##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 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 000-23157
 A.C. MOORE ARTS & CRAFTS, INC.
 (Exact name of registrant as specified in its charter)
 Pennsylvania
    
    22-3527763(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 130 A.C. Moore Drive, Berlin, New Jersey
    
    08009(Address of principal executive offices)
    
    (Zip Code)
 (856) 768-4930
 Common stock, no par value  (Title of class)
 The NASDAQ Stock Market LLC  (Name of each exchange on which registered)
 None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
 (1)




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DOCUMENTS INCORPORATED BY REFERENCE
  
 (1)
    
    The aggregate market value of the voting stock equals the number of shares of the
registrants common stock outstanding, reduced by the number of shares of common stock held by
executive officers, directors and shareholders owning in excess of 10% of the registrants common
stock, multiplied by the last reported sale price for the registrants common stock on the last
business day of the registrants most recently completed second fiscal quarter. The information
provided shall in no way be construed as an admission that any person whose holdings are excluded
from this figure is an affiliate of the registrant or that any person whose holdings are included
in this figure is not an affiliate of the registrant and any such admission is hereby disclaimed.
The information provided herein is included solely for record keeping purposes of the Securities
and Exchange Commission




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##### Table of Contents



Explanatory Note
 As used herein, unless the context otherwise requires, all references to A.C. Moore, the
Company, we, our, us and similar terms in this report refer to A.C. Moore Arts & Crafts,
Inc. together with its subsidiaries.
   Effects of Restatement
  Summary Statement of Operations(In thousands except per share data)Six MonthsEnded June 30,
    
    Years Ended December 31,2007
    
    2006
    
    2005As previously reported:Cost of sales
    
    $
    151,727
    
    
    $
    358,725
    
    
    $
    326,581Income before taxes
    
    
    363
    
    
    
    4,543
    
    
    
    16,068Net income
    
    
    229
    
    
    
    2,434
    
    
    
    10,042Earnings per share
    
    
    0.01
    
    
    
    0.12
    
    
    
    0.50As restated:Cost of sales
    
    $
    152,429
    
    
    $
    362,678
    
    
    $
    328,565Income (loss) before taxes
    
    
    (339
    )
    
    
    590
    
    
    
    14,084Net income (loss)
    
    
    (214
    )
    
    
    (406
    )
    
    
    8,901Earnings (loss) per share
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    0.44Correction of
inventory valuation adjustments:Cost of sales
    
    $
    702
    
    
    $
    3,953
    
    
    $
    1,984(Loss) before taxes
    
    
    (702
    )
    
    
    (3,953
    )
    
    
    (1,984
    )Net (loss)
    
    
    (443
    )
    
    
    (2,840
    )
    
    
    (1,141
    )(Loss) per share
    
    
    (0.02
    )
    
    
    (0.14
    )
    
    
    (0.06
    )




---



Cautionary Statement Relating to Forward-Looking Statements
 As used herein, unless the context otherwise requires, all references to A.C. Moore, the
Company, we, our, us and similar terms in this report refer to A.C. Moore Arts & Crafts,
Inc. together with its subsidiaries.
 Certain oral statements made by our management from time to time and certain statements
contained herein or in other reports filed by us with the Securities and Exchange Commission
(SEC) or incorporated by reference herein or therein are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended (Exchange Act), with respect to our results of operations and
our business. All such statements, other than statements of historical facts, including those
regarding market trends, our financial position and results of operations, business strategy,
projected costs, and plans and objectives of management for future operations, are forward-looking
statements. In general, such statements are identified by the use of forward-looking words or
phrases including, but not limited to, intended, will, should, may, believes, expects,
expected, anticipates and anticipated or the negative thereof or variations thereon or
similar terminology. These forward-looking statements are based on our current expectations.
Although we believe that the expectations reflected in forward-looking statements are reasonable,
there can be no assurance that such expectations will prove to be correct. These forward-looking
statements represent our current judgment. We disclaim any intent or obligation to update our
forward-looking statements. Because forward-looking statements involve risks and uncertainties,
our actual results could differ materially. Important factors that could cause actual results to
differ materially from our expectations (Cautionary Statements) include those that are discussed
in this Annual Report on Form 10-K , particularly in Item 1. Business, Item 1A. Risk Factors and
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
All subsequent written and oral forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by the Cautionary Statements.
 TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDANCEITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit IndexSubsidiaries of the CompanyConsent of PricewaterhouseCoopers LLPCertification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification of the Company's Chief Executive Officer pursuant to 18 U.S.C Section 1350Certification of the Company's Chief Financial Officer pursuant to 18 U.S.C Section 1350    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS.
 General
 www.acmoore.com
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Industry Overview and Competition
   
    
    Enthusiasts. Participate in all types of crafts, and account for approximately
11% of crafting households. Nearly half are between the ages of 35 and 54, and
just over half have children under the age of 18 in the household.
    
    Floral fanatics. Participate mostly in floral arranging and accessorizing, and
account for approximately 8% of crafting households. They have above average
income, and nearly three-fourths do not have children under the age of 18 in the
household.
    
    Sew prouds. Participate mostly in quilting and other needle crafts, and account
for approximately 14% of crafting households. Income is typically below average,
more than half are over the age of 55 and approximately 80% do not have children
under the age of 18 in the household.
    
    Stitch and gifters. Participate mostly in cross-stitch and embroidery as gifts,
and account for approximately 22% of crafting households. Income is typically
below average, more than half are over the age of 55 and approximately
three-fourths do not have children under the age of 18 in the household.
    
    Home decorators. Participate mostly in painting and woodworking, and account
for approximately 18% of crafting households. Income is typically below average,
nearly half are between the ages of 35 and 54, mostly male, and approximately
two-thirds do not have children under the age of 18 in the household.
    
    Social scrapbookers. Participate mostly in preserving memories, and account for
approximately 27% of crafting households. Income is typically above average,
nearly half are younger than the age of 35, typically with children under the age
of 6 and a higher level of education.
  
    
    Multi-store arts and crafts retailers. This category includes several multi-store
arts and crafts chains operating more than 35 stores and comprises: Michaels Stores,
Inc., a chain which operates approximately 970 Michaels stores throughout the United
States and Canada; Jo-Ann Stores, Inc., which operates approximately 580 traditional
Jo-Ann Fabrics and Crafts stores and 195 Jo-Ann superstores nationwide; and Hobby Lobby
Stores, Inc., a chain which operates approximately 355 stores primarily in the Midwest
United States. Jo-Ann Stores, Inc. also offers products for sale via its e-commerce
site. Garden Ridge, Inc., which operates approximately 40 stores primarily in the
Southeast and Midwest United States, focuses primarily on floral and seasonal
merchandise.
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
    
    Mass merchandisers. This category includes Wal-Mart Stores, Inc., Target
Corporation and other mass merchandisers. These retailers typically dedicate a
relatively small portion of their selling space to a limited assortment of arts and
crafts supplies and floral merchandise, as well as seasonal merchandise and home décor.
    
    Small, local specialty retailers. This category includes thousands of local
independent arts and crafts retailers. Typically, these are single store operations
managed by the owner. The stores generally offer a limited selection and have limited
resources for advertising, purchasing and distribution. Many of these stores have
established a loyal customer base within a given community and compete based on
customer service.
  Business and Operating Strategy
  Improve Store Profitability .
 
    
    Decreasing store payroll costs.We introduced a new general manager
compensation plan based on pay-for-performance beginning in January 2007.
Bonuses earned in one year are no longer rolled into base salary for the coming
year. New store staffing models, including a mix of full- and part-time
associates based on sales patterns, were implemented in the second quarter of
2007. While we believe that our new store staffing model is appropriate for our
store operations, we will continue in 2008 to refine staffing to address freight,
ordering, recovery, merchandising and customer service more effectively.
    
    Real estate site location strategy.Our objective is to achieve an
appropriate balance between increasing store openings in existing markets, which
could adversely affect comparable store sales, and opening a single store in
multi-store markets which are new to us, which may contribute to an increase in
our selling, general and administrative expense rate. When we enter new markets
in the future that we deem to be multi-store markets, we intend to open more than
one store. Previously, including certain of our stores to be opened in 2008, we
entered new markets opening only a single store. Management regularly reviews
store performance and future prospects to identify underperforming locations and
assess closure of those stores that are no longer strategically or economically
viable. We are about to begin such a detailed analysis subsequent to the filing
of this annual report on Form 10-K.
    
    Advertising spending. In 2007, we utilized the services of a newspaper
placement agency to negotiate our insertion rates and distribution costs. We
implemented those recommendations by the end of the third quarter. We will
continue this initiative in 2008 by analyzing our distribution methods to enhance
productivity of the advertising vehicles.
    
    Centrally directed operations and our store prototype.We believe that
increasing the level of standardization in operations and centrally directed
management practices will improve our operating efficiencies. This initiative
includes, without limitation, standardizing the presentation in our stores,
reengineering our store processes and implementing and refining our new store
prototype which we refer to as our Nevada model. As of March 16, 2008, we
opened 14 Nevada
 3




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class stores. We believe the Nevada model will help us achieve efficiencies
through increased ease of operation and reduced labor costs. While we believe the
Nevada model is a desirable design, we are currently refining the design based on
the results of this initial phase of implementation and expect to continue to do
so in the future.
 Increase Gross Margins .
 
