to be bound by, and agrees that the Award is, and the Restricted Stock Units are, subject in all respects to, the terms of the Plan. The Grantee further acknowledges and agrees that (a) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder, and (b) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Grantee.
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Executed as of the ___ day of October, 2019. |
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Company: |
THE MICHAELS COMPANIES, INC. |
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By: |
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Navin Rao |
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Title: |
Vice President — Assistant General Counsel and Secretary |
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Grantee: |
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Name: |
Mark Cosby |
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Address: |
Name: |
Mark Cosby |
Number of Shares of Stock Subject to Option: |
860,000 |
Price Per Share: |
$9.87 |
Date of Grant: |
October 21, 2019 |
THE MICHAELS COMPANIES, INC.
2014 OMNIBUS LONG-TERM INCENTIVE PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
This agreement (this “Agreement”) evidences a stock option granted by The Michaels Companies, Inc. (the “Company”) to the individual named above (the “Optionee”) pursuant to and subject to the terms of The Michaels Companies, Inc. 2014 Omnibus Long-Term Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference.
1. Grant of Stock Option. On the date of grant set forth above (the “Date of Grant”) the Company granted to the Optionee an option (the “Stock Option”) to purchase, on the terms provided herein and in the Plan, up to the number of shares of Stock set forth above (each, a “Share,” and collectively, the “Shares”) at the exercise price per Share set forth above, in each case subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.
The Stock Option evidenced by this Agreement is a non-statutory option (that is, an option that is not to be treated as a stock option described in subsection (b) of Section 422 of the Code). The Optionee is an employee of the Company and/or of one or more subsidiaries of the Company with respect to which the Company has a “controlling interest” as described in Treas. Regs. §1.409A-1(b)(5)(iii)(E)(1).
2. Meaning of Certain Terms. Each initially capitalized term used but not separately defined herein has the meaning assigned to such term in the Plan. The following terms have the following meanings:
(a) “Change of Control” means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity
immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any Person and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect from time to time), other than the Investors and their respective affiliated funds, excluding, in any case referred to in clause (i) or (ii) an initial public offering or any bona fide primary or secondary public offering following the occurrence of an initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
(b) “Investors” means Bain Capital Partners, LLC and The Blackstone Group L.P.
(c) “Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
(d) “Qualifying Retirement” means the Optionee’s voluntary termination of Employment by reason of his or her retirement, except where Cause exists (as determined by the Administrator in its sole discretion), (i) at or above age sixty-five (65) or (ii) at or above age fifty-five (55) with five (5) years of service to the Company, provided that the sum of the Optionee’s age and years of the service to the Company is at least sixty-five (65).
(e) “Qualifying Termination” means (i) a Qualifying Retirement or (ii) the termination of the Optionee’s Employment as Chief Executive Officer of Michaels Stores, Inc. for any reason other than by the Company or Michaels Stores, Inc. for Cause (or in a circumstance where Cause exists).
3. Vesting; Method of Exercise. Unless earlier terminated, forfeited, relinquished or expired, the Stock Option shall vest as follows, provided in each case (subject to Section 3(b) below) that the Optionee has remained in continuous Employment as Chief Executive Officer of Michaels Stores, Inc. from the Date of Grant through the applicable vesting date:
(a) Twenty-five percent (25%) of the Stock Option shall vest on each anniversary of the Date of Grant.
(b) Upon the Optionee’s termination of Employment as Chief Executive Officer of Michaels Stores, Inc. by the Company or Michaels Stores, Inc. without Cause (except where Cause exists), the Stock Option will vest as to that portion that would otherwise vest on the next anniversary of the
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Date of Grant, pro rated based on the number of days since the last annual vesting date (or the Date of Grant if such termination occurs prior to the first anniversary of the Date of Grant).
(c) In the event (i) the Stock Option (or any portion thereof) is outstanding as of immediately prior to a Change of Control and the Administrator provides for the assumption or continuation of, or the substitution of a substantially equivalent award for, the Stock Option (or any portion thereof) in accordance with Section 7(a)(i) of the Plan (the “Rollover Award”) and (ii) the Optionee’s Employment as Chief Executive Officer of Michaels Stores, Inc. is terminated by the Company or Michaels Stores, Inc. (or one of their successors) without Cause within the twelve (12) months following the Change of Control, the Rollover Award to the extent still outstanding will vest in full on the date of the Optionee’s termination of Employment as Chief Executive Officer of Michaels Stores, Inc.
(d) Notwithstanding Sections 6(a)(4)(A), (B) or (C) of the Plan, but subject to Section 6(a)(4)(D) of the Plan and Section 5(d) below, in the event of the Optionee’s Qualifying Termination, the portion of the Stock Option that is then exercisable will remain exercisable until the earlier of the second anniversary of such Qualifying Termination and the Final Exercise Date (as defined below).
No portion of the Stock Option may be exercised until it vests. Each election to exercise must comply with such rules as the Administrator prescribes from time to time and must be accompanied by payment in full of the exercise price in the form of (i) cash or a check acceptable to the Administrator, (ii) to the extent permitted by the Administrator, payment by means of a broker-assisted cashless exercise program, (iii) such other form of payment, if any, as may be acceptable to the Administrator, or (iv) any combination of the foregoing. The latest date on which the Stock Option or any portion thereof may be exercised will be the 10th anniversary of the Date of Grant (the “Final Exercise Date”); provided, however, if at such time the Optionee or other person (if any) authorized to exercise the Stock Option is prohibited by applicable law or written Company policy applicable to the Optionee (or such other person, as applicable) and similarly situated persons from engaging in any open-market sales of Stock, the Final Exercise Date will be automatically extended to thirty (30) days following the date the Optionee or such other person, as the case may be, is no longer prohibited from engaging in such open-market sales. Any portion of the Stock Option that remains outstanding and has not been exercised by the Final Exercise Date will thereupon immediately terminate. Upon any earlier termination of Employment, subject to Sections 3(b), (c), and (d) above, the provisions of Section 6(a)(4)(A)-(D) of the Plan shall apply.
4. Forfeiture; Recovery of Compensation. By accepting the Stock Option the Optionee expressly acknowledges and agrees that his or her rights, and those of any permitted transferee, under the Stock Option or to any Stock acquired under the Stock Option or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision) and Section 5 of this Agreement. Nothing in the
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preceding sentence shall be construed as limiting the general application of Section 9 of this Agreement.
5. Non-Competition/Non-Solicitation. The Optionee hereby acknowledges that the Company and its Affiliates have invested and continue to invest considerable resources in developing Company Information (as defined below) and trade secrets, and in establishing and maintaining relationships with customers, employees, and vendors. The Optionee hereby further acknowledges that the Award is being furnished to the Optionee as good and valuable consideration, among other consideration, in exchange for the below covenants, which are necessary to protect the Company Information, trade secrets, and goodwill of the Company and its Affiliates:
(a) Non-Competition. The Optionee covenants and agrees that during the Optionee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Optionee participates in any activity in violation of the restrictions set forth in this Section 5(a)) following the Optionee’s termination of Employment, whether such termination occurs at the insistence of the Company or its Affiliates or the Optionee (for whatever reason), the Optionee will not, directly or indirectly, alone or in association with others, anywhere in the Territory (as defined below), own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (any Person who engages in any such business venture or activity, a “Competitor”), except that nothing contained in this Section 5(a) shall prevent the Optionee’s wholly passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company. For purposes of this Section 5(a), the “Business of the Company or any of its Immediate Affiliates” is that of arts and crafts, or framing specialty retailer or wholesaler providing materials, ideas and education for creative activities, or framing, as well as any other business that the Company or any of its Immediate Affiliates conducts or is actively planning to conduct at any time during the Optionee’s Employment, or with respect to the Optionee’s obligations following his or her termination of Employment the twelve (12) months immediately preceding the Optionee’s termination of Employment; provided, that the term “Competitor” shall not include any business, venture or activity whose gross receipts derived from the retail or wholesale sale of arts and crafts, or framing products and services (aggregated with the gross receipts derived from the retail and wholesale sale of such products or any related business, venture or activity) are less than ten percent (10%) of the
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aggregate gross receipts of such businesses, ventures or activities. For purposes of this Section 5(a), the “Territory” is comprised of those states within the United States, those provinces of Canada, and any other geographic area in which the Company or any of its Immediate Affiliates was doing business or actively planning to do business at any time during the Optionee’s Employment, or with respect to the Optionee’s obligations following his or her termination of Employment the twelve (12) months immediately preceding the Optionee’s termination of Employment. For purposes of this Section, “Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or indirect subsidiary of the Company, (ii) a parent to the Company or (iii) a direct or indirect subsidiary of such a parent.
