##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, DC 20549




---

FORM 10-Q

|                                                       |  |                                                                                             
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|(Mark One)                                             |  |                                                                                             
|x                                                      |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                      
|For the quarterly period ended May 3,
    2003        
|                                                      
|OR                                                    
|                                                      
|o                                                      |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                      
|For the transition period
    from                  to

Commission file number 001-09338



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MICHAELS STORES, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 75-1943604                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification number)

8000 Bent Branch Drive

Irving, Texas 75063


P.O. Box 619566


DFW, Texas 75261-9566


(Address of principal executive offices,
including zip code)


(972) 409-1300

(Registrants telephone number, including
area code)




---

Indicate by check mark whether the Registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes x          No o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes x          No o

Indicate the number of shares outstanding of each
of the Registrants classes of Common Stock, as of the
latest practicable date.

|                                       |  |                         
|-------------------------------------- |  | ------------------------
|                                       |  | Shares Outstanding as of
|Title                                  |  | June 5, 2003            
|                                       |  |                         
|Common Stock, par value $.10 per share |  | 66,609,900              



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TABLE OF CONTENTS



|                                                    |                                                                                                |                                                                                                                |  |  |  |  |  | 
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|MICHAELS STORES, INC. Part I--FINANCIAL INFORMATION
|                                                    | Item 1. Financial Statements.                                                                 
|                                                    |                                                                                                | CONSOLIDATED BALANCE SHEETS                                                                                   
|                                                    |                                                                                                | CONSOLIDATED STATEMENTS OF INCOME                                                                             
|                                                    |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                         
|                                                    |                                                                                                | MICHAELS STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended May 3, 2003 (Unaudited)
|                                                    | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                    | Item 3. Quantitative and Qualitative Disclosures About Market Risk.                           
|                                                    | Item 4. Controls and Procedures.                                                              
|Part II--OTHER INFORMATION                         
|                                                    | Item 1. Legal Proceedings.                                                                    
|                                                    | Item 6. Exhibits and Reports on Form 8-K.                                                     
|SIGNATURES                                         
|CERTIFICATIONS                                     
|CERTIFICATIONS                                     
|EX-99.1 Certfication Pursuant to 18 USC Sec. 1350  



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##### Table of Contents



MICHAELS STORES, INC.

FORM 10-Q


Part IFINANCIAL
INFORMATION

|                          |  |                                                                                                         |  |   
|------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --
|Item 1.                   |  | Financial Statements                                                                                    |  |   
|                          |  | Consolidated Balance Sheets at May 3, 2003
    (unaudited) and February 1, 2003                         |  | 3 
|                          |  | Consolidated Statements of Income for the quarter
    ended May 3, 2003 and May 4, 2002 (unaudited)     |  | 4 
|                          |  | Consolidated Statements of Cash Flows for the
    quarter ended May 3, 2003 and May 4, 2002 (unaudited) |  | 5 
|                          |  | Notes to Consolidated Financial Statements
    (unaudited)                                              |  | 6 
|Item 2.                   |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations               |  | 11
|Item 3.                   |  | Quantitative and Qualitative Disclosures About
    Market Risk                                          |  | 16
|Item 4.                   |  | Controls and Procedures                                                                                 |  | 17
|Part IIOTHER INFORMATION
|Item 1.                   |  | Legal Proceedings                                                                                       |  | 18
|Item 6.                   |  | Exhibits and Reports on
    Form 8-K                                                                    |  | 19
|Signatures                |  | 20                                                                                                     
|Certifications            |  | 21                                                                                                     

2



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##### Table of Contents






MICHAELS STORES, INC.

Part IFINANCIAL
INFORMATION







|        |                      
|------- | ---------------------
|Item 1. | Financial Statements.

MICHAELS STORES, INC.




CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |         |           | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------- | ----------- | --------- | - | --------- | ------- | --------- | 
|                                           |                                                                                                                                                                         | May 3,                      |           | February 1,
|                                           |                                                                                                                                                                         | 2003                        |           | 2003       
|                                           |                                                                                                                                                                         |                             |           |            
|                                           |                                                                                                                                                                         | (Unaudited)                 |           |            
|ASSETS                                    
|                                          
|Current assets:                            |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           | Cash and equivalents                                                                                                                                                    |                             | $         | 211,040     |           |   | $         | 218,031 |          
|                                           | Merchandise inventories                                                                                                                                                 |                             |           | 857,181     |           |   |           | 809,418 |          
|                                           | Prepaid expenses and other                                                                                                                                              |                             |           | 21,574      |           |   |           | 18,639  |          
|                                           | Deferred and prepaid income taxes                                                                                                                                       |                             |           | 20,348      |           |   |           | 20,352  |          
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         | Total current assets        |           |             | 1,110,143 |   |           |         | 1,066,440 | 
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Property and equipment, at cost            |                                                                                                                                                                         |                             | 731,548   |             |           |   | 716,299   |        
|Less accumulated depreciation              |                                                                                                                                                                         |                             | (368,995  | )           |           |   | (348,602  | )      
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         |                             | 362,553   |             |           |   | 367,697   |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Goodwill                                   |                                                                                                                                                                         |                             | 115,839   |             |           |   | 115,839   |        
|Other assets                               |                                                                                                                                                                         |                             | 13,907    |             |           |   | 10,997    |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         |                             | 129,746   |             |           |   | 126,836   |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Total assets                               |                                                                                                                                                                         | $                           | 1,602,442 |             |           | $ | 1,560,973 |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|                                          
|Current liabilities:                       |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           | Accounts payable                                                                                                                                                        |                             | $         | 166,944     |           |   | $         | 94,764  |          
|                                           | Accrued liabilities and other                                                                                                                                           |                             |           | 160,162     |           |   |           | 181,867 |          
|                                           | Income taxes payable                                                                                                                                                    |                             |           | 10,160      |           |   |           | 22,823  |          
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         | Total current liabilities   |           |             | 337,266   |   |           |         | 299,454   | 
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|9 1/4% Senior Notes due 2009               |                                                                                                                                                                         |                             | 200,000   |             |           |   | 200,000   |        
|Deferred income taxes                      |                                                                                                                                                                         |                             | 21,513    |             |           |   | 21,511    |        
|Other long-term liabilities                |                                                                                                                                                                         |                             | 31,498    |             |           |   | 27,981    |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         | Total long-term liabilities |           |             | 253,011   |   |           |         | 249,492   | 
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         |                             | 590,277   |             |           |   | 548,946   |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Commitments and contingencies              |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Stockholders equity:                      |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           | Common Stock, $0.10 par value,
    150,000,000 shares authorized; shares issued and
    outstanding of 66,566,841 at May 3, 2003 and 67,466,612 at
    February 1, 2003 |                             |           | 6,657       |           |   |           | 6,747   |          
|                                           | Additional paid-in capital                                                                                                                                              |                             |           | 480,982     |           |   |           | 504,792 |          
|                                           | Retained earnings                                                                                                                                                       |                             |           | 524,526     |           |   |           | 500,488 |          
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|                                           |                                                                                                                                                                         | Total stockholders equity  |           |             | 1,012,165 |   |           |         | 1,012,027 | 
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        
|Total liabilities and stockholders equity |                                                                                                                                                                         | $                           | 1,602,442 |             |           | $ | 1,560,973 |        
|                                           |                                                                                                                                                                         |                             |           |             |           |   |           |        

See accompanying notes to consolidated financial
statements.