    
    Category management.We are currently working on a category management
process designed to optimize sales, expand gross margin and better control our
inventory investment. Category management involves the use of a merchandise
planning calendar that defines the timeline for each action required to achieve a
store set date on plan-o-grams and seasonal programs. We anticipate that this
process will reduce out-of-stock conditions. Also included in this initiative is
implementation of a category management structure and processes. Examples of
these processes are an open-to-buy program for review of purchases of seasonal
and large buys and a comprehensive clearance program.
    
    Globally sourced and private label products.Beginning in the second half of
2007, we sold products in our stores that were imported directly through an
arrangement with a global sourcing supplier. We expect that the number of
products globally sourced will increase in the future. During the same time, we
also introduced in our stores private-label products bearing the A.C. Moore name
and logo. We believe that increased global sourcing and sale of private label
products will result in gross margin improvement.
    
    Supply chain efficiencies.We recently implemented a performance management
program in our main distribution center. Each job function was reviewed to
improve the method of performance and maximize efficiencies. Quantifiable
engineered standards were developed to measure building, area and individual
associate performance. In addition, with the assistance of an outside
consultant, we anticipate completion of a logistics network strategy review by
the end of the second quarter of 2008. This project will identify the
distribution network configuration to service A.C. Moore stores over the next
five years and will provide an implementation roadmap for the expansion of our
distribution network. We believe these initiatives will help reduce costs
associated with product distribution.
 Improve Information Technology.
  4




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Merchandising
   Years Ended December 31,2007
    
    2006
    
    2005Art and scrapbooking
    
    
    25.4
    %
    
    
    25.2
    %
    
    
    24.6
    %Traditional crafts
    
    
    24.3
    
    
    
    25.8
    
    
    
    28.4Floral and floral accessories
    
    
    12.0
    
    
    
    12.1
    
    
    
    12.0Fashion crafts
    
    
    9.6
    
    
    
    9.8
    
    
    
    9.6Home décor and frames
    
    
    24.7
    
    
    
    22.9
    
    
    
    21.5Seasonal items
    
    
    4.0
    
    
    
    4.2
    
    
    
    3.9Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Purchasing
  
    
    the largest 25 vendors accounted for approximately 52.2% of our purchases,
    
    the largest domestic vendor, SBARS, Inc., a distributor of arts and crafts
merchandise, accounted for approximately 17.1% of our purchases, and
    
    approximately 17.9% of our merchandise, primarily floral and seasonal items, was
directly imported from foreign manufacturers or their agents, almost exclusively from
China.
  5




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Marketing
   Store Design and Operations
    Store Expansion
  6




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Distribution
     Information Technology
    7




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www.acmoore.com
 Associates
  Trademarks
  Website and Availability of Information
 www.acmoore.com www.acmoore.com www.acmoore.com
  
  8




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ITEM 1A. RISK FACTORS.
 Unfavorable economic conditions could have a material adverse effect on our business, revenue and
profitability.
  An increase in our sales, profitability and cash flow will depend on our ability to increase the
number of stores we operate and increase the productivity and profitability of our existing stores.
   
    
    our ability to identify suitable markets in which to expand,
    
    the availability of suitable sites for additional stores,
    
    our ability to negotiate acceptable lease terms for sites we identify,
    
    the availability of acceptable financing to support our growth, and
    
    our ability to hire, train and retain a sufficient number of qualified general
managers and other store personnel.
 Our success will depend on how well we manage growth.
  
    
    The costs of opening and operating new stores, especially in new markets, may offset
the increased sales generated by the additional stores.
    
    The opening of additional stores in an existing market could reduce net sales from
existing stores in that market.
    
    The opening of stores in new markets may present competitive and
merchandising challenges that are different than those we face in existing
markets.
    
    The closing or relocation of under-performing stores may result in us retaining
liability for outstanding lease obligations.
    
    Our growth may outpace our ability to expand, upgrade and improve administrative,
operational and management systems, controls and resources.
    
    Our suppliers may be unable to meet increased demand for merchandise as a result of
the additional stores and increased productivity of our existing stores.
    
    We may be unable to expand existing distribution capabilities, or employ third-party
distribution services on a cost-effective basis, to provide sufficient merchandise for
sale by our new stores.
 
 9




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A weak fourth quarter would have a material adverse effect on our operating results for the year.
  Our quarterly results fluctuate due to a variety of factors and are not a meaningful indicator of
future performance.
  
    
    the mix of merchandise sold,
    
    the timing and level of markdowns,
    
    promotional events and changes in advertising,
    
    adverse weather conditions (particularly on weekends),
    
    store openings, closings, remodels or relocations,
    
    length and timing of the holiday seasons,
    
    competitive factors, and
    
    general economic and political conditions.
  Our success depends on key personnel whom we may not be able to retain or hire.
  We face an extremely competitive retail business market.
  10




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We may not be able to successfully anticipate changes in merchandise trends and consumer demands
and our failure to do so may lead to loss of sales
  We face risks relating to ordering and inventory management.
  Unfavorable consumer response to our promotional strategy could materially and adversely affect our
sales, profitability and cash flow.
  Adverse events could have a greater impact on us than if we had a larger store base in different
geographical regions.
  A disruption in our operations could have a material adverse effect on our financial condition and
results of operations.
  11




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We depend on a number of key vendors to supply our merchandise and services and the loss of any one
of our key vendors may result in a loss of sales and significantly harm our operating results.
  We face risks associated with sourcing and obtaining imported merchandise.
  
    
    Disruptions in the flow of imported goods because of factors such as:
 o
    
    Raw material shortages, work stoppages, strikes and political unrest;o
    
    Problems with trans-ocean shipping, including storage of shipping containers; ando
    
    Global or international economic uncertainties, crises or disputes.
 
    
    Increases in the cost of purchasing or shipping imported merchandise that may result from:
 o
    
    Increases in shipping rates imposed by trans-ocean carriers;o
    
    Changes in currency exchange rates and local economic
conditions, including inflation;o
    
    Failure of the United States to maintain normal trade relations with China; ando
    
    Import duties, quotas and other trade sanctions.
  Our information technology may prove inadequate.
  12




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An increase in the cost of fuel oil and oil-based products could impact our earnings and margins.
  Terrorist attacks and threats or actual war may impact all aspects of our operations, revenues,
costs and stock price in unpredictable ways.
  In connection with the restatement of previously issued financial statements, management concluded
that, for all periods through December 31, 2007, our disclosure controls and procedures were not
effective and we had a material weakness in our internal control over financial reporting.
  We face risks related to the restatement of our previously issued financial statements.
  13




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EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionRick A. Lepley
    
    
    57
    
    
    President, Chief Executive Officer and DirectorMarc Katz
    
    
    43
    
    
    Executive Vice President and Chief Financial OfficerJoseph A. Jeffries
    
    
    42
    
    
    Executive Vice President of OperationsCraig R. Davis
    
    
    55
    
    
    Senior Vice President of Merchandising and MarketingAmy Rhoades
    
    
    36
    
    
    Vice President and General Counsel
     14




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ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES
  Number ofState
    
    Locations1.
    
    Alabama
    
    
    12.
    
    Connecticut
    
    
    43.
    
    Delaware
    
    
    24.
    
    Florida
    
    
    115.
    
    Georgia
    
    
    26.
    
    Maine
    
    
    37.
    
    Maryland
    
    
    78.
    
    Massachusetts
    
    
    129.
    
    New Hampshire
    
    
    410.
    
    New Jersey
    
    
    2011.
    
    New York
    
    
    2212.
    
    North Carolina
    
    
    1113.
    
    Pennsylvania
    
    
    2114.
    
    Rhode Island
    
    
    115.
    
    South Carolina
    
    
    416.
    
    Tennessee
    
    
    117.
    
    Virginia
    
    
    818.
    