(b) Non-Solicitation. The Optionee covenants and agrees that during the Optionee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Optionee participates in any activity in violation of the restrictions set forth in this Section 5(b)) after the termination of the Optionee’s Employment, whether such termination occurs at the insistence of the Company or the Optionee (for whatever reason), the Optionee shall not, and shall not assist any other Person to, (i) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (ii) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with them; provided, however, that after termination of the Optionee’s Employment, these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or one of its Immediate Affiliates who were such on the date that the Optionee’s Employment terminated or at any time during the nine (9) months immediately preceding such termination date.
(c) Goodwill and Company Information. The Optionee acknowledges the importance to the Company and its Affiliates of protecting their legitimate business interests, including without limitation the valuable Company Information and goodwill that they have developed or acquired at considerable expense. The Optionee acknowledges and agrees that in the course of the Optionee’s Employment, the Optionee has acquired: (i) confidential information including without limitation information received by the Company (or any of its Affiliates) from third parties, under confidential conditions, (ii) other technical, product, business, financial or development information from the Company (or any of its Affiliates), the use or disclosure of which reasonably might be construed to be contrary to the interest of the Company (or any of its Affiliates), or (iii) any other proprietary information or data, including but not limited to identities, responsibilities, contact information, performance and/or compensation
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levels of employees, costs and methods of doing business, systems, processes, computer hardware and software, compilations of information, third-party IT service providers and other Company or its Affiliates’ vendors, records, sales reports, sales procedures, financial information, customer requirements and confidential negotiated terms, pricing techniques, customer lists, price lists, information about past, present, pending and/or planned Company or its Affiliates’ transactions not publicly disclosed and other confidential information which the Optionee may have acquired during the Optionee’s Employment (hereafter collectively referred to as “Company Information”) which are owned by the Company or its Affiliates and regularly used in the operation of its business, and as to which precautions are taken to prevent dissemination to persons other than certain directors, officers and employees and if disclosed, would assist in competition against the Company or any of its Affiliates. The Optionee understands and agrees that such Company Information was and will be disclosed to the Optionee in confidence and for use only in performing work for the Company or its Affiliates. The Optionee understands and agrees that the Optionee: (x) will keep such Company Information confidential at all times, (y) will not disclose or communicate Company Information to any third party, and (z) will not make use of Company Information on the Optionee’s own behalf, or on behalf of any third party. In view of the nature of the Optionee’s Employment and the nature of Company Information the Optionee receives during the course of the Optionee’s Employment, the Optionee agrees that any unauthorized disclosure to third parties of Company Information would cause irreparable damage to the confidential or trade secret status of Company Information. The Optionee further acknowledges and agrees that the restrictions on the Optionee’s activities set forth above are necessary to protect the goodwill, Company Information and other legitimate interests of the Company and its Affiliates and that the Optionee’s acceptance of these restrictions is a condition of receipt of the Award, to which the Optionee would not otherwise be entitled, and the Award is good and sufficient consideration to support the Optionee’s agreement to and compliance with these covenants.
(d) Remedies. In the event of a breach or threatened breach by the Optionee of any of the covenants contained in Section 5(a), 5(b) or 5(c):
(i) the Optionee hereby consents and agrees that (x) any vested portion of the Stock Option that is unexercised and (y) all shares of Stock issued upon exercise of the Stock Option shall be forfeited effective as of the date of such breach or threatened breach, unless sooner terminated by operation of another term or condition of this Agreement or the Plan;
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(ii) the Optionee hereby consents and agrees that if the Optionee has sold any shares of Stock upon or following the exercise of the Stock Option within twelve (12) months prior to the date of such breach or threatened breach, the Optionee shall pay to the Company the gross proceeds realized by the Optionee in connection with such sale; and
(iii) the Optionee hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
(e) General. The Optionee agrees that the above restrictive covenants are completely severable and independent agreements supported by good and valuable consideration and, as such, shall survive the termination of this Agreement for whatever reason. The Company and the Optionee agree that any invalidity or unenforceability of any one or more of such restrictions on competition shall not render invalid or unenforceable any remaining restrictive covenants. Should a court of competent jurisdiction determine that the scope of any provision of this Section 5 is too broad to be enforced as written, the Company and the Optionee intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable.
6. Transfer of Stock Option. The Stock Option may not be transferred except at death in accordance with Section 6(a)(3) of the Plan.
7. Form S-8 Prospectus. The Optionee acknowledges that he or she has received and reviewed a copy of the prospectus required by Part I of Form S-8 relating to shares of Stock that may be issued pursuant to the exercise of the Stock Option under the Plan.
8. Governing Law. Notwithstanding anything to the contrary in the Plan, Section 5 of this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction, except where preempted by federal law. Both parties hereby consent and submit to the jurisdiction of the state and federal courts in Dallas County, Texas in all questions and controversies arising out of this Agreement.
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9. Acknowledgments. By accepting the Stock Option, the Optionee agrees to be bound by, and agrees that the Stock Option is subject in all respects to, the terms of the Plan. The Optionee further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Optionee.
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Executed as of the ___ day of October, 2019. |
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Company: |
THE MICHAELS COMPANIES, INC. |
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By: |
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Name: |
Navin Rao |
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Vice President — Assistant General Counsel and Secretary |
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Optionee: |
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Mark Cosby |
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[Signature Page to Non-Statutory Option Agreement]
Exhibit 10.6
Name: |
Mark Cosby |
Number of Restricted Stock Units: |
40,584 |
Date of Grant: |
November 4, 2019 |
THE MICHAELS COMPANIES, INC.
2014 OMNIBUS LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
This agreement (this “Agreement”) evidences the grant of restricted stock units (the “Restricted Stock Units”) by The Michaels Companies, Inc. (the “Company”) to the individual named above (the “Grantee”), pursuant to and subject to the terms of The Michaels Companies, Inc. 2014 Omnibus Long-Term Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference.
1. Grant of Restricted Stock Units. The Company hereby grants to the Grantee on the date of grant set forth above (the “Date of Grant”) an award (the “Award”) consisting of the right to receive, on the terms provided herein and in the Plan, one share of Stock with respect to each Restricted Stock Unit forming part of the Award, in each case, subject to adjustment pursuant to Section 7(b) of the Plan in respect of transactions occurring after the date hereof.
2. Meaning of Certain Terms. Each initially capitalized term used but not separately defined herein has the meaning assigned to such term in the Plan. The following terms have the following meanings:
(a) “Change of Control” means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any Person and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as in effect from time to time), other than the Investors and their respective affiliated funds, excluding, in any case referred to in clause (i) or (ii) an initial public offering or any bona fide primary or secondary public offering following the occurrence of an initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
(b) “Investors” means Bain Capital Partners, LLC and The Blackstone Group L.P.