3



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MICHAELS STORES, INC.




CONSOLIDATED STATEMENTS OF INCOME


(In thousands, except per share
data)

(Unaudited)


|                                                                                                               |                                                               |               |         |        |  |   |         |      | 
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------- | ------- | ------ |  | - | ------- | ---- | 
|                                                                                                               |                                                               |              
|                                                                                                               |                                                               | Quarter Ended
|                                                                                                               |                                                               |              
|                                                                                                               |                                                               | May 3,        |         | May 4,
|                                                                                                               |                                                               | 2003          |         | 2002  
|                                                                                                               |                                                               |               |         |       
|Net sales                                                                                                      |                                                               | $             | 656,388 |        |  | $ | 603,220 |     
|Cost of sales and occupancy expense                                                                            |                                                               |               | 420,548 |        |  |   | 392,080 |     
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Gross profit                                                                                                   |                                                               |               | 235,840 |        |  |   | 211,140 |     
|Selling, general, and administrative expense                                                                   |                                                               |               | 194,594 |        |  |   | 173,199 |     
|Store pre-opening costs                                                                                        |                                                               |               | 1,753   |        |  |   | 1,684   |     
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Operating income                                                                                               |                                                               |               | 39,493  |        |  |   | 36,257  |     
|Interest expense                                                                                               |                                                               |               | 5,071   |        |  |   | 5,084   |     
|Other (income) and expense, net                                                                                |                                                               |               | (856    | )      |  |   | (854    | )   
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Income before income taxes and cumulative
    effect of accounting change                                      |                                                               |               | 35,278  |        |  |   | 32,027  |     
|Provision for income taxes                                                                                     |                                                               |               | 14,464  |        |  |   | 13,131  |     
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Income before cumulative effect of accounting
    change                                                       |                                                               |               | 20,814  |        |  |   | 18,896  |     
|Cumulative effect of accounting change for
    cooperative advertising allowances, net of income tax of $5,165 |                                                               |               |        |        |  |   | 7,433   |     
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Net income                                                                                                     |                                                               | $             | 20,814  |        |  | $ | 11,463  |     
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Basic earnings per common share:                                                                               |                                                               |               |         |        |  |   |         |     
|                                                                                                               | Income before cumulative effect of accounting
    change      |               | $       | 0.31   |  |   | $       | 0.29 | 
|                                                                                                               | Cumulative effect of accounting change, net of
    income tax |               |         |       |  |   |         | 0.12 | 
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|                                                                                                               | Net income                                                    |               | $       | 0.31   |  |   | $       | 0.17 | 
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|Diluted earnings per common share:                                                                             |                                                               |               |         |        |  |   |         |     
|                                                                                                               | Income before cumulative effect of accounting
    change      |               | $       | 0.30   |  |   | $       | 0.27 | 
|                                                                                                               | Cumulative effect of accounting change, net of
    income tax |               |         |       |  |   |         | 0.11 | 
|                                                                                                               |                                                               |               |         |        |  |   |         |     
|                                                                                                               | Net income                                                    |               | $       | 0.30   |  |   | $       | 0.16 | 
|                                                                                                               |                                                               |               |         |        |  |   |         |     

See accompanying notes to consolidated financial
statements.

4



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MICHAELS STORES, INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)

(Unaudited)


|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |         |        |         |         |  
|----------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                |                                                   |                                                                                                          
|                                                |                                                   | Quarter Ended                                                                                            
|                                                |                                                   |                                                                                                          
|                                                |                                                   | May 3,                                                                                                    |                                 | May 4,                                                 
|                                                |                                                   | 2003                                                                                                      |                                 | 2002                                                   
|                                                |                                                   |                                                                                                           |                                 |                                                        
|Operating activities:                           |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                | Net income                                        |                                                                                                           | $                               | 20,814                                                  |        |         | $       | 11,463  |       
|                                                | Adjustments:                                      |                                                                                                           |                                 |                                                         |        |         |         |         |       
|                                                |                                                   | Depreciation                                                                                              |                                 |                                                         | 19,854 |         |         |         | 18,609 |        
|                                                |                                                   | Amortization                                                                                              |                                 |                                                         | 100    |         |         |         | 100    |        
|                                                |                                                   | Non-cash charge for the cumulative effect of
    accounting change for cooperative advertising allowances |                                 |                                                         |       |         |         |         | 12,598 |        
|                                                |                                                   | Other                                                                                                     |                                 |                                                         | 283    |         |         |         | 260    |        
|                                                |                                                   | Changes in assets and liabilities:                                                                        |                                 |                                                         |        |         |         |         |        |        
|                                                |                                                   |                                                                                                           | Merchandise inventories         |                                                         |        | (47,763 | )       |         |        | (50,461 | )      
|                                                |                                                   |                                                                                                           | Prepaid expenses and other      |                                                         |        | (2,935  | )       |         |        | 1,686   |        
|                                                |                                                   |                                                                                                           | Deferred income taxes and other |                                                         |        | 297     |         |         |        | 1,325   |        
|                                                |                                                   |                                                                                                           | Accounts payable                |                                                         |        | 72,180  |         |         |        | 42,909  |        
|                                                |                                                   |                                                                                                           | Income taxes payable            |                                                         |        | (12,295 | )       |         |        | (31,821 | )      
|                                                |                                                   |                                                                                                           | Accrued liabilities and other   |                                                         |        | (19,517 | )       |         |        | (9,890  | )      
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                |                                                   |                                                                                                           |                                 | Net change in assets and liabilities                    |        |         | (10,033 | )       |        |         | (46,252 | )
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                |                                                   |                                                                                                           |                                 | Net cash provided by (used in) operating
    activities |        |         | 31,018  |         |        |         | (3,222  | )
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|Investing activities:                           |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                | Additions to property and equipment               |                                                                                                           |                                 | (13,746                                                 | )      |         |         | (38,898 | )     
|                                                | Net proceeds from sales of property and equipment |                                                                                                           |                                 | 5                                                       |        |         |         | 11      |       
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                |                                                   |                                                                                                           |                                 | Net cash used in investing activities                   |        |         | (13,741 | )       |        |         | (38,887 | )
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|Financing activities:                           |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                | Proceeds from stock options exercised             |                                                                                                           |                                 | 1,257                                                   |        |         |         | 9,163   |       
|                                                | Proceeds from issuance of Common Stock and other  |                                                                                                           |                                 | 443                                                     |        |         |         | 346     |       
|                                                | Repurchase of Common Stock                        |                                                                                                           |                                 | (25,968                                                 | )      |         |         |        |       
|                                                | Payment of other long-term liabilities            |                                                                                                           |                                 |                                                        |        |         |         | (132    | )     
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|                                                |                                                   |                                                                                                           |                                 | Net cash (used in) provided by financing
    activities |        |         | (24,268 | )       |        |         | 9,377   |  
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|Net decrease in cash and equivalents            |                                                   |                                                                                                           | (6,991                          | )                                                       |        |         | (32,732 | )      
|Cash and equivalents at beginning of
    period |                                                   |                                                                                                           | 218,031                         |                                                         |        |         | 193,025 |        
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        
|Cash and equivalents at end of
    period       |                                                   | $                                                                                                         | 211,040                         |                                                         |        | $       | 160,293 |        
|                                                |                                                   |                                                                                                           |                                 |                                                         |        |         |         |        

See accompanying notes to consolidated financial
statements.