    West Virginia
    
    
    2136
   15




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ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  High
    
    LowYear Ended December 31, 2007First Quarter
    
    $
    22.49
    
    
    $
    18.90Second Quarter
    
    
    23.41
    
    
    
    19.42Third Quarter
    
    
    21.55
    
    
    
    15.40Fourth Quarter
    
    
    17.20
    
    
    
    11.37Year Ended December 31, 2006First Quarter
    
    $
    18.64
    
    
    $
    12.55Second Quarter
    
    
    19.47
    
    
    
    14.96Third Quarter
    
    
    19.42
    
    
    
    14.98Fourth Quarter
    
    
    23.54
    
    
    
    18.42
    
 ITEM 6. SELECTED FINANCIAL DATA.
  16




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Years Ended December 31,2006 (4)
    
    2005 (4)
    
    2004 (5)
    
    2003 (5)2007
    
    (as restated)
    
    (as restated)
    
    (as restated)
    
    (as restated)(In thousands except per share data)Statement of
Operations Data:Net sales
    
    $
    559,693
    
    
    $
    589,506
    
    
    $
    539,436
    
    
    $
    497,626
    
    
    $
    433,928Gross margin (1)
    
    
    228,731
    
    
    
    226,828
    
    
    
    210,871
    
    
    
    194,243
    
    
    
    160,176Selling, general and administrative expenses (1) (6)
    
    
    220,218
    
    
    
    219,298
    
    
    
    192,878
    
    
    
    166,485
    
    
    
    131,890Store pre-opening expenses
    
    
    2,608
    
    
    
    3,241
    
    
    
    3,459
    
    
    
    4,036
    
    
    
    2,842Income from operations
    
    
    5,470
    
    
    
    913
    
    
    
    14,534
    
    
    
    23,722
    
    
    
    25,444Net income
(loss)
    
    
    3,783
    
    
    
    (406
    )
    
    
    8,901
    
    
    
    14,746
    
    
    
    16,057Net income
(loss) per share, diluted
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    0.81Weighted average shares outstanding, diluted
    
    
    20,349
    
    
    
    19,929
    
    
    
    20,149
    
    
    
    20,012
    
    
    
    19,729(In thousands)Balance Sheet Data (as of):Working capital
    
    $
    145,037
    
    
    $
    143,206
    
    
    $
    145,699
    
    
    $
    143,007
    
    
    $
    107,447Total assets
    
    
    321,890
    
    
    
    314,264
    
    
    
    300,024
    
    
    
    296,705
    
    
    
    229,859Long-term debt
    
    
    19,071
    
    
    
    21,643
    
    
    
    24,215
    
    
    
    29,357
    
    
    
    504Shareholders equity
    
    
    199,600
    
    
    
    192,205
    
    
    
    185,776
    
    
    
    174,623
    
    
    
    159,955(In thousands except sales per square foot)Other Data:Cash flows from operating activities
    
    $
    8,610
    
    
    $
    31,496
    
    
    $
    14,620
    
    
    $
    18,495
    
    
    $
    23,227Number of stores open at end of period
    
    
    132
    
    
    
    122
    
    
    
    109
    
    
    
    96
    
    
    
    81Net sales per total square foot (2)
    
    $
    198
    
    
    $
    234
    
    
    $
    241
    
    
    $
    256
    
    
    $
    260Average net sales per store (2)
    
    $
    4,674
    
    
    $
    5,401
    
    
    $
    5,417
    
    
    $
    5,802
    
    
    $
    5,839Comparable store sales increase (decrease ) (3)
    
    
    (10
    )%
    
    
    0
    %
    
    
    (3
    )%
    
    
    4
    %
    
    
    2
    %
 
 (1)
    
    As of January 1, 2004, for all vendor contracts entered into or modified after December 31,
2002, the Company adopted the Emerging Issues Task Force (EITF) 02-16, Accounting by a
Customer (including a Reseller) for Cash Consideration Received from a Vendor. EITF 02-16
addresses the accounting for cash consideration received by a customer from a vendor (e.g.,
slotting fees and cooperative advertising payments) and rebates or refunds from a vendor that
is payable only if the customer completes a specified cumulative level of purchases or remains
a customer for a specified time period. The change in accounting means that vendor monies
which support the Companys advertising programs are now being recorded as a reduction in the
cost of inventory, and are recognized as a reduction of cost of goods sold when the inventory
is sold. Previously, they were accounted for as an offset to advertising costs. This
accounting change results in a timing difference as to when these monies are recognized in the
Companys income statement. In 2004, net income was reduced by $3.4 million or $0.17 per
share, gross margin increased by $11.9 million, selling, general and administrative costs
increased by $17.4 million and inventory decreased by $5.5 million. 17




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##### Table of Contents



(2)
    
    Includes only stores open during the entire period.(3)
    
    Stores are added to the comparable store base at the beginning of their fourteenth full
month of operation.(4)
    
    See Note 1 to our Consolidated Financial Statements for a further discussion of the
restatement.(5)
    
    In 2004 and 2003, amounts affected by the restatement include gross margin, income from
operations, net income, net income per share, working capital, total assets and shareholders
equity.(6)
    
    Effective January 1, 2006, the Company adopted the provisions of FAS 123(R),
"Shared-based Payments, which requires the recognition of compensation expense related to the
fair value of its equity awards. In 2007 and 2006, compensation was reported as a component
of selling, general and administrative expenses in the amount of $2.6 million and $3.1
million, respectively. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Restatement of Consolidated Financial Statements
   Effects of Restatement
  18




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##### Table of Contents



Summary Statement of Operations(In thousands except per share data)Six MonthsEnded June 30,
    
    Years Ended December 31,2007
    
    2006
    
    2005As previously reported:Cost of sales
    
    $
    151,727
    
    
    $
    358,725
    
    
    $
    326,581Income before taxes
    
    
    363
    
    
    
    4,543
    
    
    
    16,068Net income
    
    
    229
    
    
    
    2,434
    
    
    
    10,042Earnings per share
    
    
    0.01
    
    
    
    0.12
    
    
    
    0.50As restated:Cost of sales
    
    $
    152,429
    
    
    $
    362,678
    
    
    $
    328,565Income (loss) before taxes
    
    
    (339
    )
    
    
    590
    
    
    
    14,084Net income (loss)
    
    
    (214
    )
    
    
    (406
    )
    
    
    8,901Earnings (loss) per share
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    0.44Correction of
inventory valuation adjustments:Cost of sales
    
    $
    702
    
    
    $
    3,953
    
    
    $
    1,984(Loss) before taxes
    
    
    (702
    )
    
    
    (3,953
    )
    
    
    (1,984
    )Net (loss)
    
    
    (443
    )
    
    
    (2,840
    )
    
    
    (1,141
    )(Loss) per share
    
    
    (0.02
    )
    
    
    (0.14
    )
    
    
    (0.06
    )
 19




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##### Table of Contents



Overview
 General
 www.acmoore.com
   Business and Operating Strategy
  Improve Store Profitability .
 
    
    Decreasing store payroll costs.We introduced a new general manager
compensation plan based on pay-for-performance beginning in January 2007. Bonuses
earned in one year are no longer rolled into base salary for the coming year. New
store staffing models, including a mix of full- and part-time associates based on
sales patterns, were implemented in the second quarter of 2007. While we believe
that our new store staffing model is appropriate for our store operations, we will
continue in 2008 to refine staffing to address freight, ordering, recovery,
merchandising and customer service more effectively.
    
    Real estate site location strategy.Our objective is to achieve an appropriate
balance between increasing store openings in existing markets, which could
adversely affect comparable store sales, and opening a single store in multi-store
markets which are new to us, which may contribute to an
 20




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##### Table of Contents



increase in our selling, general and administrative expense rate. When we enter new
markets in the future that we deem to be multi-store markets, we intend to open more
than one store. Previously, including certain of our stores to be opened in 2008,
we entered new markets opening only a single store. Management periodically reviews
store performance and future prospects to identify underperforming locations and
assess closure of those stores that are no longer strategically or economically
viable. We are about to begin such a detailed analysis subsequent to the filing of
this annual report on Form 10-K.
    
    Advertising spending. In 2007, we utilized the services of a newspaper
placement agency to negotiate our insertion rates and distribution costs. We
implemented those recommendations by the end of the third quarter. We will
continue this initiative in 2008 by analyzing our distribution methods to enhance
productivity of the advertising vehicles.
    
    Centrally directed operations and our store prototype.We believe that
increasing the level of standardization in operations and centrally directed
management practices will improve our operating efficiencies. This initiative
includes, without limitation, standardizing the presentation in our stores,
reengineering our store processes and implementing and refining our new store
prototype which we refer to as our Nevada model. As of March 16, 2008, we opened
14 Nevada class stores. We believe the Nevada model will help us achieve
efficiencies through increased ease of operation and reduced labor costs. While we
believe the Nevada model is a desirable design, we are currently refining the
design based on the results of this initial phase of implementation and expect to
continue to do so in the future.
 Increase Gross Margins .
 
    
    Category management.We are currently working on a category management process
designed to optimize sales, expand gross margin and better control our inventory
investment. Category management involves the use of a merchandise planning
calendar that defines the timeline for each action required to achieve a store set
date on plan-o-grams and seasonal programs. We anticipate that this process will
reduce out-of-stock conditions. Also included in this initiative is
implementation of a category management structure and processes. Examples of
these processes are an open-to-buy program for review of purchases of seasonal and
large buys and a comprehensive clearance program.
    
    Globally sourced and private label products.Beginning in the second half of
2007, we sold products in our stores that were imported directly through an
arrangement with a global sourcing supplier. We expect that the number of
products globally sourced will increase in the future. During the same time, we
also introduced in our stores private-label products bearing the A.C. Moore name
and logo. We believe that increased global sourcing and sale of private label
products will result in gross margin improvement.
    