(c) “Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
3. Vesting. The term “vest” as used herein with respect to any Restricted Stock Unit means the lapsing of the restrictions described herein with respect to such Restricted Stock Unit. Unless earlier terminated, forfeited, relinquished or expired, the Award shall vest as follows:
(a) Twelve and a half percent (12.5%) of the Restricted Stock Units shall vest beginning on the last day of the fiscal quarter of the Company (each, a “Fiscal Quarter”) in which the grant is made and on each subsequent Fiscal Quarter-end of the Company, provided that, through each such vesting date, (i) the Grantee has remained in continuous Employment as Chief Executive Officer pursuant to the offer letter agreement between the Grantee, Michaels Stores, Inc. and the Company, made and entered into as of February 28, 2019 and amended, effective October 21, 2019 (as may be further amended from time to time, the “Offer Letter”), or (y) through his service as a member of the Company’s board of directors (the “Board”) (each of clauses (x) and (y), “Qualifying Service”) and (ii) has not breached the covenants set forth in Section 10 herein.
(b) In the event (i) the Grantee’s Employment as Chief Executive Officer pursuant to the Offer Letter is terminated (x) by the Company without Cause, provided that the Grantee no longer continues to serve as a member of the Company’s Board, (y) due to the Grantee’s Disability, provided that the Grantee no longer continues to serve as a member of the Company’s Board, or (z) by reason of the Grantee’s death, or (ii) following the Grantee’s termination of Employment as Chief Executive Officer pursuant to the Officer Letter for any reason other than for Cause, (x) the Grantee’s service on the Board is terminated without Cause, or (y) the Grantee is not re-elected to the Board (each of clauses (i) and (ii), provided that circumstances constituting Cause do not exist, a “Qualifying Termination”): (x) if such Qualifying Termination occurs before February 1, 2020, a pro-rata portion of the initial twelve and a half percent (12.5%) of the Restricted Stock Units eligible to vest (based on the number of days
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the Grantee has provided Qualifying Service in the current Fiscal Quarter), will vest in full on the date of the Grantee’s Qualifying Termination and the remainder of the Restricted Stock Units granted to the Grantee hereunder will be forfeited on the date of the Grantee’s Qualifying Termination; and (y) if such Qualifying Termination occurs on or after February 1, 2020, any unvested Restricted Stock Units that are outstanding as of immediately prior to the Qualifying Termination will vest in full on the date of the Grantee’s Qualifying Termination.
(c) In the event the Grantee’s Qualifying Service terminates for any reason other than a Qualifying Termination and other than by reason of a termination of the Grantee’s Employment by the Company or Michaels Stores, Inc. for Cause (a “Non-Qualifying Termination”): (x) if such Non-Qualifying Termination occurs before February 1, 2020, a pro-rata portion of the initial twelve and a half percent (12.5%) of the Restricted Stock Units (based on the number of days the Grantee has provided Qualifying Service in the current Fiscal Quarter), will remain outstanding and eligible to vest according to its original vesting schedule set forth in Section 3(a) and the remainder of the Restricted Stock Units will be forfeited on the date of Grantee’s Non-Qualifying Termination; and (y) if such Non-Qualifying Termination occurs on or after February 1, 2020, any unvested Restricted Stock Units that are outstanding as of immediately prior to the Non-Qualifying Termination, will vest according to the original vesting schedule set forth in Section 3(a). Notwithstanding the foregoing, in the event the Grantee’s Employment is terminated by the Company or Michaels Stores, Inc. for Cause or the Grantee breaches any of the restrictive covenants set forth in Section 10 below, the Grantee will immediately forfeit the unvested portion of the Restricted Stock Units that the Grantee then holds.
(d) In the event (i) the Restricted Stock Units (or any portion thereof) are outstanding as of immediately prior to a Change of Control and the Administrator provides for the assumption or continuation of, or the substitution of a substantially equivalent award for, the Restricted Stock Units (or any portion thereof) in accordance with Section 7(a)(i) of the Plan (the “Rollover Award”) and (ii) the Grantee’s Qualifying Service is terminated by the Company or Michaels Stores, Inc. (or any of their successors) without Cause within the twelve (12) months following the Change of Control, the Rollover Award to the extent still outstanding will vest in full on the date of the Grantee’s termination of Qualifying Service. For the avoidance of doubt, if the Administrator does not provide for such assumption, continuation, or substitution in connection with a Change of Control, then the treatment of the Restricted Stock Units in such Change of Control will be as provided for by the Administrator in its sole discretion pursuant to Section 7(a)(2) through Section 7(a)(5) of the Plan.
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4. Forfeiture Risk. If the Grantee’s Qualifying Service ceases for any reason, including death, any then outstanding and unvested Restricted Stock Units acquired by the Grantee hereunder shall be treated as provided for in Sections 3(b), (c) or (d) above, as applicable.
5. Delivery of Stock. The Company shall deliver to the Grantee as soon as practicable upon the vesting of the Restricted Stock Units (or any portion thereof), but in all events no later than thirty (30) days following the date on which such Restricted Stock Units vest, one share of Stock with respect to each such vested Restricted Stock Unit, subject to the terms of the Plan and this Agreement.
6. Dividends, etc. The Grantee shall have the rights of a shareholder with respect to a share of Stock subject to the Award only at such time, if any, as such share is actually delivered under the Award. Without limiting the generality of the foregoing and for the avoidance of doubt, the Grantee shall not be entitled to vote any share of Stock subject to the Award or to receive or be credited with any dividend or other distribution declared and payable on any such share unless such share has been actually delivered hereunder and is held by the Grantee on the record date for such vote or dividend (or other distribution), as the case may be.
7. Nontransferability. Neither the Award nor the Restricted Stock Units may be transferred.
8. Certain Tax Matters.
(a) The Grantee expressly acknowledges and agrees that the Grantee’s rights hereunder, including the right to be issued shares of Stock upon the vesting of the Restricted Stock Units (or any portion thereof), are subject to the Grantee’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion) all taxes required to be withheld, if any. No shares of Stock will be required to be transferred pursuant to the vesting of the Restricted Stock Units (or any portion thereof) unless and until the Grantee or the person then holding the Award has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by accepting the Award the Grantee shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. The Grantee also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Grantee, but nothing in this sentence shall be construed as relieving the Grantee of any liability for satisfying his or her obligations under the preceding provisions of this Section.
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(b) The Grantee expressly acknowledges that because the Award consists of an unfunded and unsecured promise by the Company to deliver Stock in the future, subject to the terms hereof, it is not possible to make a so-called “83(b) election” with respect to the Award.
9. Forfeiture/Recovery of Compensation. By accepting the Award the Grantee expressly acknowledges and agrees that his or her rights, and those of any permitted transferee, under the Award or to any Stock received following the vesting of the Award or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision) and Section 10 of this Agreement. Nothing in the preceding sentence shall be construed as limiting the general application of Section 13 of this Agreement.