5



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##### Table of Contents






MICHAELS STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


For the Quarter Ended May 3,
2003

(Unaudited)




|        |                      
|------- | ---------------------
|Note 1. | Basis of Presentation

The consolidated financial statements include the
accounts of Michaels Stores, Inc. and our wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. All expressions of
us, we, our, and all similar
expressions are references to Michaels Stores, Inc. and our
consolidated wholly-owned subsidiaries, unless otherwise
expressly stated or the context otherwise requires.

The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles 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 notes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals and other items, as disclosed) considered
necessary for a fair presentation have been included. Because of
the seasonal nature of our business, the results of operations
for the quarter ended May 3, 2003 are not indicative of the
results to be expected for the entire year.

The balance sheet at February 1, 2003 has
been derived from the audited financial statements at that date
but does not include all of the information and notes required
by generally accepted accounting principles for complete
financial statements. For further information, refer to the
consolidated financial statements and notes thereto included in
our Annual Report on Form 10-K for the fiscal year ended
February 1, 2003.

All references herein to fiscal 2003
relate to the 52 weeks ending January 31, 2004 and all
references to fiscal 2002 relate to the
52 weeks ended February 1, 2003. In addition, all
references herein to the first quarter of fiscal
2003 relate to the 13 weeks ended May 3, 2003
and all references to the first quarter of fiscal
2002 relate to the 13 weeks ended May 4, 2002.



|        |                               
|------- | ------------------------------
|Note 2. | Change in Accounting Principle

In November 2002, the EITF reached consensus on
Issue 02-16, Accounting by a Customer (Including a
Reseller) for Cash Consideration Received from a Vendor.
Issue 02-16 addresses the accounting for cash consideration
received by a customer from a vendor (e.g., slotting fees,
cooperative advertising payments, buydowns) and rebates or
refunds from a vendor that are payable only if the customer
completes a specified cumulative level of purchases or remains a
customer for a specified time period. Issue 02-16 became
effective for new arrangements or modifications to existing
arrangements entered into after December 31, 2002, although
early adoption was permitted. We elected to adopt early,
effective February 3, 2002, the provisions of
Issue 02-16 in the preparation of our Annual Report on
Form 10-K for the fiscal year ended February 1, 2003.
Accordingly, in fiscal 2002, we recorded a cumulative effect of
accounting change of $12.6 million, $7.4 million net
of income tax, for the impact of this adoption on prior fiscal
years. The adoption of the provisions of Issue 02-16
resulted in the ongoing deferral of our cooperative advertising
allowances into inventory, with the allowances being recognized
as the associated inventory is sold. This adoption also resulted
in the reclassification of our cooperative advertising payments
earned in fiscal 2002 from selling, general, and administrative
expense to cost of sales and occupancy expense retroactively as
of the beginning of fiscal 2002. Results for the first quarter
of fiscal 2002 have been restated to reflect our new accounting
policy for cooperative advertising allowances and, as a result,
income before cumulative effect of accounting change for the
first quarter of fiscal 2002 was reduced by $1.8 million.

6



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##### Table of Contents



MICHAELS STORES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)


For the Quarter Ended May 3,
2003

(Unaudited)




|        |                   
|------- | ------------------
|Note 3. | Earnings per Share

The following table sets forth the computation of
basic and diluted earnings per common share:

|                                   |                                                                                                                |                        |   |        |       |  |   |        |       | 
|---------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------- | - | ------ | ----- |  | - | ------ | ----- | 
|                                   |                                                                                                                |                       
|                                   |                                                                                                                | Quarter Ended         
|                                   |                                                                                                                |                       
|                                   |                                                                                                                | May 3,                 |   | May 4,
|                                   |                                                                                                                | 2003                   |   | 2002  
|                                   |                                                                                                                |                        |   |       
|                                   |                                                                                                                |                       
|                                   |                                                                                                                | (In thousands,        
|                                   |                                                                                                                | except per share data)
|Numerator:                         |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Income before cumulative effect of accounting
    change                                                       |                        | $ | 20,814 |       |  | $ | 18,896 |      
|                                   | Cumulative effect of accounting change, net of
    income tax                                                  |                        |   |       |       |  |   | 7,433  |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Net income                                                                                                     |                        | $ | 20,814 |       |  | $ | 11,463 |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|Denominator:                       |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Denominator for basic earnings per common
    share-weighted average shares                                    |                        |   | 67,082 |       |  |   | 65,959 |      
|                                   | Effect of dilutive securities:                                                                                 |                        |   |        |       |  |   |        |      
|                                   |                                                                                                                | Employee stock options |   |        | 2,071 |  |   |        | 4,216 | 
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Denominator for diluted earnings per common
    share-weighted average shares adjusted for dilutive securities |                        |   | 69,153 |       |  |   | 70,175 |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|Basic earnings per common share:   |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Income before cumulative effect of accounting
    change                                                       |                        | $ | 0.31   |       |  | $ | 0.29   |      
|                                   | Cumulative effect of accounting change, net of
    income tax                                                  |                        |   |       |       |  |   | 0.12   |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Net income                                                                                                     |                        | $ | 0.31   |       |  | $ | 0.17   |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|Diluted earnings per common share: |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Income before cumulative effect of accounting
    change                                                       |                        | $ | 0.30   |       |  | $ | 0.27   |      
|                                   | Cumulative effect of accounting change, net of
    income tax                                                  |                        |   |       |       |  |   | 0.11   |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       
|                                   | Net income                                                                                                     |                        | $ | 0.30   |       |  | $ | 0.16   |      
|                                   |                                                                                                                |                        |   |        |       |  |   |       

Our purchase and subsequent retirement of
1.0 million shares of our Common Stock in the first quarter
of fiscal 2003 reduced the number of weighted average shares
outstanding by 408,332 shares for the first quarter of
fiscal 2003.



|        |                         
|------- | ------------------------
|Note 4. | Stock-Based Compensation

We have elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related guidance in accounting for our
employee stock options. The exercise price of our employee stock
options equals the market price of the underlying stock on the
date of grant and, as a result, we do not recognize compensation
expense for stock option grants.

Pro forma information regarding net income and
earnings per common share, as required by the provisions of
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, and
SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, has been
determined as if we had accounted for our employee stock options
under the fair value method.