    Supply chain efficiencies.We recently implemented a performance management
program in our main distribution center. Each job function was reviewed to
improve the method of performance and maximize efficiencies. Quantifiable
engineered standards were developed to measure building, area and individual
associate performance. In addition, with the assistance of an outside consultant,
we anticipate completion of a logistics network strategy review by the end of the
second quarter of 2008. This project will identify the distribution network
configuration to service A.C. Moore stores over the next five years and will
provide an implementation roadmap for the expansion of our distribution network.
We believe these initiatives will help reduce costs associated with product
distribution.
 21




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##### Table of Contents



Improve Information Technology.
 Results of Operations
  Years Ended December 31,2006
    
    
    20052007

    
    
    (as restated)
    
    
    (as restated)Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    59.1
    
    
    
    61.5
    
    
    
    60.9Gross margin
    
    
    40.9
    
    
    
    38.5
    
    
    
    39.1Selling, general and administrative expenses
    
    
    39.3
    
    
    
    37.2
    
    
    
    35.8Costs related to change in management
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.0Store pre-opening expenses
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.6Income from operations
    
    
    1.0
    
    
    
    0.2
    
    
    
    2.7Interest expense (income), net
    
    
    (0.0
    )
    
    
    0.1
    
    
    
    0.1Income before income taxes
    
    
    1.0
    
    
    
    0.1
    
    
    
    2.6Provision for income taxes
    
    
    0.3
    
    
    
    0.2
    
    
    
    1.0Net income (loss)
    
    
    0.7
    %
    
    
    (0.1
    )%
    
    
    1.6
    %
 2007 Compared to 2006
 Net Sales
  22




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##### Table of Contents



Gross Margin
 Selling, General and Administrative Expenses
  Costs Related to Change in Management.
 Interest Income and Expense.
 Store Pre-Opening Expenses
 Income Taxes
 2006 Compared to 2005
 Net Sales
  23




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Gross Margin
  Selling, General and Administrative Expenses
   Costs Related to Change in Management.
 Interest Income and Expense.
 Store Pre-Opening Expenses
 24




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##### Table of Contents



Income Taxes
 Quarterly Results and Seasonality
  First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter(as restated)
    
    (as restated)2007Net sales
    
    $
    135,380
    
    
    $
    124,439
    
    
    $
    122,608
    
    
    $
    177,266Gross margin
    
    
    55,311
    
    
    
    52,079
    
    
    
    52,679
    
    
    
    68,662Income (loss) from operations
    
    
    314
    
    
    
    (1,103
    )
    
    
    (1,115
    )
    
    
    7,374Net income (loss)
    
    
    345
    
    
    
    (559
    )
    
    
    (654
    )
    
    
    4,651Net income (loss) per share, diluted
    
    $
    0.02
    
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    0.23Diluted average shares outstanding
    
    
    20,279
    
    
    
    20,229
    
    
    
    20,275
    
    
    
    20,346Number of stores open at end of period
    
    
    123
    
    
    
    124
    
    
    
    127
    
    
    
    132Comparable store sales increase (decrease)
    
    
    (5
    )%
    
    
    (10
    )%
    
    
    (10
    )%
    
    
    (15
    )%2006 (as restated)Net sales
    
    $
    132,918
    
    
    $
    129,815
    
    
    $
    128,936
    
    
    $
    197,837Gross margin
    
    
    52,467
    
    
    
    52,122
    
    
    
    52,315
    
    
    
    69,922Income (loss) from operations
    
    
    (217
    )
    
    
    (3,545
    )
    
    
    (4,859
    )
    
    
    9,535Net income (loss)
    
    
    (161
    )
    
    
    (2,153
    )
    
    
    (3,019
    )
    
    
    4,927Net income (loss) per share, diluted
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    (0.15
    )
    
    $
    0.24Diluted average shares outstanding
    
    
    19,838
    
    
    
    19,857
    
    
    
    19,916
    
    
    
    20,192Number of stores open at end of period
    
    
    113
    
    
    
    114
    
    
    
    117
    
    
    
    122Comparable store sales increase (decrease)
    
    
    (2
    )%
    
    
    3
    %
    
    
    2
    %
    
    
    (3
    )%2005 (as restated)Net sales
    
    $
    122,879
    
    
    $
    113,489
    
    
    $
    115,094
    
    
    $
    187,974Gross margin
    
    
    47,801
    
    
    
    45,387
    
    
    
    46,385
    
    
    
    71,298Income (loss) from operations
    
    
    1,796
    
    
    
    (323
    )
    
    
    (3,235
    )
    
    
    16,296Net income (loss)
    
    
    1,058
    
    
    
    (234
    )
    
    
    (2,096
    )
    
    
    10,173Net income (loss) per share, diluted
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    0.51Diluted average shares outstanding
    
    
    20,209
    
    
    
    19,743
    
    
    
    19,808
    
    
    
    20,105Number of stores open at end of period
    
    
    96
    
    
    
    98
    
    
    
    105
    
    
    
    109Comparable store sales increase (decrease)
    
    
    (2
    )%
    
    
    1
    %
    
    
    (4
    )%
    
    
    (4
    )%
  25




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Liquidity and Capital Resources
       26




---



##### Table of Contents



Payments Due By Period ($000)Contractual Obligations
    
    Total
    
    
    < 1 Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    > 5 YearsLong-term debt (1)
    
    $
    28,099
    
    
    $
    3,750
    
    
    $
    10,097
    
    
    $
    4,176
    
    
    $
    10,076Store and warehouse operating leases (2)
    
    
    299,637
    
    
    
    43,848
    
    
    
    124,834
    
    
    
    61,288
    
    
    
    69,667Vehicle and equipment leases
    
    
    941
    
    
    
    307
    
    
    
    609
    
    
    
    25
    
    
    
    Purchase obligations (3)
    
    
    2,616
    
    
    
    2,616
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax liability (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability for uncertain tax positions (5)
    
    
    2,072
    
    
    
    2,072
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    333,365
    
    
    $
    52,593
    
    
    $
    135,540
    
    
    $
    65,489
    
    
    $
    79,743
 
 (1)
    
    Includes interest calculated using the effective rates of 5.77% and 5.72% as of December 31,
2007. In November 2006, the Company entered into two interest rate swap agreements with
Wachovia Bank. The swaps effectively convert the Companys variable interest rate mortgage
obligations to a fixed rate. See Note 2 of the Notes to Consolidated Financial Statements for
additional information on these swaps.(2)
    
    Most store leases have an average initial term of ten years, with three five-year renewal
options, and provide for predetermined escalation in future minimum annual rent. Rent
payments are amortized over the initial lease term commencing on the date we take possession.
The pro rata portion of scheduled rent escalations has been included in other long-term
liabilities in the balance sheet. Amounts listed in this table only include minimum rent
payments. Most leases
contain provisions that require payment for other items such as real estate taxes, common area
maintenance and insurance. Historically, these additional items have been equal to
approximately 30% of the minimum lease payments. 27




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##### Table of Contents



(3)
    
    Purchase obligations include agreements for goods and services that are enforceable and
legally binding on the Company and that specify all significant terms. As of December 31,
2007, such obligations were primarily for the purchase of information technology hardware and
software.(4)
    
    The amount of deferred income taxes has been excluded from the above table as the timing of
any cash payment is uncertain. See Note 9 of the Notes to Consolidated Financial Statements
for additional information regarding our deferred tax position.(5)
    
    In February 2008, the Company finalized an audit with the Internal Revenue Service that
covered the 2004, 2005 and 2006 tax years which resulted in a payment of tax and interest
totaling $2.1 million. The remaining $1.2 million balance of the Companys liability for
uncertain tax positions was excluded from the table above, as the timing of any cash payments
is uncertain. Critical Accounting Estimates
  Merchandise Inventories.
    Merchandise Inventories
 28




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##### Table of Contents



Impairment of Long-Lived Assets.
 Reserve for Closed Stores.
  Income Taxes. .
  Other Estimates.
 .
 Change in Accounting Principles
 Merchandise Inventories
 29




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##### Table of Contents



Accounting for Uncertainty in Income Taxes
 New Accounting Pronouncements
 The
Fair Value Option for Financial Assets and Financial Liabilities,
 Fair Value Measurements,
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   30




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 A.C. MOORE ARTS & CRAFTS, INC.
 PageReport of Independent Registered Public Accounting Firm
    
    
    32Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    34Consolidated Statements of Operations for each of the Three Years
in the Period Ended December 31, 2007
    
    
    35Consolidated Statements of Changes in Shareholders Equity for each of the
Three Years in the Period Ended December 31, 2007
    
    
    36Consolidated Statements of Cash Flows for each of the Three Years
in the Period Ended December 31, 2007
    
    
    37Notes to Consolidated Financial Statements
    
    
    38
 31




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control -
Integrated Framework
    32




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##### Table of Contents



33




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
  December 31,20062007

    
    
    (as restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    65,195
    
    
    $
    76,120Inventories
    
    
    128,391
    
    
    
    122,450Prepaid expenses and other current assets
    
    
    11,940
    
    
    
    7,653Prepaid and receivable income taxes
    
    
    7,411
    
    
    
    Deferred tax assets
    
    
    7,533
    
    
    
    11,364220,470
    
    
    
    217,587Non-current assets:Property and equipment, net
    
    
    99,328
    
    
    
    95,268Other assets
    
    
    2,092
    
    
    