10. Non-Competition/Non-Solicitation. The Grantee hereby acknowledges that the Company and its Affiliates have invested and continue to invest considerable resources in developing Company Information (as defined below) and trade secrets, and in establishing and maintaining relationships with customers, employees, and vendors. The Grantee hereby further acknowledges that the Award is being furnished to the Grantee as good and valuable consideration, among other consideration, in exchange for the below covenants, which are necessary to protect the Company Information, trade secrets, and goodwill of the Company and its Affiliates:
(a) Non-Competition. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 10(a)) following the termination of the Grantee’s Employment, whether such termination occurs at the insistence of the Company or its Affiliates or the Grantee (for whatever reason), the Grantee will not, directly or indirectly, alone or in association with others, anywhere in the Territory (as defined below), own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (any Person who engages in any such business venture or activity, a “Competitor”), except that nothing contained in this Section 10(a) shall prevent the Grantee’s wholly passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company. For purposes of this Section 10(a), the “Business of the Company or any of its Immediate Affiliates” is that of arts and crafts, or framing specialty retailer or wholesaler providing materials, ideas and education for creative activities, or framing, as well as any other business that the Company or
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any of its Immediate Affiliates conducts or is actively planning to conduct at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following the termination of the Grantee’s Employment the twelve (12) months immediately preceding the termination of the Grantee’s Employment; provided, that the term “Competitor” shall not include any business, venture or activity whose gross receipts derived from the retail or wholesale sale of arts and crafts, or framing products and services (aggregated with the gross receipts derived from the retail and wholesale sale of such products or any related business, venture or activity) are less than ten percent (10%) of the aggregate gross receipts of such businesses, ventures or activities. For purposes of this Section 10(a), the “Territory” is comprised of those states within the United States, those provinces of Canada, and any other geographic area in which the Company or any of its Immediate Affiliates was doing business or actively planning to do business at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following his or her termination of Employment the twelve (12) months immediately preceding the termination of the Grantee’s Employment. For purposes of this Section, “Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or indirect subsidiary of the Company, (ii) a parent to the Company or (iii) a direct or indirect subsidiary of such a parent.
(b) Non-Solicitation. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of twelve (12) months (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 10(b)) after the termination of the Grantee’s Employment, whether such termination occurs at the insistence of the Company or the Grantee (for whatever reason), the Grantee shall not, and shall not assist any other Person to, (i) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (ii) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with them; provided, however, that after termination of the Grantee’s Employment, these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or any of its Immediate Affiliates who were such on the date that the Grantee’s Employment terminated or at any time during the nine (9) months immediately preceding such termination date.
(c) Goodwill and Company Information. The Grantee acknowledges the importance to the Company and its Affiliates of protecting their legitimate business interests, including without limitation the valuable Company Information and goodwill that they have developed or acquired at
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considerable expense. The Grantee acknowledges and agrees that in the course of the Grantee’s Employment, the Grantee has acquired: (i) confidential information including without limitation information received by the Company (or any of its Affiliates) from third parties, under confidential conditions, (ii) other technical, product, business, financial or development information from the Company (or any of its Affiliates), the use or disclosure of which reasonably might be construed to be contrary to the interest of the Company (or any of its Affiliates), or (iii) any other proprietary information or data, including but not limited to identities, responsibilities, contact information, performance and/or compensation levels of employees, costs and methods of doing business, systems, processes, computer hardware and software, compilations of information, third-party IT service providers and other Company or its Affiliates’ vendors, records, sales reports, sales procedures, financial information, customer requirements and confidential negotiated terms, pricing techniques, customer lists, price lists, information about past, present, pending and/or planned Company or its Affiliates’ transactions not publicly disclosed and other confidential information which the Grantee may have acquired during the Grantee’s Employment (hereafter collectively referred to as “Company Information”) which are owned by the Company or its Affiliates and regularly used in the operation of its business, and as to which precautions are taken to prevent dissemination to persons other than certain directors, officers and employees and if disclosed, would assist in competition against the Company or any of its Affiliates. The Grantee understands and agrees that such Company Information was and will be disclosed to the Grantee in confidence and for use only in performing work for the Company or its Affiliates. The Grantee understands and agrees that the Grantee: (x) will keep such Company Information confidential at all times, (y) will not disclose or communicate Company Information to any third party, and (z) will not make use of Company Information on the Grantee’s own behalf, or on behalf of any third party. In view of the nature of the Grantee’s Employment and the nature of Company Information the Grantee receives during the course of the Grantee’s Employment, the Grantee agrees that any unauthorized disclosure to third parties of Company Information would cause irreparable damage to the confidential or trade secret status of Company Information. The Grantee further acknowledges and agrees that the restrictions on his or her activities set forth above are necessary to protect the goodwill, Company Information and other legitimate interests of the Company and its Affiliates and that the Grantee’s acceptance of these restrictions is a condition of receipt of the Award, to which the Grantee would not otherwise be entitled, and the Award is good and sufficient consideration to support the Grantee’s agreement to and compliance with these covenants.
(d) Remedies. In the event of a breach or threatened breach by the Grantee of any of the covenants contained in Section 10(a), 10(b) or 10(c):
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(i) the Grantee hereby consents and agrees that (x) any unvested Restricted Stock Units and (y) all shares of Stock held by the Grantee following the vesting of the Restricted Stock Units shall be forfeited effective as of the date of such breach or threatened breach, unless sooner terminated by operation of another term or condition of this Agreement or the Plan;
(ii) the Grantee hereby consents and agrees that if the Grantee has sold any shares of Stock upon or following the vesting of the Restricted Stock Units within twelve (12) months prior to the date of such breach or threatened breach, the Grantee shall pay to the Company the gross proceeds realized by the Grantee in connection with such sale; and
(iii) the Grantee hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
(e) General. The Grantee agrees that the above restrictive covenants are completely severable and independent agreements supported by good and valuable consideration and, as such, shall survive the termination of this Agreement for whatever reason. The Company and the Grantee agree that any invalidity or unenforceability of any one or more of such restrictions on competition shall not render invalid or unenforceable any remaining restrictive covenants. Should a court of competent jurisdiction determine that the scope of any provision of this Section 10 is too broad to be enforced as written, the Company and the Grantee intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable.
11. Form S-8 Prospectus. The Grantee acknowledges having received and reviewed a copy of the prospectus required by Part I of Form S-8 relating to shares of Stock that may be issued under the Plan.
12. Governing Law. Notwithstanding anything to the contrary in the Plan, Section 10 of this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction, except where preempted by federal law. Both parties hereby consent and submit to the
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jurisdiction of the state and federal courts in Dallas County, Texas in all questions and controversies arising out of this Agreement.
13. Acknowledgments. By accepting the Award, the Grantee agrees to be bound by, and agrees that the Award is, and the Restricted Stock Units are, subject in all respects to, the terms of the Plan. The Grantee further acknowledges and agrees that (a) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder, and (b) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Grantee.
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Executed as of the ___ day of November, 2019.
Company: |
THE MICHAELS COMPANIES, INC. |
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By: |
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Name: |
Navin Rao |
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Title: |
Vice President — Assistant General Counsel and Secretary |
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Grantee: |
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Name: Mark Cosby |
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Address: |
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Exhibit 10.7
Name: |
Philo Pappas |
Number of Shares of Restricted Stock: |
14,881 |
Date of Grant: |
November 4, 2019 |
THE MICHAELS COMPANIES, INC.
2014 OMNIBUS LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
This agreement (this “Agreement”) evidences the grant of restricted shares of Stock by The Michaels Companies, Inc. (the “Company”) to the individual named above (the “Grantee”), pursuant to and subject to the terms of The Michaels Companies, Inc. 2014 Omnibus Long-Term Incentive Plan (as amended from time to time, the “Plan”), which is incorporated herein by reference. Except as otherwise defined herein, each initially capitalized term used herein has the meaning assigned to such term in the Plan.
1. Grant of Restricted Stock. The Company hereby grants to the Grantee on the date of grant set forth above (the “Date of Grant”) the number of shares of restricted Stock set forth above (the “Restricted Stock”) on the terms provided herein and in the Plan.