7



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##### Table of Contents



MICHAELS STORES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)


For the Quarter Ended May 3,
2003

(Unaudited)




|        |                                     
|------- | ------------------------------------
|Note 4. | Stock-Based Compensation (Continued)

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized over the
options vesting periods. Our pro forma information is as
follows:

|                                                   |                                                                 |                        |        |         |  |   |        |        | 
|-------------------------------------------------- | --------------------------------------------------------------- | ---------------------- | ------ | ------- |  | - | ------ | ------ | 
|                                                   |                                                                 |                       
|                                                   |                                                                 | Quarter Ended         
|                                                   |                                                                 |                       
|                                                   |                                                                 | May 3,                 |        | May 4, 
|                                                   |                                                                 | 2003                   |        | 2002(1)
|                                                   |                                                                 |                        |        |        
|                                                   |                                                                 |                       
|                                                   |                                                                 | (In thousands,        
|                                                   |                                                                 | except per share data)
|Net income, as reported                            |                                                                 | $                      | 20,814 |         |  | $ | 11,463 |       
|Stock-based employee compensation cost:            |                                                                 |                        |        |         |  |   |        |       
|                                                   | As if the fair value method were applied, net of
    income tax |                        |        | 3,244   |  |   |        | 2,965  | 
|                                                   |                                                                 |                        |        |         |  |   |        |       
|Pro forma net income                               |                                                                 | $                      | 17,570 |         |  | $ | 8,498  |       
|                                                   |                                                                 |                        |        |         |  |   |        |       
|Earnings per common share, as
    reported:        |                                                                 |                        |        |         |  |   |        |       
|                                                   | Basic                                                           |                        | $      | 0.31    |  |   | $      | 0.17   | 
|                                                   |                                                                 |                        |        |         |  |   |        |       
|                                                   | Diluted                                                         |                        | $      | 0.30    |  |   | $      | 0.16   | 
|                                                   |                                                                 |                        |        |         |  |   |        |       
|Pro forma earnings per common share:               |                                                                 |                        |        |         |  |   |        |       
|                                                   | Basic                                                           |                        | $      | 0.26    |  |   | $      | 0.13   | 
|                                                   |                                                                 |                        |        |         |  |   |        |       
|                                                   | Diluted                                                         |                        | $      | 0.26    |  |   | $      | 0.12   | 
|                                                   |                                                                 |                        |        |         |  |   |        |       
|Pro forma weighted average shares
    outstanding: |                                                                 |                        |        |         |  |   |        |       
|                                                   | Basic                                                           |                        |        | 67,082  |  |   |        | 65,959 | 
|                                                   | Diluted                                                         |                        |        | 67,290  |  |   |        | 68,189 | 



---



|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The net income amount for the first quarter of
    fiscal 2002 includes the cumulative effect of the change in
    accounting principle, net of income tax, related to cooperative
    advertising allowances. See Note 2.



|        |                 
|------- | ----------------
|Note 5. | Credit Agreement

Effective May 1, 2001, we signed a
$200 million unsecured revolving bank credit facility with
Fleet National Bank and other lending institutions, which
replaced the previous $100 million unsecured revolving bank
credit facility. The Credit Agreement had an original term of
three years (with a maturity extension for one additional year
available under certain conditions) and contains a
$25 million competitive bid feature and a $70 million
letter of credit sub-facility. Effective May 21, 2002,
pursuant to the terms of the Credit Agreement, our lenders
agreed to extend the term of the Credit Agreement from
April 30, 2004 to April 30, 2005.

We are in compliance with all terms and
conditions of the Credit Agreement. No borrowings were
outstanding under the Credit Agreement as of May 3, 2003 or
May 4, 2002, or at any time during the first quarter of
fiscal 2003 or 2002. Borrowings available under the Credit
Agreement are reduced by the aggregate amount of letters of
credit outstanding under the Credit Agreement
($26.2 million as of May 3, 2003).

8



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##### Table of Contents



MICHAELS STORES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)


For the Quarter Ended May 3,
2003

(Unaudited)




|        |                  
|------- | -----------------
|Note 6. | Legal Proceedings



| |            
| | -----------
| | Brown Claim

On April 17, 2003, Donald Brown, Thomas
Lamour, and Sau Yeung, acting on behalf of themselves and the
general public, filed a putative class action in the Superior
Court of California for the County of Los Angeles against a
number of employers, including Aaron Brothers, Inc., a
wholly-owned subsidiary of Michaels Stores, Inc. The lawsuit
alleges that the defendants violated California Labor Code
provisions that prohibit employers from requesting job
applicants to disclose prior criminal convictions for specified
marijuana-related infractions or participation in certain
criminal diversionary programs. We believe these claims are
without merit and will vigorously contest them.



| |                          
| | -------------------------
| | Stockholder Class Actions

On various dates between February 4, 2003
and March 25, 2003, 10 purported class action lawsuits were
filed in the United States District Court for the Northern
District of Texas, Dallas Division, against Michaels Stores,
Inc. and certain of the current and former directors and
officers of Michaels. All of these lawsuits have been
consolidated. The suits assert various claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 related to actions prior to Michaels announcement on
November 7, 2002, that, among other things, it had revised
its outlook for the fourth fiscal quarter of 2002, adjusting
downward its guidance for annual earnings per diluted share. The
complaints charge that, prior to that announcement, Michaels and
certain of the other defendants made misrepresentations and
omitted to disclose negative information about the financial
condition of Michaels while the individual defendants were
selling shares of Michaels common stock. We believe these claims
are without merit and will vigorously contest them.



| |                  
| | -----------------
| | Derivative Claims

On March 21, 2003, Julie Fathergill filed a
purported stockholder derivative action, which is pending in the
United States District Court for the Northern District of Texas,
Dallas Division. The lawsuit names certain former and current
officers and directors, including all of Michaels current
directors, as individual defendants and Michaels as a nominal
defendant. In this derivative action, the plaintiff makes
allegations of fact similar to those made in the purported
securities class actions described above. The plaintiff asserts
claims against the individual defendants for breach of fiduciary
duties, abuse of control, gross mismanagement, waste of
corporate assets, and unjust enrichment. All of these claims are
asserted derivatively on behalf of Michaels and the lawsuit
states that the relevant time period is August 2002 to present.
We believe this claim is also without merit and will vigorously
oppose it.

On April 8, 2003, the Chairman of the Board
of Michaels received a demand letter on behalf of Chris Frith, a
purported Michaels stockholder, requesting that the Board
commence an action against certain former and current officers
and directors. The demand letter threatens to file a derivative
lawsuit if an action is not commenced within a reasonable time.
The purported bases of the demand are similar to those made in
the purported stockholder class actions and stockholder
derivative lawsuit described above.



| |             
| | ------------
| | Cotton Claim

On December 20, 2002, James Cotton, a former
store manager of Michaels of Canada, ULC, our wholly-owned
subsidiary, and Suzette Kennedy, a former assistant manager of
Michaels of Canada, commenced a proposed class proceeding
against Michaels of Canada and Michaels Stores, Inc. on behalf

9



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##### Table of Contents



MICHAELS STORES, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)


For the Quarter Ended May 3,
2003

(Unaudited)






|        |                              
|------- | -----------------------------
|Note 6. | Legal Proceedings (Continued)

of themselves and current and former employees
employed in Canada. The Cotton claim was filed in the Ontario
Superior Court of Justice and alleges that the defendants
violated employment standards legislation in Ontario and other
provinces and territories of Canada by failing to pay overtime
compensation as required by that legislation. The Cotton claim
also alleges that this conduct was in breach of the contracts of
employment of those individuals. The Cotton claim seeks a
declaration that the defendants have acted in breach of
applicable legislation, payment to current and former employees
for overtime, damages for breach of contract, punitive,
aggravated and exemplary damages, interest, and costs. Although
we believe we have certain meritorious defenses and intend to
defend this lawsuit vigorously, given the early stage of the
proceedings, it is premature at this time for us to comment on
issues of liability and damages.



| |        
| | -------
| | General

We are a defendant from time to time in lawsuits
incidental to our business. Based on currently available
information, we believe that resolution of all known
contingencies is uncertain. There can be no assurance that
future costs of such litigation would not be material to our
financial position or results of operations.



|        |                                 
|------- | --------------------------------
|Note 7. | Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities, which amends and clarifies the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under
SFAS No. 133. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. We
believe the adoption of the provisions of SFAS No. 149
will have no material impact on our operating results or
financial position.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, as an
amendment to SFAS No. 123 and to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Our policy is to account for stock-based
employee compensation using the intrinsic value method in
accordance with APB Opinion No. 25. Prior to the adoption
of the disclosure provisions of SFAS No. 148, we
reported the pro forma effect of the fair value method of
accounting for stock-based employee compensation under the
provisions of SFAS No. 123. We adopted the disclosure
provisions of SFAS No. 148 in the preparation of our
Annual Report on Form 10-K for the fiscal year ended
February 1, 2003. While this adoption does not change our
policy of accounting for stock-based employee compensation using
the intrinsic value method, we have disclosed our stock-based
employee compensation in Note 4 and have revised our
presentation format of the pro forma effect of the fair value
method of accounting.