    1,409$
    321,890
    
    
    $
    314,264LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2,571
    
    
    $
    2,571Trade accounts payable
    
    
    48,780
    
    
    
    48,703Accrued payroll and payroll taxes
    
    
    2,980
    
    
    
    3,011Accrued expenses
    
    
    17,753
    
    
    
    17,336Accrued lease liability
    
    
    1,440
    
    
    
    825Other
current liabilities
    
    
    1,909
    
    
    
    1,93575,433
    
    
    
    74,381Non-current liabilities:Long-term debt
    
    
    19,071
    
    
    
    21,643Deferred tax liability and other
    
    
    8,719
    
    
    
    6,605Accrued lease liability
    
    
    19,067
    
    
    
    19,43046,857
    
    
    
    47,678122,290
    
    
    
    122,059Commitments and contingenciesShareholders equity:Preferred stock, no par value, 10,000,000 shares
authorized; none issued
    
    
    
    
    
    
    Common stock, no par value, 40,000,000 shares authorized;
shares issued and outstanding 20,298,601 and 20,167,098 at December 31, 2007 and 2006, respectively
    
    
    122,921
    
    
    
    118,218Accumulated other comprehensive (loss)
    
    
    (483
    )
    
    
    Retained earnings
    
    
    77,162
    
    
    
    73,987199,600
    
    
    
    192,205$
    321,890
    
    
    $
    314,264
  34




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2006
    
    
    20052007

    
    
    (as restated)
    
    
    (as restated)Net sales
    
    $
    559,693
    
    
    $
    589,506
    
    
    $
    539,436Cost of sales (including buying and distribution costs)
    
    
    330,962
    
    
    
    362,678
    
    
    
    328,565Gross margin
    
    
    228,731
    
    
    
    226,828
    
    
    
    210,871Selling, general and administrative expenses
    
    
    220,218
    
    
    
    219,298
    
    
    
    192,878Costs related to change in management
    
    
    435
    
    
    
    3,376
    
    
    
    Store pre - opening expenses
    
    
    2,608
    
    
    
    3,241
    
    
    
    3,459Income from operations
    
    
    5,470
    
    
    
    913
    
    
    
    14,534Interest expense
    
    
    1,791
    
    
    
    1,547
    
    
    
    1,234Interest (income)
    
    
    (1,997
    )
    
    
    (1,224
    )
    
    
    (784
    )Income before income taxes
    
    
    5,676
    
    
    
    590
    
    
    
    14,084Provision for income taxes
    
    
    1,893
    
    
    
    996
    
    
    
    5,183Net income (loss)
    
    $
    3,783
    
    
    $
    (406
    )
    
    $
    8,901Basic net income (loss) per share
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.45Diluted net income (loss) per share
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.44
  35




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
  AccumulatedOtherCommon
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Earnings
    
    
    (Loss)
    
    
    TotalBalance, December 31, 2004 (as previously reported)
    
    
    19,655,100
    
    
    $
    109,131
    
    
    $
    77,084
    
    
    
    
    
    
    $
    186,215Cumulative adjustment, correction of accounting
error (Note 1)
    
    
    
    
    
    
    
    
    
    
    (11,592
    )
    
    
    
    
    
    
    (11,592
    )Balance, December 31, 2004 (as restated)
    
    
    19,655,100
    
    
    $
    109,131
    
    
    $
    65,492
    
    
    
    
    
    
    $
    174,623Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    8,901
    
    
    
    
    
    
    
    8,901Exercise of stock options
    
    
    161,674
    
    
    
    1,023
    
    
    
    
    
    
    
    
    
    
    
    1,023Tax benefit from exercise of stock options
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    
    
    
    
    1,229Balance, December 31, 2005 (as restated)
    
    
    19,816,774
    
    
    $
    111,383
    
    
    $
    74,393
    
    
    $
    
    
    
    $
    185,776Net (loss) (as restated)
    
    
    
    
    
    
    
    
    
    
    (406
    )
    
    

    
    
    
    
    (406
    )Exercise of stock options
    
    
    350,324
    
    
    
    2,152
    
    
    
    
    
    
    
    
    
    
    
    2,152Tax benefit from exercise of stock options
    
    
    
    
    
    
    1,606
    
    
    
    
    
    
    
    
    
    
    
    1,606Stock-based compensation expense
    
    
    
    
    
    
    3,077
    
    
    
    
    
    
    
    
    
    
    
    3,077Balance, December 31, 2006 (as restated)
    
    
    20,167,098
    
    
    $
    118,218
    
    
    $
    73,987
    
    
    $
    
    
    
    $
    192,205Net income
    
    
    
    
    
    
    
    
    
    
    3,783
    
    
    
    
    
    
    
    3,783Unrealized
(loss), net of taxes of $322 (Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (483
    )
    
    
    (483
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,300Exercise of stock options
    
    
    131,503
    
    
    
    1,626
    
    
    
    
    
    
    
    
    
    
    
    1,626Tax benefit from exercise of stock options
    
    
    
    
    
    
    433
    
    
    
    
    
    
    
    
    
    
    
    433Stock-based compensation expense
    
    
    
    
    
    
    2,644
    
    
    
    
    
    
    
    
    
    
    
    2,644Change in accounting
principle (Note 9)
    
    
    
    
    
    
    
    
    
    
    (608
    )
    
    
    
    
    
    
    (608
    )Balance, December 31, 2007
    
    
    20,298,601
    
    
    $
    122,921
    
    
    $
    77,162
    
    
    $
    (483
    )
    
    $
    199,600
  36




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2006
    
    
    20052007

    
    
    (as restated)
    
    
    (as restated)Cash flows from operating activities:Net income (loss)
    
    $
    3,783
    
    
    
    (406
    )
    
    $
    8,901Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    14,079
    
    
    
    12,281
    
    
    
    10,769Stock-based compensation expense
    
    
    2,644
    
    
    
    3,077
    
    
    
    Loss on disposal of assets
    
    
    883
    
    
    
    83
    
    
    
    438Provision for (benefit of) deferred income taxes, net
    
    
    5,033
    
    
    
    (4,449
    )
    
    
    (1,327
    )Changes in assets and liabilities:Inventories
    
    
    (5,941
    )
    
    
    9,848
    
    
    
    (7,830
    )Prepaid expenses and other current assets
    
    
    (4,770
    )
    
    
    (753
    )
    
    
    755Income taxes receivable
    
    
    (6,928
    )
    
    
    
    
    
    
    Accounts payable, accrued payroll and payroll taxes and accrued expenses
    
    
    463
    
    
    
    8,633
    
    
    
    (2,118
    )Accrued lease liability
    
    
    252
    
    
    
    2,928
    
    
    
    3,532Income taxes payable
    
    
    (205
    )
    
    
    256
    
    
    
    1,160Other
    
    
    (683
    )
    
    
    (2
    )
    
    
    340Net cash provided by operating activities
    
    
    8,610
    
    
    
    31,496
    
    
    
    14,620Cash flows from investing activities:Capital expenditures
    
    
    (19,022
    )
    
    
    (19,534
    )
    
    
    (16,086
    )Proceeds from maturation of marketable securities
    
    
    
    
    
    
    5,224
    
    
    
    22,570Investment in marketable securities
    
    
    
    
    
    
    
    
    
    
    (10,236
    )Cash flows (used in) investing activities
    
    
    (19,022
    )
    
    
    (14,310
    )
    
    
    (3,752
    )Cash flows from financing activities:Exercise of stock options
    
    
    1,626
    
    
    
    2,152
    
    
    
    1,023Tax benefit of stock options
    
    
    433
    
    
    
    1,606
    
    
    
    Repayment of long-term debt
    
    
    (2,572
    )
    
    
    (2,572
    )
    
    
    (2,571
    )Net cash provided by (used in) financing activities
    
    
    (513
    )
    
    
    1,186
    
    
    
    (1,548
    )Net (decrease) increase in cash and cash equivalents
    
    
    (10,925
    )
    
    
    18,372
    
    
    
    9,320Cash and cash equivalents at beginning of period
    
    
    76,120
    
    
    
    57,748
    
    
    
    48,428Cash and cash equivalents at end of period
    
    $
    65,195
    
    
    $
    76,120
    
    
    $
    57,748Supplemental cash flow information:Cash paid during the year for:Interest
    
    $
    1,343
    
    
    $
    1,538
    
    
    $
    1,197Income taxes
    
    $
    1,898
    
    
    $
    3,639
    
    
    $
    5,345Non-cash items:Tax benefit of stock options
    
    $
    433
    
    
    $
    1,606
    
    
    $
    1,229
  37




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Restatement of Consolidated Financial Statements
   Correction of Retail Inventory Method
   Impact of Correction to Retail Inventory Method
 Six MonthsEnded June 30,
    
    Years Ended Decmber 31,2007
    
    2006
    
    2005(unaudited)Cost of sales
    
    $
    702
    
    
    $
    3,043
    
    
    $
    1,437(Loss) before taxes
    
    
    (702
    )
    
    
    (3,043
    )
    
    
    (1,437
    )Tax benefit
    
    
    259
    
    
    