2. Meaning of Certain Terms. Each initially capitalized term used but not separately defined herein has the meaning assigned to such term in the Plan. The following terms have the following meanings:
(a) “Change of Control” means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any Person and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect from time to time), other
than the Investors and their respective affiliated funds, excluding, in any case referred to in clause (i) or (ii) an initial public offering or any bona fide primary or secondary public offering following the occurrence of an initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
(b) “Investors” means Bain Capital Partners, LLC and The Blackstone Group L.P.
(c) “Person” means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
3. Vesting. The term “vest” as used herein with respect to any share of Restricted Stock means the lapsing of the restrictions described herein with respect to such share. Unless earlier terminated, forfeited, relinquished or expired, the Restricted Stock shall vest as follows:
(a) One hundred percent (100%) of the Restricted Stock shall vest on the first anniversary of the Date of Grant, provided that, through such vesting date, the Grantee has (i) remained in continuous Employment as President – Merchandising and Supply Chain (such employment, “Qualifying Service”) and (ii) has not breached the covenants set forth in Section 11 herein.
(b) In the event the Grantee’s Qualifying Service is terminated by the Company without Cause, a “Qualifying Termination”): (x) if such Qualifying Termination occurs before February 1, 2020, a pro-rata portion of the Restricted Stock eligible to vest (based on the number of days the Grantee has provided Qualifying Service in the current fiscal quarter of the Company (each, a “Fiscal Quarter”)), will vest in full on the date of the Grantee’s Qualifying Termination and the remainder of the Restricted Stock award granted to the Grantee hereunder will be forfeited on the date of the Grantee’s Qualifying Termination; and (y) if such Qualifying Termination occurs on or after February 1, 2020, any unvested shares of Restricted Stock that are outstanding as of immediately prior to the Qualifying Termination will vest in full on the date of the Grantee’s Qualifying Termination.
(c) In the event the Grantee’s Qualifying Service terminates for any reason other than a Qualifying Termination (a “Non-Qualifying Termination”): (x) if such Non-Qualifying Termination occurs before February 1, 2020, a pro-rata portion of the Restricted Stock eligible to vest (based on the number of days the Grantee has provided Qualifying Service current Fiscal Quarter), will remain outstanding and eligible to vest according to its original vesting schedule set forth in Section 3(a) and the remainder of
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the Restricted Stock will be forfeited on the date of Grantee’s Non-Qualifying Termination; and (y) if such Qualifying Termination occurs on or after February 1, 2020, any unvested shares of Restricted Stock that are outstanding as of immediately prior to the Non-Qualifying Termination, will vest according to the original vesting schedule set forth in Section 3(a). Notwithstanding the foregoing, in the event the Grantee breaches any of the restrictive covenants set forth in Section 11 below, the Grantee will immediately forfeit the unvested portion of the Restricted Stock award that the Grantee then holds.
(d) In the event (i) the Restricted Stock (or any portion thereof) is outstanding as of immediately prior to a Change of Control and the Administrator provides for the assumption or continuation of, or the substitution of a substantially equivalent award for, the Restricted Stock (or any portion thereof) in accordance with Section 7(a)(i) of the Plan (the “Rollover Award”) and (ii) the Grantee’s Employment is terminated by the Company (or its successor) without Cause within the twelve (12) months following the Change of Control, the Rollover Award to the extent still outstanding will vest in full on the date of the Grantee’s termination of Employment.
4. Forfeiture Risk. If the Grantee’s Qualifying Service ceases for any reason, including death, any then outstanding and unvested Restricted Stock acquired by the Grantee hereunder shall be treated as provided for in Sections 3(b), (c) or (d) above, as applicable. The Grantee hereby (a) appoints the Company as his or her attorney-in-fact to take such actions as may be necessary or appropriate to effectuate a transfer of the record ownership of any such shares that are unvested and forfeited hereunder, (b) agrees to deliver to the Company, as a precondition to the issuance of any certificate or certificates with respect to unvested Restricted Stock hereunder, one or more stock powers, endorsed in blank, with respect to such shares, and (c) agrees to sign such other powers and take such other actions as the Company may reasonably request to accomplish the transfer or forfeiture of any unvested Restricted Stock that is forfeited hereunder.
5. Retention of Certificates, etc. Any certificates representing unvested Restricted Stock shall be held by the Company. If unvested Restricted Stock is held in book entry form, the Grantee agrees that the Company may give stop transfer instructions to the depository to ensure compliance with the provisions hereof.
6. Legend. All certificates representing unvested Restricted Stock shall contain a legend substantially in the following form:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE MICHAELS COMPANIES, INC. 2014 OMNIBUS LONG-TERM INCENTIVE PLAN, AS AMENDED, AND A RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN THE
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REGISTERED OWNER AND THE MICHAELS COMPANIES, INC. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE IN THE OFFICES OF THE MICHAELS COMPANIES, INC.
As soon as practicable following the vesting of any such Restricted Stock, the Company shall cause a certificate or certificates covering such shares, without the aforesaid legend, to be issued and delivered to the Grantee. If any shares of Restricted Stock or Stock are held in book-entry form, the Company may take such steps as it deems necessary or appropriate to record and manifest the restrictions applicable to such shares.
7. Dividends, etc. The Grantee shall be entitled to (a) receive any and all dividends or other distributions paid with respect to those shares of Stock of which he or she is the record owner on the record date for such dividend or other distribution, and (b) vote any shares of Stock of which he or she is the record owner on the record date for such vote; provided, however, that any property (other than cash) distributed with respect to a share of Stock (the “associated share”) acquired hereunder, including without limitation a distribution of Stock by reason of a stock dividend, stock split or otherwise, or a distribution of other securities with respect to an associated share, shall be subject to the restrictions of this Agreement in the same manner and for so long as the associated share remains subject to such restrictions, and shall be promptly forfeited if and when the associated share is so forfeited; and further provided, that the Administrator may require that any cash distribution with respect to the shares of Stock be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan. References in this Section 7 to Stock shall refer, mutatis mutandis, to any shares of Restricted Stock.
8. Sale of Vested Stock. The Grantee understands that he or she will be free to sell any share of Restricted Stock once it has vested, subject to (a) satisfaction of any applicable tax withholding requirements with respect to the vesting or transfer of such share, (b) the completion of any administrative steps (for example, but without limitation, the transfer of certificates) that the Company may reasonably impose, and (c) applicable requirements of federal and state securities laws. Shares of unvested Restricted Stock may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of except as the Administrator may provide.
9. Certain Tax Matters. The Grantee expressly acknowledges the following:
(a) The Grantee has been advised to confer promptly with a professional tax advisor to consider whether he or she should make a so-called “83(b) election” with respect to the Restricted Stock. Any such election, to be effective, must be made in accordance with applicable regulations and within thirty (30) days following the Date of Grant. The Company has made no recommendation to the Grantee with respect to the advisability of making such an election.
(b) If the Grantee decides to make an “83(b) election,” the Grantee agrees to execute and deliver to the Company a copy of the Acknowledgement and
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Statement of Decision Regarding Election Pursuant to Section 83(b) of the Code, substantially in the form attached hereto as Exhibit A, together with a copy of the Election Pursuant to Section 83(b) of the Code (the “Election Form”), substantially in the form attached hereto as Exhibit B. The Election Form shall be filed by the Grantee with the appropriate Internal Revenue Service office no later than thirty (30) days after the Date of Grant. The Grantee should consult with his or her tax advisor to determine if there is a comparable election to file in the state of his or her residence and whether such a filing is desirable under the circumstances.