10



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##### Table of Contents








|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations.

The following discussion should be read in
conjunction with our consolidated financial statements and
related notes included elsewhere in this Quarterly Report on
Form 10-Q. The following 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. Any statements contained herein (including, but not
limited to, statements to the effect that Michaels or its
management anticipates, plans,
estimates, expects,
believes, 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 consolidated financial statements and related notes in
our Annual Report on Form 10-K for the fiscal year ended
February 1, 2003. Specific examples of forward-looking
statements include, but are not limited to, statements regarding
our future cash dividend policy, forecasts of capital
expenditures, working capital requirements, and stock
repurchases. Our actual results could materially differ from
those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but
are not limited to, those discussed in our Annual Report on
Form 10-K for the fiscal year ended February 1, 2003,
and particularly in Risk Factors, and in our other
Securities and Exchange Commission filings.

All expressions of us,
we, our, and all similar expressions are
references to Michaels Stores, Inc. and its consolidated
wholly-owned subsidiaries, unless otherwise expressly stated or
the context otherwise requires.

General

All references herein to fiscal 2003
relate to the 52 weeks ending January 31, 2004 and all
references to fiscal 2002 relate to the
52 weeks ended February 1, 2003. In addition, all
references herein to the first quarter of fiscal
2003 relate to the 13 weeks ended May 3, 2003
and all references to the first quarter of fiscal
2002 relate to the 13 weeks ended May 4, 2002.

11



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##### Table of Contents



The following table sets forth certain of our
unaudited operating data (dollar amounts in thousands):

|                                   |                                           |               |   |        |   |  |   |       |  
|---------------------------------- | ----------------------------------------- | ------------- | - | ------ | - |  | - | ----- | -
|                                   |                                           |              
|                                   |                                           | Quarter Ended
|                                   |                                           |              
|                                   |                                           | May 3,        |   | May 4,
|                                   |                                           | 2003          |   | 2002  
|                                   |                                           |               |   |       
|Michaels stores:                   |                                           |               |   |        |   |  |   |      
|                                   | Retail stores open at end of period       |               |   | 765    |   |  |   | 712   |  
|                                   | Retail stores opened during the period    |               |   | 14     |   |  |   | 18    |  
|                                   | Retail stores closed during the period    |               |   | 1      |   |  |   | 1     |  
|                                   | Retail stores relocated during the period |               |   | 5      |   |  |   | 8     |  
|Aaron Brothers stores:             |                                           |               |   |        |   |  |   |      
|                                   | Retail stores open at end of period       |               |   | 153    |   |  |   | 142   |  
|                                   | Retail stores opened during the period    |               |   | 5      |   |  |   | 3     |  
|Village Crafts by Michaels stores: |                                           |               |   |        |   |  |   |      
|                                   | Retail stores open at end of period       |               |   | 7      |   |  |   | 1     |  
|                                   | Retail stores opened during the period    |               |   | 4      |   |  |   | 1     |  
|Star Wholesale store:              |                                           |               |   |        |   |  |   |      
|                                   | Wholesale store open at end of period     |               |   | 1      |   |  |   | 1     |  
|Other operating data:              |                                           |               |   |        |   |  |   |      
|                                   | Average inventory per Michaels store      |               | $ | 1,059  |   |  | $ | 1,005 |  
|                                   | Comparable store sales increase(1)        |               |   | 2      | % |  |   | 5     | %



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Comparable store sales increase represents the
    increase in net sales for stores open the same number of months
    in the indicated period and the comparable period of the
    previous year, including stores that were relocated or expanded
    during either period. A store is deemed to become comparable in
    its 14th full month of operation in order to eliminate
    grand opening sales distortions. Beginning in fiscal 2003, we
    began including the effect of deferring the recognition of
    custom frame sales for orders that have not been picked up by
    the customer at the end of the period in our comparable store
    sales calculation. As a result, we have retroactively applied
    the custom frame sales deferral to our comparable store sales
    increase for the first quarter of fiscal 2002. There was no
    change in the comparable store sales increase percentage for the
    first quarter of fiscal 2002 from the amount previously reported
    as a result of this adjustment.

Change in Accounting Principle

In November 2002, the EITF reached consensus on
Issue 02-16, Accounting by a Customer (Including a Reseller)
for Cash Consideration Received from a Vendor.
Issue 02-16 addresses the accounting for cash consideration
received by a customer from a vendor (e.g., slotting fees,
cooperative advertising payments, buydowns) and rebates or
refunds from a vendor that are payable only if the customer
completes a specified cumulative level of purchases or remains a
customer for a specified time period. Issue 02-16 became
effective for new arrangements or modifications to existing
arrangements entered into after December 31, 2002, although
early adoption was permitted. We elected to adopt early,
effective February 3, 2002, the provisions of Issue 02-16
in the preparation of our Annual Report on Form 10-K for
the fiscal year ended February 1, 2003. Accordingly, in
fiscal 2002, we recorded a cumulative effect of accounting
change of $12.6 million, $7.4 million net of income
tax, for the impact of this adoption on prior fiscal years. The
adoption of the provisions of Issue 02-16 resulted in the
ongoing deferral of our cooperative advertising allowances into
inventory, with the allowances being recognized as the
associated inventory is sold. This adoption also resulted in the
reclassification of our cooperative advertising payments earned
in fiscal 2002 from selling, general, and administrative expense
to cost of sales and occupancy expense retroactively as of the
beginning of fiscal 2002. Results for the first quarter of
fiscal 2002 have been restated to reflect our new accounting
policy for cooperative advertising allowances and, as a result,
income before cumulative effect of accounting change for the
first quarter of fiscal 2002 was reduced by $1.8 million.