    857
    
    
    
    610Net loss
    
    
    (443
    )
    
    
    (2,186
    )
    
    
    (827
    )
 38




---



##### Table of Contents



Recognition of Internal Transfer Costs Included in the Value of Imported Merchandise
   Impact of Correction to Internal Transfer Costs in Ending Inventory
 Years Ended December 31,2006
    
    2005Cost of sales
    
    $
    910
    
    
    $
    547(Loss) before taxes
    
    
    (910
    )
    
    
    (547
    )Tax benefit
    
    
    256
    
    
    
    233Net (loss)
    
    
    (654
    )
    
    
    (314
    )
 Effects of Restatement
  39




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
    
    For the Years Ended December 31,Six Months Ended June 30, 2007
    
    2006
    
    2005As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of InventoryReported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedNet sales
    
    $
    259,819
    
    
    $
    
    
    
    $
    259,819
    
    
    $
    589,506
    
    
    $
    
    
    
    $
    589,506
    
    
    $
    539,436
    
    
    $
    
    
    
    $
    539,436Cost of sales
    
    
    151,727
    
    
    
    702
    
    
    
    152,429
    
    
    
    358,725
    
    
    
    3,953
    
    
    
    362,678
    
    
    
    326,581
    
    
    
    1,984
    
    
    
    328,565Gross margin
    
    
    108,092
    
    
    
    (702
    )
    
    
    107,390
    
    
    
    230,781
    
    
    
    (3,953
    )
    
    
    226,828
    
    
    
    212,855
    
    
    
    (1,984
    )
    
    
    210,871Selling, general and administrative expenses
    
    
    107,253
    
    
    
    
    
    
    
    107,253
    
    
    
    219,298
    
    
    
    
    
    
    
    219,298
    
    
    
    192,878
    
    
    
    
    
    
    
    192,878Costs related to change in management
    
    
    435
    
    
    
    
    
    
    
    435
    
    
    
    3,376
    
    
    
    
    
    
    
    3,376
    
    
    
    
    
    
    
    
    
    
    
    Store pre-opening expenses
    
    
    491
    
    
    
    
    
    
    
    491
    
    
    
    3,241
    
    
    
    
    
    
    
    3,241
    
    
    
    3,459
    
    
    
    
    
    
    
    3,459Income (loss) from operations
    
    
    (87
    )
    
    
    (702
    )
    
    
    (789
    )
    
    
    4,866
    
    
    
    (3,953
    )
    
    
    913
    
    
    
    16,518
    
    
    
    (1,984
    )
    
    
    14,534Interest expense
    
    
    711
    
    
    
    
    
    
    
    711
    
    
    
    1,547
    
    
    
    
    
    
    
    1,547
    
    
    
    1,234
    
    
    
    
    
    
    
    1,234Interest (income)
    
    
    (1,161
    )
    
    
    
    
    
    
    (1,161
    )
    
    
    (1,224
    )
    
    
    
    
    
    
    (1,224
    )
    
    
    (784
    )
    
    
    
    
    
    
    (784
    )Income (loss) before income taxes
    
    
    363
    
    
    
    (702
    )
    
    
    (339
    )
    
    
    4,543
    
    
    
    (3,953
    )
    
    
    590
    
    
    
    16,068
    
    
    
    (1,984
    )
    
    
    14,084Provision (benefit) for income taxes
    
    
    134
    
    
    
    (259
    )
    
    
    (125
    )
    
    
    2,109
    
    
    
    (1,113
    )
    
    
    996
    
    
    
    6,026
    
    
    
    (843
    )
    
    
    5,183Net income (loss)
    
    $
    229
    
    
    $
    (443
    )
    
    $
    (214
    )
    
    $
    2,434
    
    
    $
    (2,840
    )
    
    $
    (406
    )
    
    $
    10,042
    
    
    $
    (1,141
    )
    
    $
    8,901Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    0.12
    
    
    $
    (0.14
    )
    
    $
    (0.02
    )
    
    $
    0.51
    
    
    $
    (0.06
    )
    
    $
    0.45Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    0.12
    
    
    $
    (0.14
    )
    
    $
    (0.02
    )
    
    $
    0.50
    
    
    $
    (0.06
    )
    
    $
    0.44Basic weighted average shares outstanding
    
    
    20,207
    
    
    
    
    
    
    
    20,207
    
    
    
    19,929
    
    
    
    
    
    
    
    19,929
    
    
    
    19,758
    
    
    
    
    
    
    
    19,758Diluted weighted average shares outstanding
    
    
    20,338
    
    
    
    
    
    
    
    20,207
    
    
    
    20,019
    
    
    
    
    
    
    
    19,929
    
    
    
    20,149
    
    
    
    
    
    
    
    20,149
 40




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
 March 31, 2007
    
    June 30, 2007As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of InventoryReported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    67,757
    
    
    $
    
    
    
    $
    67,757
    
    
    $
    54,564
    
    
    $
    
    
    
    $
    54,564Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inventories
    
    
    147,223
    
    
    
    (24,667
    )
    
    
    122,556
    
    
    
    150,881
    
    
    
    (25,003
    )
    
    
    125,878Prepaid expenses and other current assets
    
    
    8,741
    
    
    
    
    
    
    
    8,741
    
    
    
    7,364
    
    
    
    
    
    
    
    7,364Prepaid income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    154Deferred tax assets
    
    
    3,000
    
    
    
    8,867
    
    
    
    11,867
    
    
    
    3,224
    
    
    
    8,987
    
    
    
    12,211226,721
    
    
    
    (15,800
    )
    
    
    210,921
    
    
    
    216,187
    
    
    
    (16,016
    )
    
    
    200,171Non-current assets:Property and equipment, net
    
    
    96,882
    
    
    
    
    
    
    
    96,882
    
    
    
    95,795
    
    
    
    
    
    
    
    95,795Other assets
    
    
    1,318
    
    
    
    
    
    
    
    1,318
    
    
    
    1,763
    
    
    
    
    
    
    
    1,763$
    324,921
    
    
    $
    (15,800
    )
    
    $
    309,121
    
    
    $
    313,745
    
    
    $
    (16,016
    )
    
    $
    297,729LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2,571
    
    
    $
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    $
    
    
    
    $
    2,571Trade accounts payable
    
    
    47,045
    
    
    
    
    
    
    
    47,045
    
    
    
    38,194
    
    
    
    
    
    
    
    38,194Accrued payroll and payroll taxes
    
    
    2,884
    
    
    
    
    
    
    
    2,884
    
    
    
    2,833
    
    
    
    
    
    
    
    2,833Accrued expenses
    
    
    15,030
    
    
    
    
    
    
    
    15,030
    
    
    
    13,119
    
    
    
    
    
    
    
    13,119Accrued lease liability
    
    
    756
    
    
    
    
    
    
    
    756
    
    
    
    1,313
    
    
    
    
    
    
    
    1,313Income taxes payable
    
    
    617
    
    
    
    
    
    
    
    617
    
    
    
    
    
    
    
    
    
    
    
    68,903
    
    
    
    
    
    
    
    68,903
    
    
    
    58,030
    
    
    
    
    
    
    
    58,030Non-current liabilitiesLong-term debt
    
    
    21,000
    
    
    
    
    
    
    
    21,000
    
    
    
    20,357
    
    
    
    
    
    
    
    20,357Deferred tax liability and other
    
    
    6,867
    
    
    
    
    
    
    
    6,867
    
    
    
    6,590
    
    
    
    
    
    
    
    6,590Accrued lease liability
    
    
    19,184
    
    
    
    
    
    
    
    19,184
    
    
    
    18,366
    
    
    
    
    
    
    
    18,36647,051
    
    
    
    
    
    
    
    47,051
    
    
    
    45,313
    
    
    
    
    
    
    
    45,313115,954
    
    
    
    
    
    
    
    115,954
    
    
    
    103,343
    
    
    
    
    
    
    
    103,343Commitments and contingenciesShareholders equity:Preferred stock, no par value, 10,000,000 shares
authorized; none issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value, 40,000,000 shares authorized;
issued and outstanding 20,188,466 and 20,251,633
shares at March 31, 2007 and June 30, 2007 respectively
    
    
    119,443
    
    
    
    
    
    
    
    119,443
    
    
    
    120,992
    
    
    
    
    
    
    
    120,992Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    229Retained earnings
    
    
    89,524
    
    
    
    (15,800
    )
    
    
    73,724
    
    
    
    89,181
    
    
    
    (16,016
    )
    
    
    73,165208,967
    
    
    
    (15,800
    )
    
    
    193,167
    
    
    
    210,402
    
    
    
    (16,016
    )
    
    
    194,386$
    324,921
    
    
    $
    (15,800
    )
    
    $
    309,121
    
    
    $
    313,745
    
    
    $
    (16,016
    )
    
    $
    297,729
 41




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31, 2007
    
    Three Months Ended June 30, 2007As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory2007
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedNet sales
    
    $
    135,380
    
    
    $
    
    
    
    $
    135,380
    
    
    $
    124,439
    
    
    $
    
    
    