(c) The award or vesting of the Restricted Stock acquired hereunder, and the payment of dividends with respect to such shares, may give rise to “wages” subject to withholding. The Grantee expressly acknowledges and agrees that his or her rights hereunder are subject to the Grantee promptly paying to the Company in cash (or by such other means as may be acceptable to the Company in its discretion, including, if the Administrator so determines, by the delivery of previously acquired shares of Stock or shares of Stock acquired hereunder or by the withholding of amounts from any payment hereunder) all taxes required to be withheld in connection with such award, vesting or payment.
10. Forfeiture/Recovery of Compensation. By accepting the Restricted Stock the Grantee expressly acknowledges and agrees that his or her rights, and those of any permitted transferee, of the Restricted Stock or of any Stock received following the vesting of the Restricted Stock or proceeds from the disposition thereof, are subject to Section 6(a)(5) of the Plan (including any successor provision) and Section 11 of this Agreement. Nothing in the preceding sentence shall be construed as limiting the general application of Section 14 of this Agreement.
11. Non-Competition/Non-Solicitation. The Grantee hereby acknowledges that the Company and its Affiliates have invested and continue to invest considerable resources in developing Company Information (as defined below) and trade secrets, and in establishing and maintaining relationships with customers, employees, and vendors. The Grantee hereby further acknowledges that the award of the Restricted Stock is being furnished to the Grantee as good and valuable consideration, among other consideration, in exchange for the below covenants, which are necessary to protect the Company Information, trade secrets, and goodwill of the Company and its Affiliates:
(a) Non-Competition. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of the longer of (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 11(a)) (i) the remaining vesting period with respect to any Company restricted stock awards held by Grantee or (ii) twelve (12) months following the Grantee’s termination of Employment, whether such termination occurs at the insistence of the Company or its Affiliates or the Grantee (for whatever reason), the Grantee will not, directly or indirectly,
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alone or in association with others, anywhere in the Territory (as defined below), own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (any Person who engages in any such business venture or activity, a “Competitor”), except that nothing contained in this Section 11(a) shall prevent the Grantee’s wholly passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company. For purposes of this Section 11(a), the “Business of the Company or any of its Immediate Affiliates” is that of arts and crafts specialty retailer providing materials, ideas and education for creative activities, as well as any other business that the Company or any of its Immediate Affiliates conducts or is actively planning to conduct at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following his or her termination of Employment, the twelve (12) months immediately preceding the Grantee’s termination of Employment; provided, that the term “Competitor” shall not include any business, venture or activity whose gross receipts derived from the retail sale of arts and crafts products (aggregated with the gross receipts derived from the retail sale of arts and crafts projects of any related business, venture or activity) are less than ten percent (10%) of the aggregate gross receipts of such businesses, ventures or activities. For purposes of this Section 11(a), the “Territory” is comprised of those states within the United States, those provinces of Canada, and any other geographic area in which the Company or any of its Immediate Affiliates was doing business or actively planning to do business at any time during the Grantee’s Employment, or with respect to the Grantee’s obligations following his or her termination of Employment the twelve (12) months immediately preceding the Grantee’s termination of Employment. For purposes of this Section, “Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or indirect subsidiary of the Company, (ii) a parent to the Company or (iii) a direct or indirect subsidiary of such a parent.
(b) Non-Solicitation. The Grantee covenants and agrees that during the Grantee’s Employment and for a period of the longer of (and such period shall be tolled on a day-to-day basis for each day during which the Grantee participates in any activity in violation of the restrictions set forth in this Section 11(b)) (i) the remaining vesting period with respect to any Company restricted stock awards held by Grantee or (ii) twelve (12) months following the Grantee’s termination of Employment, whether such termination occurs at the insistence of the Company or its Affiliates or the
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Grantee (for whatever reason), the Grantee shall not, and shall not assist any other Person to, (i) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (ii) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with them; provided, however, that after termination of the Grantee’s Employment these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or any of its Immediate Affiliates who were such on the date that the Grantee’s Employment terminated or at any time during the nine (9) months immediately preceding such termination date.
(c) Goodwill and Company Information. The Grantee acknowledges the importance to the Company and its Affiliates of protecting their legitimate business interests, including without limitation the valuable Company Information and goodwill that they have developed or acquired at considerable expense. The Grantee acknowledges and agrees that in the course of the Grantee’s Employment the Grantee has acquired: (i) confidential information including without limitation information received by the Company (or any of its Affiliates) from third parties, under confidential conditions, (ii) other technical, product, business, financial or development information from the Company (or any of its Affiliates), the use or disclosure of which reasonably might be construed to be contrary to the interest of the Company (or any of its Affiliates), or (iii) any other proprietary information or data, including but not limited to identities, responsibilities, contact information, performance and/or compensation levels of employees, costs and methods of doing business, systems, processes, computer hardware and software, compilations of information, third-party IT service providers and other Company or its Affiliates’ vendors, records, sales reports, sales procedures, financial information, customer requirements and confidential negotiated terms, pricing techniques, customer lists, price lists, information about past, present, pending and/or planned Company or its Affiliates’ transactions not publicly disclosed and other confidential information which the Grantee may have acquired during the Grantee’s Employment (hereafter collectively referred to as “Company Information”) which are owned by the Company or its Affiliates and regularly used in the operation of its business, and as to which precautions are taken to prevent dissemination to persons other than certain directors, officers and employees and if disclosed, would assist in competition against the Company or any of its Affiliates. The Grantee understands and agrees that such Company Information was and will be disclosed to the Grantee in confidence and for use only in performing work for the Company or its Affiliates. The Grantee understands and agrees that the Grantee: (x) will keep such Company Information confidential at all times, (y) will not disclose or
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communicate Company Information to any third party, and (z) will not make use of Company Information on the Grantee’s own behalf, or on behalf of any third party. In view of the nature of the Grantee’s Employment and the nature of Company Information the Grantee receives during the course of the Grantee’s Employment, the Grantee agrees that any unauthorized disclosure to third parties of Company Information would cause irreparable damage to the confidential or trade secret status of Company Information. The Grantee further acknowledges and agrees that the restrictions on his or her activities set forth above are necessary to protect the goodwill, Company Information and other legitimate interests of the Company and its Affiliates and that the Grantee’s acceptance of these restrictions is a condition of receipt of the award of the Restricted Stock, to which the Grantee would not otherwise be entitled, and the award of the Restricted Stock is good and sufficient consideration to support the Grantee’s agreement to and compliance with these covenants.
(d) Remedies. In the event of a breach or threatened breach by the Grantee of any of the covenants contained in in Section 11(a), 11(b) or 11(c):
(i) the Grantee hereby consents and agrees that (x) any unvested Shares and (y) all shares of Stock held by the Grantee following the vesting of the Restricted Stock shall be forfeited effective as of the date of such breach or threatened breach, unless sooner terminated by operation of another term or condition of this Agreement or the Plan;
(ii) the Grantee hereby consents and agrees that if the Grantee has sold any shares of Stock upon or following the vesting of the Restricted Stock within twelve (12) months prior to the date of such breach or threatened breach, the Grantee shall pay to the Company the gross proceeds realized by the Grantee in connection with such sale; and
(iii) the Grantee hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages or other available forms of relief.
(e) General. The Grantee agrees that the above restrictive covenants are completely severable and independent agreements supported by good and valuable consideration and, as such, shall survive the termination of this
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Agreement for whatever reason. The Company and the Grantee agree that any invalidity or unenforceability of any one or more of such restrictions on competition shall not render invalid or unenforceable any remaining restrictive covenants. Should a court of competent jurisdiction determine that the scope of any provision of this Section 11 is too broad to be enforced as written, the Company and the Grantee intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable.