12



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##### Table of Contents



Results of Operations

The following table sets forth the percentage
relationship to net sales of each line item of our unaudited
consolidated statements of income. This table should be read in
conjunction with the following discussion and with our
consolidated financial statements, including the related notes,
contained herein.

|                                                                                                     |  |               |       |        |  |  |       |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ------ |  |  | ----- | -
|                                                                                                     |  |              
|                                                                                                     |  | Quarter Ended
|                                                                                                     |  |              
|                                                                                                     |  | May 3,        |       | May 4,
|                                                                                                     |  | 2003          |       | 2002  
|                                                                                                     |  |               |       |       
|Net sales                                                                                            |  |               | 100.0 | %      |  |  | 100.0 | %
|Cost of sales and occupancy expense                                                                  |  |               | 64.1  |        |  |  | 65.0  |  
|                                                                                                     |  |               |       |        |  |  |       |  
|Gross profit                                                                                         |  |               | 35.9  |        |  |  | 35.0  |  
|Selling, general, and administrative expense                                                         |  |               | 29.6  |        |  |  | 28.7  |  
|Store pre-opening costs                                                                              |  |               | 0.3   |        |  |  | 0.3   |  
|                                                                                                     |  |               |       |        |  |  |       |  
|Operating income                                                                                     |  |               | 6.0   |        |  |  | 6.0   |  
|Interest expense                                                                                     |  |               | 0.7   |        |  |  | 0.8   |  
|Other (income) and expense, net                                                                      |  |               | (0.1  | )      |  |  | (0.1  | )
|                                                                                                     |  |               |       |        |  |  |       |  
|Income before income taxes and cumulative
    effect of accounting change                            |  |               | 5.4   |        |  |  | 5.3   |  
|Provision for income taxes                                                                           |  |               | 2.2   |        |  |  | 2.2   |  
|                                                                                                     |  |               |       |        |  |  |       |  
|Income before cumulative effect of accounting
    change                                             |  |               | 3.2   |        |  |  | 3.1   |  
|Cumulative effect of accounting change for
    cooperative advertising allowances, net of income tax |  |               |      |        |  |  | 1.2   |  
|                                                                                                     |  |               |       |        |  |  |       |  
|Net income                                                                                           |  |               | 3.2   | %      |  |  | 1.9   | %
|                                                                                                     |  |               |       |        |  |  |       |  

Quarter Ended May 3, 2003 Compared to the
Quarter Ended May 4, 2002

Net sales for the first quarter of fiscal 2003
increased $53.2 million, or 9%, over the first quarter of
fiscal 2002. At the end of the first quarter of fiscal 2003, we
operated 765 Michaels, 153 Aaron Brothers, and seven
Village Crafts by Michaels retail stores. The results for the
first quarter of fiscal 2003 included sales from
60 Michaels, 15 Aaron Brothers, and six Village Crafts
by Michaels retail stores that were opened during the 12-month
period ended May 3, 2003, more than offsetting lost sales
from the closure of seven Michaels and four Aaron Brothers
stores. Sales at the new stores (net of closures) during the
first quarter of fiscal 2003 accounted for $39.8 million of
the increase in net sales. Comparable store sales increased 2%
in the first quarter of fiscal 2003 compared to the first
quarter of fiscal 2002, which contributed $13.4 million to
the net sales increase. The improvement in comparable store
sales was due to a strong performance in our core categories of
spring seasonal, ribbon, general crafts, custom framing,
kids crafts, and ready-made frames. Our ability to
continue to generate comparable store sales increases is
dependent, in part, on our ability to continue to maintain store
in-stock positions on the top-selling items, to properly
allocate merchandise to our stores, to be successful in our
sales promotion efforts, to anticipate customer demand and
trends in the arts and crafts industry, and to respond to
competitors activities.

Cost of sales and occupancy expense, as a
percentage of net sales, for the first quarter of fiscal 2003
was 64.1%, a decrease of 0.9% compared to the first quarter of
fiscal 2002. This decrease was primarily attributable to
improved promotional merchandise gross margins compared to the
first quarter of fiscal 2002.

Selling, general, and administrative expense was
$194.6 million, or 29.6% of net sales, in the first quarter
of fiscal 2003 compared with $173.2 million, or 28.7% of
net sales, in the first quarter of fiscal 2002. This increase as
a percentage of net sales was primarily the result of increased
employee benefit insurance costs and an increase in advertising
printing and distribution costs. In addition, inventory counting
service fees increased from the first quarter of fiscal 2002 to
the first quarter of fiscal 2003 in connection with the rollout
of our perpetual inventory and automated merchandise
replenishment systems. These fees will be higher in the second
and fourth quarters of fiscal 2003 compared to fiscal 2002 as we
complete this chain-wide rollout.

13



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##### Table of Contents



We expense all store pre-opening costs as
incurred. Store pre-opening costs remained relatively constant
as a percentage of net sales from the first quarter of fiscal
2002 to the first quarter of fiscal 2003. In the first quarter
of fiscal 2003, we opened or relocated 23 Michaels and five
Aaron Brothers stores compared to 27 Michaels and three
Aaron Brothers stores opened or relocated in the first quarter
of fiscal 2002.

Operating income increased 9% to
$39.5 million, or 6.0% of net sales, in the first quarter
of fiscal 2003 from $36.3 million, or 6.0% of net sales, in
the first quarter of fiscal 2002.

Interest expense was $5.1 million, or 0.7%
of net sales, in the first quarter of fiscal 2003 and
$5.1 million, or 0.8% of net sales in the first quarter of
fiscal 2002. This decrease, as a percentage of net sales, was
primarily due to the leveraging of interest expense on higher
net sales in the first quarter of fiscal 2003 compared to the
first quarter of fiscal 2002.

The effective tax rate was 41% for both the first
quarter of fiscal 2003 and the first quarter of fiscal 2002.

In the fourth quarter of fiscal 2002, in
connection with the adoption of the provisions of EITF
Issue 02-16, we changed our accounting policy with respect
to recording cooperative advertising allowances effective
retroactively as of the beginning of fiscal 2002. As result, we
recorded a non-cash charge of $7.4 million, net of income
tax, in the first quarter of fiscal 2002 for the cumulative
effect of the change on fiscal years prior to fiscal 2002.

Net income for the first quarter of fiscal 2003
was $20.8 million, or $0.30 per diluted share,
compared to $11.5 million, or $0.16 per diluted share,
for the first quarter of fiscal 2002. Income before cumulative
effect of accounting change for the first quarter of fiscal 2002
was $18.9 million, or $0.27 per diluted share.

Liquidity and Capital Resources

Changes in Cash and Equivalents

Cash flow provided by operating activities during
the first quarter of fiscal 2003 was $31.0 million,
compared to cash used in operating activities of
$3.2 million during the first quarter of fiscal 2002. The
increase in cash from operating activities of $34.2 million
in the first quarter of fiscal 2003 compared to the first
quarter of fiscal 2002 was primarily attributable to an increase
in the net change in merchandise inventories and accounts
payable of $32.0 million and a decrease in the change in
income taxes payable and accrued liabilities of
$9.9 million. These increases in cash from operating
activities were partially offset by a decrease in the net change
in prepaid expenses of $4.6 million. Inventories per
Michaels store increased 5.4% from May 4, 2002 to
May 3, 2003. We anticipate average inventory per Michaels
store at the end of fiscal 2003 will remain consistent with
average inventory per Michaels store of $1.018 million we
reported at the end of fiscal 2002.

Cash flow used in investing activities in the
first quarter of fiscal 2003 was $13.7 million compared to
$38.9 million in the first quarter of fiscal 2002. In the
first quarter of fiscal 2003, we incurred capital expenditures
related to the opening of 18 Michaels and five Aaron
Brothers stores and the relocation of five Michaels stores. In
the first quarter of fiscal 2002, we incurred capital
expenditures related to the completion of our new Hazleton,
Pennsylvania distribution center, the expansion of our
Lancaster, California distribution center, the opening of
19 Michaels and three Aaron Brothers stores, and the
relocation of eight Michaels stores.