    $
    124,439Cost of sales
    
    
    79,703
    
    
    
    366
    
    
    
    80,069
    
    
    
    72,024
    
    
    
    336
    
    
    
    72,360Gross margin
    
    
    55,677
    
    
    
    (366
    )
    
    
    55,311
    
    
    
    52,415
    
    
    
    (336
    )
    
    
    52,079Selling, general and administrative expenses
    
    
    54,393
    
    
    
    
    
    
    
    54,393
    
    
    
    52,860
    
    
    
    
    
    
    
    52,860Costs related to change in management
    
    
    290
    
    
    
    
    
    
    
    290
    
    
    
    145
    
    
    
    
    
    
    
    145Store pre-opening expenses
    
    
    314
    
    
    
    
    
    
    
    314
    
    
    
    177
    
    
    
    
    
    
    
    177Income (loss) from operations
    
    
    680
    
    
    
    (366
    )
    
    
    314
    
    
    
    (767
    )
    
    
    (336
    )
    
    
    (1,103
    )Interest expense
    
    
    352
    
    
    
    
    
    
    
    352
    
    
    
    359
    
    
    
    
    
    
    
    359Interest (income)
    
    
    (585
    )
    
    
    
    
    
    
    (585
    )
    
    
    (576
    )
    
    
    
    
    
    
    (576
    )Income (loss) before income taxes
    
    
    913
    
    
    
    (366
    )
    
    
    547
    
    
    
    (550
    )
    
    
    (336
    )
    
    
    (886
    )Provision
for (benefit of) income taxes
    
    
    341
    
    
    
    (139
    )
    
    
    202
    
    
    
    (207
    )
    
    
    (120
    )
    
    
    (327
    )Net income (loss)
    
    $
    572
    
    
    $
    (227
    )
    
    $
    345
    
    
    $
    (343
    )
    
    $
    (216
    )
    
    $
    (559
    )Basic net income (loss) per share
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )Diluted net income (loss) per share
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )Basic weighted average shares outstanding
    
    
    20,180
    
    
    
    
    
    
    
    20,180
    
    
    
    20,229
    
    
    
    
    
    
    
    20,229Diluted weighted average shares outstanding
    
    
    20,279
    
    
    
    
    
    
    
    20,279
    
    
    
    20,229
    
    
    
    
    
    
    
    20,229
 42




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended March 31,
    
    Six Months Ended June 30,As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory2007
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedCash flows from operating activities:Net income (loss)
    
    $
    572
    
    
    
    (227
    )
    
    $
    345
    
    
    $
    229
    
    
    
    (443
    )
    
    $
    (214
    )Adjustments to reconcile net income to net cash provided by operating
activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    3,473
    
    
    
    
    
    
    
    3,473
    
    
    
    6,920
    
    
    
    
    
    
    
    6,920Stock-based compensation expense
    
    
    981
    
    
    
    
    
    
    
    981
    
    
    
    1,432
    
    
    
    
    
    
    
    1,432Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for (benefit of) deferred income taxes, net
    
    
    (710
    )
    
    
    (139
    )
    
    
    (849
    )
    
    
    (1,345
    )
    
    
    (259
    )
    
    
    (1,604
    )Changes in assets and liabilities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inventories
    
    
    (472
    )
    
    
    366
    
    
    
    (106
    )
    
    
    (4,130
    )
    
    
    702
    
    
    
    (3,428
    )Prepaid expenses and other current assets
    
    
    (1,088
    )
    
    
    
    
    
    
    (1,088
    )
    
    
    289
    
    
    
    
    
    
    
    289Accounts payable, accrued payroll and payroll taxes and accrued expenses
    
    
    (4,091
    )
    
    
    
    
    
    
    (4,091
    )
    
    
    (14,904
    )
    
    
    
    
    
    
    (14,904
    )Accrued lease liability
    
    
    (315
    )
    
    
    
    
    
    
    (315
    )
    
    
    (576
    )
    
    
    
    
    
    
    (576
    )Income taxes payable
    
    
    (1,318
    )
    
    
    
    
    
    
    (1,318
    )
    
    
    (2,089
    )
    
    
    
    
    
    
    (2,089
    )Other
    
    
    91
    
    
    
    
    
    
    
    91
    
    
    
    9
    
    
    
    
    
    
    
    9Net cash (used in) operating activities
    
    
    (2,877
    )
    
    
    
    
    
    
    (2,877
    )
    
    
    (14,165
    )
    
    
    
    
    
    
    (14,165
    )Cash flows from investing activities:Capital expenditures
    
    
    (5,087
    )
    
    
    
    
    
    
    (5,087
    )
    
    
    (7,447
    )
    
    
    
    
    
    
    (7,447
    )Cash flows (used in) investing activities
    
    
    (5,087
    )
    
    
    
    
    
    
    (5,087
    )
    
    
    (7,447
    )
    
    
    
    
    
    
    (7,447
    )Cash flows from financing activities:Exercise of stock options
    
    
    149
    
    
    
    
    
    
    
    149
    
    
    
    1,056
    
    
    
    
    
    
    
    1,056Tax benefit of stock options
    
    
    95
    
    
    
    
    
    
    
    95
    
    
    
    286
    
    
    
    
    
    
    
    286Repayment of long-term debt
    
    
    (643
    )
    
    
    
    
    
    
    (643
    )
    
    
    (1,286
    )
    
    
    
    
    
    
    (1,286
    )Net cash provided by (used in) by financing activities
    
    
    (399
    )
    
    
    
    
    
    
    (399
    )
    
    
    56
    
    
    
    
    
    
    
    56Net (decrease) in cash and cash equivalents
    
    
    (8,363
    )
    
    
    
    
    
    
    (8,363
    )
    
    
    (21,556
    )
    
    
    
    
    
    
    (21,556
    )Cash and cash equivalents at beginning of period
    
    
    76,120
    
    
    
    
    
    
    
    76,120
    
    
    
    76,120
    
    
    
    
    
    
    
    76,120Cash and cash equivalents at end of period
    
    $
    67,757
    
    
    $
    
    
    
    $
    67,757
    
    
    $
    54,564
    
    
    $
    
    
    
    $
    54,564
 43




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
 (unaudited)
    
    (unaudited)
    
    (unaudited)March 31, 2006
    
    June 30, 2006
    
    September 30, 2006
    
    December 31, 2006As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of InventoryReported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,853
    
    
    
    
    
    
    $
    45,853
    
    
    $
    24,716
    
    
    
    
    
    
    $
    24,716
    
    
    $
    22,224
    
    
    
    
    
    
    $
    22,224
    
    
    $
    76,120
    
    
    $
    
    
    
    $
    76,120Marketable securities
    
    
    1,500
    
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inventories
    
    
    164,901
    
    
    
    (21,034
    )
    
    
    143,867
    
    
    
    176,068
    
    
    
    (21,704
    )
    
    
    154,364
    
    
    
    173,754
    
    
    
    (22,370
    )
    
    
    151,384
    
    
    
    146,751
    
    
    
    (24,301
    )
    
    
    122,450Prepaid expenses and other current assets
    
    
    5,546
    
    
    
    
    
    
    
    5,546
    
    
    
    5,688
    
    
    
    
    
    
    
    5,688
    
    
    
    4,991
    
    
    
    
    
    
    
    4,991
    
    
    
    7,653
    
    
    
    
    
    
    
    7,653Prepaid income taxes
    
    
    478
    
    
    
    
    
    
    
    478
    
    
    
    2,134
    
    
    
    
    
    
    
    2,134
    
    
    
    4,533
    
    
    
    
    
    
    
    4,533
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax assets
    
    
    1,334
    
    
    
    7,890
    
    
    
    9,224
    
    
    
    981
    
    
    
    8,176
    
    
    
    9,157
    
    
    
    845
    
    
    
    8,468
    
    
    
    9,313
    
    
    
    2,636
    
    
    
    8,728
    
    
    
    11,364219,612
    
    
    
    (13,144
    )
    
    
    206,468
    
    
    
    209,587
    
    
    
    (13,528
    )
    
    
    196,059
    
    
    
    206,347
    
    
    
    (13,902
    )
    
    
    192,445
    
    
    
    233,160
    
    
    
    (15,573
    )
    
    
    217,587Non-current liabilitiesProperty and equipment, net
    
    
    89,748
    
    
    
    
    
    
    
    89,748
    
    
    
    91,834
    
    
    
    
    
    
    
    91,834
    
    
    
    93,759
    
    
    
    
    
    
    
    93,759
    
    
    
    95,268
    
    
    
    
    
    
    
    95,268Other assets
    
    
    1,367
    
    
    
    
    
    
    
    1,367
    
    
    
    1,390
    
    
    
    
    
    
    
    1,390
    
    
    
    1,471
    
    
    
    
    
    
    
    1,471
    
    
    
    1,409
    
    
    
    
    
    
    
    1,409$
    310,727
    
    
    $
    (13,144
    )
    
    $
    297,583
    
    
    $
    302,811
    
    
    $
    (13,528
    )
    
    $
    289,283
    
    
    $
    301,577
    
    
    $
    (13,902
    )
    