12. Form S-8 Prospectus. The Grantee acknowledges that he or she has received and reviewed a copy of the prospectus required by Part I of Form S-8 relating to shares of Stock that may be issued under the Plan.
13. Governing Law. Notwithstanding anything to the contrary in the Plan, Section 11 of this Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction, except where preempted by federal law. Both parties hereby consent and submit to the jurisdiction of the state and federal courts in Dallas County, Texas in all questions and controversies arising out of this Agreement.
14. Acknowledgments. By accepting the award of the Restricted Stock, the Grantee agrees to be bound by, and agrees that the award of the Restricted Stock is subject in all respects to, the terms of the Plan. The Grantee further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder, and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Grantee.
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Executed as of the ___ day of November, 2019.
Company: |
THE MICHAELS COMPANIES, INC. |
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By: |
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Navin Rao |
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Title: |
Vice President – Assistant General Counsel and Secretary |
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Grantee: |
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Name: |
Philo Pappas |
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Address: |
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[Signature Page to Restricted Stock Agreement]
EXHIBIT A
ACKNOWLEDGMENT AND STATEMENT OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE
The undersigned, a purchaser of restricted shares of common stock (the “Restricted Stock”) of The Michaels Companies, Inc., a Delaware corporation (the “Company”), for cash pursuant to a Restricted Stock Agreement, dated as of November 4, 2019, between the undersigned and the Company (the “Restricted Stock Agreement”), hereby states, as of the date of purchase of the Restricted Stock, as follows:
1. The undersigned acknowledges receipt of a copy of the Restricted Stock Agreement. The undersigned has carefully reviewed the Restricted Stock Agreement.
2. The undersigned either [check as applicable]:
____ (a) has consulted, and has been fully advised by, the undersigned’s own tax advisor, __________________________________________, whose business address is ________________________________, regarding the federal, state and local tax consequences of purchasing the Restricted Stock under the Restricted Stock Agreement, and particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and pursuant to the corresponding provisions, if any, of applicable state laws; or
____ (b) has knowingly chosen not to consult such tax advisor.
3. The undersigned hereby states that the undersigned has decided to make an election pursuant to Section 83(b) of the Code and is submitting to the Company together with the undersigned’s executed Restricted Stock Agreement, a copy of an executed election form which is attached as Exhibit B to the Restricted Stock Agreement.
4. Neither the Company nor a representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of his or her purchasing the Restricted Stock pursuant to the Restricted Stock Agreement or of the making or failure to make an election pursuant to Section 83(b) of the Code or corresponding provisions, if any, of applicable state law.
5. The undersigned is also submitting to the Company, together with the undersigned’s executed Restricted Stock Agreement, a copy of an executed election form, if an election is made, by the undersigned pursuant to provisions of state law corresponding to Section 83(b) of the Code, if any, that apply to the purchase of the Restricted Stock by the undersigned.
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Investor |
EXHIBIT B
ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income as compensation for services the excess (if any) of the fair market value of the property described below over the amount paid for such property.
1. The name, taxpayer identification number, address of the undersigned, and the taxable year for which this election is being made are:
Taxpayer’s Name: _______________________________________________________
Taxpayer’s Social Security Number: ________________________________________
Address: _______________________________________________________________
Taxable Year: Calendar Year 2019
2. The property that is the subject of this election is _____________ unvested shares of common stock (the “Unvested Award”) of The Michaels Companies, Inc., a Delaware corporation (the “Company”), representing restricted shares of common stock of the Company (“Restricted Shares”).
3. The Unvested Award was transferred to the undersigned on __________.
4. The Unvested Award is subject to the following restrictions: (a) restrictions on vesting based on continued service or compliance with restrictive covenants through the applicable vesting date, (b) immediate forfeiture upon a termination of employment with the Company or an affiliate for cause or a breach of a restrictive covenant, and (c) restrictions should the undersigned wish to transfer the Unvested Award (in whole or in part).
5. The fair market value of the Unvested Award at the time of transfer (determined without regard to any restrictions other than a nonlapse restriction as defined in Section 1.83-3(h) of the Income Tax Regulations) is $____.
6. For the Unvested Award transferred, the undersigned paid $_____________.
7. The amount to include in gross income is $_____________.
The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. The undersigned is the person performing the services in connection with which the property was transferred.
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Taxpayer |
Exhibit 31.1
CERTIFICATIONS
I, Mark S. Cosby, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Michaels Companies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 6, 2019 |
/s/ Mark S. Cosby |
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Mark S. Cosby |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Denise A. Paulonis, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Michaels Companies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 6, 2019 |
/s/ Denise A. Paulonis |
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Denise A. Paulonis |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q of The Michaels Companies, Inc., a Delaware corporation (the “Company”), for the period ended November 2, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 6, 2019 |
/s/ Mark S. Cosby |
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Mark S. Cosby |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
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/s/ Denise A. Paulonis |
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Denise A. Paulonis |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
EARNINGS PER SHARE |
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EARNINGS PER SHARE | 8. EARNINGS PER SHARE The Company’s unvested restricted stock awards contain non-forfeitable rights to dividends and meet the criteria of a participating security as defined by ASC 260, “Earnings Per Share”. In applying the two-class method, net income is allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding plus the potential dilutive impact from stock options and restricted stock units. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There were 10.1 million and 8.4 million anti-dilutive shares during the third quarters of fiscal 2019 and fiscal 2018, respectively. There were 10.6 million and 7.1 million anti-dilutive shares during the nine months ended November 2, 2019 and November 3, 2018, respectively. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data):
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LEASES |
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LEASES | 4. LEASES We lease our retail store locations, distribution centers, office facilities and certain equipment under non-cancelable operating leases. Substantially all store leases have initial lease terms of approximately 10 years, the majority of which provide for one or more five-year renewal options. The exercise of lease renewal options is at the Company’s sole discretion. We include the lease renewal option periods in the calculation of our operating lease assets and liabilities when it is reasonably certain that we will renew the lease. Our operating lease assets represent our right to use an underlying asset for the lease term and our operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. In addition, operating lease assets exclude lease incentives received. As most of our leases do not contain an implicit rate of return, we use our estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. For operating leases that commenced prior to the adoption date of the new lease accounting standard, we used the incremental borrowing rate as of the adoption date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Our short-term non-real estate leases, which have a non-cancelable lease term of less than one year, are not included in the operating lease assets or liabilities. Short-term lease expense is recognized on a straight-line basis over the lease term. The components of lease costs are as follows (in thousands):
Additional information related to our operating leases is as follows (in thousands, except weighted-average data):
Maturities of our lease liabilities are as follows as of November 2, 2019 (in thousands):
Lease payments exclude $96.1 million related to 28 leases that have been signed as of November 2, 2019 but have not yet commenced. |
SUBSEQUENT EVENT |
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SUBSEQUENT EVENT. | |
SUBSEQUENT EVENT | 12. SUBSEQUENT EVENT On November 22, 2019, the Company entered into an asset purchase agreement with A.C. Moore Incorporated, and certain of its affiliates, to acquire intellectual property and the right to lease up to 40 store locations for $58 million, subject to certain purchase price adjustments. In connection with the acquisition we also leased a distribution facility in New Jersey. The store locations are expected to be reopened under the Michaels brand name in fiscal 2020 and will include the relocation of certain existing Michaels stores. The transaction is intended to expand our presence in strategic markets and better serve our customers both online and in stores.