14



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##### Table of Contents



The following table sets forth capital
expenditures for the first quarter of fiscal 2003 and the first
quarter of fiscal 2002 (unaudited):

|                                                   |  |                |        |        |  |   |        | 
|-------------------------------------------------- |  | -------------- | ------ | ------ |  | - | ------ | 
|                                                   |  |               
|                                                   |  | Quarter Ended 
|                                                   |  |               
|                                                   |  | May 3,         |        | May 4,
|                                                   |  | 2003           |        | 2002  
|                                                   |  |                |        |       
|                                                   |  |               
|                                                   |  | (In thousands)
|New and relocated stores and stores not yet opened |  | $              | 4,134  |        |  | $ | 10,337 | 
|Existing stores                                    |  |                | 3,542  |        |  |   | 1,913  | 
|Distribution system expansion                      |  |                | 931    |        |  |   | 23,410 | 
|Information systems                                |  |                | 3,552  |        |  |   | 1,647  | 
|Corporate and other                                |  |                | 1,587  |        |  |   | 1,591  | 
|                                                   |  |                |        |        |  |   |        | 
|                                                   |  | $              | 13,746 |        |  | $ | 38,898 | 
|                                                   |  |                |        |        |  |   |        | 

We anticipate capital expenditures for fiscal
2003 to total approximately $161.1 million. In fiscal 2003,
we plan to open approximately 55 Michaels and 10 Aaron
Brothers stores and relocate 20 Michaels stores. In
addition, we have begun construction of a new distribution
facility located in the Chicago, Illinois area, which we
anticipate will be completed in fiscal 2004 and will replace our
Lexington, Kentucky distribution center.

Cash flow used in financing activities was
$24.3 million during the first quarter of fiscal 2003
compared to cash provided by financing activities of
$9.4 million during the first quarter of fiscal 2002. This
decrease in cash from financing activities was primarily due to
repurchases of 1.0 million shares of our Common Stock for
approximately $26.0 million. In addition, proceeds from the
exercise of stock options decreased to $1.3 million for
approximately 81,000 shares of our Common Stock in the
first quarter of fiscal 2003 from $9.2 million for
approximately 592,000 shares of our Common Stock in the
first quarter of fiscal 2002.

Bank Credit Facility

Effective May 1, 2001, we signed a
$200 million unsecured revolving bank credit facility with
Fleet National Bank and other lending institutions, which
replaced the previous $100 million unsecured revolving bank
credit facility. The Credit Agreement had an original term of
three years (with a maturity extension for one additional year
available under certain conditions) and contains a
$25 million competitive bid feature and a $70 million
letter of credit sub-facility. Effective May 21, 2002,
pursuant to the terms of the Credit Agreement, our lenders
agreed to extend the term of the Credit Agreement from
April 30, 2004 to April 30, 2005.

We are in compliance with all terms and
conditions of the Credit Agreement. No borrowings were
outstanding under the Credit Agreement as of May 3, 2003 or
May 4, 2002, or at any time during the first quarter of
fiscal 2003 or 2002. Borrowings available under the Credit
Agreement are reduced by the aggregate amount of letters of
credit outstanding under the Credit Agreement
($26.2 million as of May 3, 2003).

Equity

On December 5, 2000, our Board of Directors
authorized the repurchase of 2.0 million shares of our
outstanding Common Stock. During fiscal 2002, we repurchased and
subsequently retired 392,100 shares of our Common Stock
under the 2000 repurchase plan at an average cost of
$32.70 per share. In the first quarter of fiscal 2003, we
repurchased and subsequently retired 557,900 shares of our
Common Stock at an average cost of $26.05 per share under
the 2000 repurchase plan. As of April 1, 2003, we had
repurchased and retired a total of 2.0 million shares under
the 2000 purchase plan at an average cost of $22.25 per
share and, as a result, we have used the entire fixed portion of
the authority originally provided in the 2000 repurchase plan.
The 2000 repurchase plan also provides that the proceeds of the
exercise of options under our 2001 General Stock Option Plan may
be used to repurchase shares under the 2000 repurchase plan

15



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##### Table of Contents



and that the maximum number of shares authorized
to be repurchased under the 2000 repurchase plan will be
increased to the extent necessary to so use the proceeds from
such option exercises. As of May 3, 2003, no repurchases
from proceeds of stock option exercises under the 2001 General
Stock Option Plan had been made since no options outstanding
under the 2001 General Stock Option Plan had been exercised as
of that date. On September 11, 2002, our Board of Directors
also authorized the repurchase of up to 1.0 million shares
of our outstanding Common Stock in addition to shares available
for repurchase under the 2000 repurchase plan. In the first
quarter of fiscal 2003, we repurchased and subsequently retired
442,100 shares of our Common Stock under the 2002
repurchase plan at an average cost of $25.87 per share. As
of May 3, 2003, we have 557,900 shares of our Common
Stock available for repurchase under the 2002 repurchase plan.
Under the agreements governing our outstanding indebtedness, we
can only repurchase shares of our Common Stock if we maintain or
comply with specified financial ratios and other covenants. We
may also be restricted by regulations of the Securities and
Exchange Commission from making future repurchases during
certain time periods.


General

In the first quarter of fiscal 2003, we entered
into an agreement to purchase our new Midwest distribution
center once construction is completed. The estimated purchase
price is $28.9 million.

We believe that our available cash, funds
generated by operating activities, funds available under the
Credit Agreement, and proceeds from the exercise of stock
options will be sufficient to fund anticipated capital
expenditures, working capital requirements, and any stock
repurchases for the foreseeable future.

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, which amends and
clarifies the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities under SFAS No. 133.
SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003. We believe the adoption of
the provisions of SFAS No. 149 will have no material
impact on our operating results or financial position.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, as an amendment
to SFAS No. 123 and to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. Our policy is to account for stock-based employee
compensation using the intrinsic value method in accordance with
APB Opinion No. 25. Prior to the adoption of the disclosure
provisions of SFAS No. 148, we reported the pro forma
effect of the fair value method of accounting for stock-based
employee compensation under the provisions of
SFAS No. 123. We adopted the disclosure provisions of
SFAS No. 148 in the preparation of our Annual Report
on Form 10-K for the fiscal year ended February 1,
2003. While this adoption does not change our policy of
accounting for stock-based employee compensation using the
intrinsic value method, we have disclosed our stock-based
employee compensation in Note 4 of Notes to Consolidated
Financial Statements and have revised our presentation format of
the pro forma effect of the fair value method of accounting.






|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About
    Market Risk.

We have market risk exposure arising from changes
in interest rates. The interest rates on the Credit Agreement
are repriced frequently, at market prices, which would result in
carrying amounts that approximate fair value. We had no
borrowings outstanding under the Credit Agreement at May 3,
2003. In July 2001, we issued $200 million of the Senior
Notes due 2009 with a fixed interest rate of 9 1/4%. In
August 2001, we used a portion of the proceeds from the Senior
Notes due 2009 to redeem the Senior

16



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##### Table of Contents



Notes due 2006. Generally, the fair market value
of our fixed interest rate long-term debt will increase as
interest rates fall and decrease as interest rates rise. Our
market risk is described in more detail in our Annual Report on
Form 10-K for the fiscal year ended February 1, 2003.







|        |                         
|------- | ------------------------
|Item 4. | Controls and Procedures.