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FAIR VALUE MEASUREMENTS (Schedule of Fair Values of Debt and Interest Rate Swaps) (Details) - USD ($) $ in Thousands |
Nov. 02, 2019 |
Feb. 02, 2019 |
Nov. 03, 2018 |
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Interest Rate Swaps [Member] | |||
Assets, Fair Value | |||
Interest rate swaps | $ 5,028 | ||
Liabilities, Fair Value | |||
Short-term portion of interest rate swaps | $ 11,938 | $ 2,557 | 571 |
Long-term portion of interest rate swaps | 6,295 | 3,809 | |
8.00% Senior Notes [Member] | |||
Liabilities, Fair Value | |||
Senior notes | 496,155 | ||
5.875% Senior Subordinated Notes [Member] | |||
Liabilities, Fair Value | |||
Senior subordinated notes | 511,913 | 510,000 | |
Term Loan Credit Facility [Member] | |||
Liabilities, Fair Value | |||
Term loan credit facility | $ 2,135,435 | $ 2,177,098 | $ 2,195,613 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net sales | $ 1,222,021 | $ 1,274,058 | $ 3,349,430 | $ 3,482,835 |
Cost of sales and occupancy expense | 780,387 | 795,104 | 2,123,171 | 2,173,990 |
Gross profit | 441,634 | 478,954 | 1,226,259 | 1,308,845 |
Selling, general and administrative | 322,807 | 340,593 | 933,478 | 970,191 |
Restructure and impairment charges | 41,376 | 48,332 | 44,278 | |
Store pre-opening costs | 1,402 | 1,196 | 4,370 | 3,995 |
Operating income | 76,049 | 137,165 | 240,079 | 290,381 |
Interest expense | 38,781 | 37,798 | 116,274 | 109,493 |
Losses on early extinguishments of debt and refinancing costs | 161 | 1,316 | 1,835 | |
Other expense (income), net | 78 | (121) | 2,931 | (2,646) |
Income before income taxes | 37,029 | 99,488 | 119,558 | 181,699 |
Income taxes | 8,324 | 15,719 | 28,615 | 43,557 |
Net income | 28,705 | 83,769 | 90,943 | 138,142 |
Other comprehensive income, net of tax: | ||||
Foreign currency and interest rate swaps | 1,230 | 3,016 | (8,358) | (3,230) |
Comprehensive income | $ 29,935 | $ 86,785 | $ 82,585 | $ 134,912 |
Earnings per common share: | ||||
Basic (in dollars per share) | $ 0.19 | $ 0.50 | $ 0.58 | $ 0.79 |
Diluted (in dollars per share) | $ 0.19 | $ 0.50 | $ 0.58 | $ 0.78 |
Weighted-average common shares outstanding: | ||||
Basic (in shares) | 150,877 | 165,975 | 155,299 | 174,949 |
Diluted (in shares) | 150,925 | 166,570 | 155,342 | 175,851 |
LEASES (Components of Lease Costs) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Nov. 02, 2019 |
Nov. 02, 2019 |
|
LEASES | ||
Operating lease cost | $ 106,294 | $ 316,358 |
Variable lease cost | 38,319 | 110,836 |
Total lease cost | $ 144,613 | $ 427,194 |
CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Statements of Comprehensive Income) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
|
Supplemental Condensed Consolidating Statement of Comprehensive Income | ||||
Net sales | $ 1,222,021 | $ 1,274,058 | $ 3,349,430 | $ 3,482,835 |
Cost of sales and occupancy expense | 780,387 | 795,104 | 2,123,171 | 2,173,990 |
Gross profit | 441,634 | 478,954 | 1,226,259 | 1,308,845 |
Selling, general and administrative | 322,807 | 340,593 | 933,478 | 970,191 |
Restructure and impairment charges | 41,376 | 48,332 | 44,278 | |
Store pre-opening costs | 1,402 | 1,196 | 4,370 | 3,995 |
Operating income | 76,049 | 137,165 | 240,079 | 290,381 |
Losses on early extinguishments of debt and refinancing costs | 161 | 1,316 | 1,835 | |
Income before income taxes | 37,029 | 99,488 | 119,558 | 181,699 |
Income taxes | 8,324 | 15,719 | 28,615 | 43,557 |
Net income | 28,705 | 83,769 | 90,943 | 138,142 |
Other comprehensive income, net of tax: | ||||
Foreign currency and interest rate swaps | 1,230 | 3,016 | (8,358) | (3,230) |
Comprehensive income | 29,935 | 86,785 | 82,585 | 134,912 |
Michaels Stores [Member] | ||||
Supplemental Condensed Consolidating Statement of Comprehensive Income | ||||
Net sales | 1,222,021 | 1,274,058 | 3,349,430 | 3,482,835 |
Cost of sales and occupancy expense | 780,387 | 795,104 | 2,123,171 | 2,173,990 |
Gross profit | 441,634 | 478,954 | 1,226,259 | 1,308,845 |
Selling, general and administrative | 322,563 | 340,375 | 932,777 | 969,500 |
Restructure and impairment charges | 41,376 | 48,332 | 44,278 | |
Store pre-opening costs | 1,402 | 1,196 | 4,370 | 3,995 |
Operating income | 76,293 | 137,383 | 240,780 | 291,072 |
Interest and other expense, net | 38,863 | 37,680 | 119,218 | 106,857 |
Losses on early extinguishments of debt and refinancing costs | 161 | 1,316 | 1,835 | |
Income before income taxes | 37,269 | 99,703 | 120,246 | 182,380 |
Income taxes | 8,381 | 15,771 | 28,780 | 43,722 |
Net income | 28,888 | 83,932 | 91,466 | 138,658 |
Other comprehensive income, net of tax: | ||||
Foreign currency and interest rate swaps | 1,230 | 3,016 | (8,358) | (3,230) |
Comprehensive income | $ 30,118 | $ 86,948 | $ 83,108 | $ 135,428 |
DEBT, Interest Rate Swaps (Narrative) (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Nov. 02, 2019
USD ($)
|
Nov. 03, 2018
USD ($)
|
Nov. 02, 2019
USD ($)
|
Nov. 03, 2018
USD ($)
|
Apr. 30, 2018
USD ($)
derivative
|
|
Debt | |||||
Interest expense | $ 38,781 | $ 37,798 | $ 116,274 | $ 109,493 | |
Term Loan Credit Facility [Member] | Michaels Stores [Member] | |||||
Debt | |||||
Interest rate (as a percent) | 2.7765% | ||||
Term Loan Credit Facility [Member] | Michaels Stores [Member] | Accumulated Gain (Loss), Cash Flow Hedge [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member] | |||||
Debt | |||||
Interest expense | $ 1,700 | $ 1,600 | $ 3,300 | $ 3,700 | |
Term Loan Credit Facility [Member] | Interest Rate Swaps [Member] | Michaels Stores [Member] | |||||
Debt | |||||
Number of interest rate swaps | derivative | 2 | ||||
Notional value | $ 1,000,000 |
SEGMENTS AND GEOGRAPHIC INFORMATION (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 02, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENTS AND GEOGRAPHIC INFORMATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net sales by country | Our net sales by country are as follows (in thousands):
|
LEASES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 02, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Lease Costs | The components of lease costs are as follows (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating leases, supplemental cash flow information | Additional information related to our operating leases is as follows (in thousands, except weighted-average data):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturities of lease liabilities | Maturities of our lease liabilities are as follows as of November 2, 2019 (in thousands):
|
EARNINGS PER SHARE (Narrative) (Details) - shares shares in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Nov. 02, 2019 |
Nov. 03, 2018 |
Nov. 02, 2019 |
Nov. 03, 2018 |
|
EARNINGS PER SHARE | ||||
Anti-dilutive stock options shares excluded from the computation of earnings per share (in shares) | 10.1 | 8.4 | 10.6 | 7.1 |
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