We maintain a set of disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14
promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934). Within the 90-day period prior
to the filing of this Quarterly Report on Form 10-Q, an
evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive
Officer and our Executive Vice PresidentChief Financial
Officer, of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our Chief Executive
Officer and our Executive Vice PresidentChief Financial
Officer concluded that our disclosure controls and procedures
are effective to provide reasonable assurance that information
required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
We note that 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.

As part of our standard corporate management
practice, from time to time we are engaged in on-going
assessments and enhancements of internal accounting controls,
but subsequent to the date of the evaluation referred to above,
there were no significant changes in internal controls or in
other factors that could significantly affect those controls.

17



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##### Table of Contents



MICHAELS STORES, INC.




Part IIOTHER INFORMATION







|        |                   
|------- | ------------------
|Item 1. | Legal Proceedings.



| |            
| | -----------
| | Brown Claim

On April 17, 2003, Donald Brown, Thomas
Lamour, and Sau Yeung, acting on behalf of themselves and the
general public, filed a putative class action in the Superior
Court of California for the County of Los Angeles against a
number of employers, including Aaron Brothers, Inc., a
wholly-owned subsidiary of Michaels Stores, Inc. The lawsuit
alleges that the defendants violated California Labor Code
provisions that prohibit employers from requesting job
applicants to disclose prior criminal convictions for specified
marijuana-related infractions or participation in certain
criminal diversionary programs. We believe these claims are
without merit and will vigorously contest them.



| |                          
| | -------------------------
| | Stockholder Class Actions

On various dates between February 4, 2003
and March 25, 2003, 10 purported class action lawsuits were
filed in the United States District Court for the Northern
District of Texas, Dallas Division, against Michaels Stores,
Inc. and certain of the current and former directors and
officers of Michaels. All of these lawsuits have been
consolidated. The suits assert various claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 related to actions prior to Michaels announcement on
November 7, 2002, that, among other things, it had revised
its outlook for the fourth fiscal quarter of 2002, adjusting
downward its guidance for annual earnings per diluted share. The
complaints charge that, prior to that announcement, Michaels and
certain of the other defendants made misrepresentations and
omitted to disclose negative information about the financial
condition of Michaels while the individual defendants were
selling shares of Michaels common stock. We believe these claims
are without merit and will vigorously contest them.



| |                  
| | -----------------
| | Derivative Claims

On March 21, 2003, Julie Fathergill filed a
purported stockholder derivative action, which is pending in the
United States District Court for the Northern District of Texas,
Dallas Division. The lawsuit names certain former and current
officers and directors, including all of Michaels current
directors, as individual defendants and Michaels as a nominal
defendant. In this derivative action, the plaintiff makes
allegations of fact similar to those made in the purported
securities class actions described above. The plaintiff asserts
claims against the individual defendants for breach of fiduciary
duties, abuse of control, gross mismanagement, waste of
corporate assets, and unjust enrichment. All of these claims are
asserted derivatively on behalf of Michaels and the lawsuit
states that the relevant time period is August 2002 to present.
We believe this claim is also without merit and will vigorously
oppose it.

On April 8, 2003, the Chairman of the Board
of Michaels received a demand letter on behalf of Chris Frith, a
purported Michaels stockholder, requesting that the Board
commence an action against certain former and current officers
and directors. The demand letter threatens to file a derivative
lawsuit if an action is not commenced within a reasonable time.
The purported bases of the demand are similar to those made in
the purported stockholder class actions and stockholder
derivative lawsuit described above.

Cotton Claim

On December 20, 2002, James Cotton, a former
store manager of Michaels of Canada, ULC, our wholly-owned
subsidiary, and Suzette Kennedy, a former assistant manager of
Michaels of Canada, commenced a proposed class proceeding
against Michaels of Canada and Michaels Stores, Inc. on behalf
of themselves and current and former employees employed in
Canada. The Cotton claim was filed in the Ontario Superior Court
of Justice and alleges that the defendants violated employment
standards legislation in Ontario and other provinces and
territories of Canada by failing to pay overtime compensation as
required by that legislation. The Cotton claim also alleges that
this conduct was in breach

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##### Table of Contents



of the contracts of employment of those
individuals. The Cotton claim seeks a declaration that the
defendants have acted in breach of applicable legislation,
payment to current and former employees for overtime, damages
for breach of contract, punitive, aggravated and exemplary
damages, interest, and costs. Although we believe we have
certain meritorious defenses and intend to defend this lawsuit
vigorously, given the early stage of the proceedings, it is
premature at this time for us to comment on issues of liability
and damages.


General

We are a defendant from time to time in lawsuits
incidental to our business. Based on currently available
information, we believe that resolution of all known
contingencies is uncertain. There can be no assurance that
future costs of such litigation would not be material to our
financial position or results of operations.






|        |                                      
|------- | -------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K.

(a) Exhibits:



| |      |                                                                                                                                   
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------
| | 99.1 | Certification pursuant to 18 U.S.C.
    §1350, as adopted pursuant to §906 of the
    Sarbanes-Oxley Act of 2002 (filed herewith).

(b) Reports on Form 8-K:

None.

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##### Table of Contents



MICHAELS STORES, INC.




SIGNATURES


Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.

| |  |                       |  |                                                                                        
| |  | --------------------- |  | ---------------------------------------------------------------------------------------
| |  | MICHAELS STORES, INC.
|
| |  | By:                   |  | /s/ JEFFREY N. BOYER                                                                   
| |  |                       |  |                                                                                        
| |  |                       |  | Jeffrey N. Boyer                                                                       
| |  |                       |  | Executive Vice President Chief Financial
    Officer
    (Principal Financial Officer)

Dated: June 12, 2003

20



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##### Table of Contents






CERTIFICATIONS

I, R. Michael Rouleau, certify that:



|   |                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this quarterly report on
    Form 10-Q of Michaels Stores, Inc.;                                                                                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this quarterly 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
    quarterly report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    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
    quarterly 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-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    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 quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                    |  |                                                                                                                                                                                     
|------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: June 12, 2003 |  | /s/ R. MICHAEL ROULEAU
    -----------------------------------------------------------
    R. Michael RouleauPresident and Chief Executive Officer
    (Principal Executive Officer)

21



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##### Table of Contents






CERTIFICATIONS

I, Jeffrey N. Boyer, certify that:



|   |                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this quarterly report on
    Form 10-Q of Michaels Stores, Inc.;                                                                                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this quarterly 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
    quarterly report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    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
    quarterly 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-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    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 quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

|                    |  |                                                                                                                                                                                             
|------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: June 12, 2003 |  | /s/ JEFFREY N. BOYER
    -----------------------------------------------------------
    Jeffrey N. BoyerExecutive Vice President Chief Financial Officer
    (Principal Financial Officer)

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INDEX TO EXHIBITS

|        |      |                        |  |                                                                                                                                   
|------- | ---- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                       
|Number  |      | Description of Exhibit
|        |      |                       
|        | 99.1 |                        |  | Certification pursuant to 18 U.S.C.
    §1350, as adopted pursuant to §906 of the
    Sarbanes-Oxley Act of 2002 (filed herewith).