    $
    287,675
    
    
    $
    329,837
    
    
    $
    (15,573
    )
    
    $
    314,264LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    $
    
    
    
    $
    2,571Trade accounts payable
    
    
    47,998
    
    
    
    
    
    
    
    47,998
    
    
    
    41,002
    
    
    
    
    
    
    
    41,002
    
    
    
    37,973
    
    
    
    
    
    
    
    37,973
    
    
    
    48,703
    
    
    
    
    
    
    
    48,703Accrued payroll and payroll taxes
    
    
    2,586
    
    
    
    
    
    
    
    2,586
    
    
    
    2,480
    
    
    
    
    
    
    
    2,480
    
    
    
    2,507
    
    
    
    
    
    
    
    2,507
    
    
    
    3,011
    
    
    
    
    
    
    
    3,011Accrued expenses
    
    
    9,039
    
    
    
    
    
    
    
    9,039
    
    
    
    9,939
    
    
    
    
    
    
    
    9,939
    
    
    
    12,262
    
    
    
    
    
    
    
    12,262
    
    
    
    17,336
    
    
    
    
    
    
    
    17,336Accrued lease liability
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    1,143
    
    
    
    
    
    
    
    1,143
    
    
    
    1,143
    
    
    
    
    
    
    
    1,143
    
    
    
    825
    
    
    
    
    
    
    
    825Other
current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,935
    
    
    
    
    
    
    
    1,93562,259
    
    
    
    
    
    
    
    62,259
    
    
    
    57,135
    
    
    
    
    
    
    
    57,135
    
    
    
    56,456
    
    
    
    
    
    
    
    56,456
    
    
    
    74,381
    
    
    
    
    
    
    
    74,381Non-current liabilitiesLong-term debt
    
    
    23,572
    
    
    
    
    
    
    
    23,572
    
    
    
    22,929
    
    
    
    
    
    
    
    22,929
    
    
    
    22,286
    
    
    
    
    
    
    
    22,286
    
    
    
    21,643
    
    
    
    
    
    
    
    21,643Deferred tax liability and other
    
    
    7,925
    
    
    
    
    
    
    
    7,925
    
    
    
    7,430
    
    
    
    
    
    
    
    7,430
    
    
    
    7,460
    
    
    
    
    
    
    
    7,460
    
    
    
    6,605
    
    
    
    
    
    
    
    6,605Accrued lease liability
    
    
    17,200
    
    
    
    
    
    
    
    17,200
    
    
    
    16,259
    
    
    
    
    
    
    
    16,259
    
    
    
    17,025
    
    
    
    
    
    
    
    17,025
    
    
    
    19,430
    
    
    
    
    
    
    
    19,43048,697
    
    
    
    
    
    
    
    48,697
    
    
    
    46,618
    
    
    
    
    
    
    
    46,618
    
    
    
    46,771
    
    
    
    
    
    
    
    46,771
    
    
    
    47,678
    
    
    
    
    
    
    
    47,678110,956
    
    
    
    
    
    
    
    110,956
    
    
    
    103,753
    
    
    
    
    
    
    
    103,753
    
    
    
    103,227
    
    
    
    
    
    
    
    103,227
    
    
    
    122,059
    
    
    
    
    
    
    
    122,059Commitments and contingenciesShareholders equity:Preferred stock, no par value, 10,000,000 shares
authorized; none issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value, 40,000,000 shares authorized;
issued and outstanding 19,856,959; 19,857,896; 19,998,946;
and 20,167,098 shares at March 31, June 30, September 30
and December 31, 2006, respectively
    
    
    112,395
    
    
    
    
    
    
    
    112,395
    
    
    
    113,451
    
    
    
    
    
    
    
    113,451
    
    
    
    115,389
    
    
    
    
    
    
    
    115,389
    
    
    
    118,218
    
    
    
    
    
    
    
    118,218Retained earnings
    
    
    87,376
    
    
    
    (13,144
    )
    
    
    74,232
    
    
    
    85,607
    
    
    
    (13,528
    )
    
    
    72,079
    
    
    
    82,961
    
    
    
    (13,902
    )
    
    
    69,059
    
    
    
    89,560
    
    
    
    (15,573
    )
    
    
    73,987199,771
    
    
    
    (13,144
    )
    
    
    186,627
    
    
    
    199,058
    
    
    
    (13,528
    )
    
    
    185,530
    
    
    
    198,350
    
    
    
    (13,902
    )
    
    
    184,448
    
    
    
    207,778
    
    
    
    (15,573
    )
    
    
    192,205$
    310,727
    
    
    $
    (13,144
    )
    
    $
    297,583
    
    
    $
    302,811
    
    
    $
    (13,528
    )
    
    $
    289,283
    
    
    $
    301,577
    
    
    $
    (13,902
    )
    
    $
    287,675
    
    
    $
    329,837
    
    
    $
    (15,573
    )
    
    $
    314,264
 44




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31, 2006
    
    Three Months Ended June 30, 2006
    
    Three Months Ended September 30, 2006
    
    Three Months Ended December 31, 2006As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of InventoryReported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedNet sales
    
    $
    132,918
    
    
    $
    
    
    
    $
    132,918
    
    
    $
    129,815
    
    
    $
    
    
    
    $
    129,815
    
    
    $
    128,936
    
    
    $
    
    
    
    $
    128,936
    
    
    $
    197,837
    
    
    $
    
    
    
    $
    197,837Cost of sales
    
    
    79,765
    
    
    
    686
    
    
    
    80,451
    
    
    
    77,023
    
    
    
    670
    
    
    
    77,693
    
    
    
    75,955
    
    
    
    666
    
    
    
    76,621
    
    
    
    125,984
    
    
    
    1,931
    
    
    
    127,915Gross margin
    
    
    53,153
    
    
    
    (686
    )
    
    
    52,467
    
    
    
    52,792
    
    
    
    (670
    )
    
    
    52,122
    
    
    
    52,981
    
    
    
    (666
    )
    
    
    52,315
    
    
    
    71,853
    
    
    
    (1,931
    )
    
    
    69,922Selling,
general and administrative expenses
    
    
    51,844
    
    
    
    
    
    
    
    51,844
    
    
    
    53,185
    
    
    
    
    
    
    
    53,185
    
    
    
    55,356
    
    
    
    
    
    
    
    55,356
    
    
    
    58,913
    
    
    
    
    
    
    
    58,913Costs related to change in management
    
    
    216
    
    
    
    
    
    
    
    216
    
    
    
    1,811
    
    
    
    
    
    
    
    1,811
    
    
    
    888
    
    
    
    
    
    
    
    888
    
    
    
    458
    
    
    
    
    
    
    
    458Store pre-opening expenses
    
    
    624
    
    
    
    
    
    
    
    624
    
    
    
    671
    
    
    
    
    
    
    
    671
    
    
    
    930
    
    
    
    
    
    
    
    930
    
    
    
    1,016
    
    
    
    
    
    
    
    1,016Income (loss) from operations
    
    
    469
    
    
    
    (686
    )
    
    
    (217
    )
    
    
    (2,875
    )
    
    
    (670
    )
    
    
    (3,545
    )
    
    
    (4,193
    )
    
    
    (666
    )
    
    
    (4,859
    )
    
    
    11,466
    
    
    
    (1,931
    )
    
    
    9,535Interest expense
    
    
    368
    
    
    
    
    
    
    
    368
    
    
    
    390
    
    
    
    
    
    
    
    390
    
    
    
    403
    
    
    
    
    
    
    
    403
    
    
    
    386
    
    
    
    
    
    
    
    386Interest (income)
    
    
    (315
    )
    
    
    
    
    
    
    (315
    )
    
    
    (317
    )
    
    
    
    
    
    
    (317
    )
    
    
    (187
    )
    
    
    
    
    
    
    (187
    )
    
    
    (404
    )
    
    
    
    
    
    
    (404
    )Income
(loss) before income taxes
    
    
    416
    
    
    
    (686
    )
    
    
    (270
    )
    
    
    (2,948
    )
    
    
    (670
    )
    
    
    (3,618
    )
    
    
    (4,409
    )
    
    
    (666
    )
    
    
    (5,075
    )
    
    
    11,484
    
    
    
    (1,931
    )
    
    
    9,553Provision
for (benefit of) income taxes
    
    
    166
    
    
    
    (275
    )
    
    
    (109
    )
    
    
    (1,179
    )
    
    
    (286
    )
    
    
    (1,465
    )
    
    
    (1,764
    )
    
    
    (291
    )
    
    
    (2,055
    )
    
    
    4,886
    
    
    
    (260
    )
    
    
    4,626Net income (loss)
    
    $
    250
    
    
    $
    (411
    )
    
    $
    (161
    )
    
    $
    (1,769
    )
    
    $
    (384
    )
    
    $
    (2,153
    )
    
    $
    (2,645
    )
    
    $
    (375
    )
    
    $
    (3,020
    )
    
    $
    6,598
    
    
    $
    (1,671
    )
    
    $
    4,927Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.09
    )
    
    $
    (0.02
    )
    
    $
    (0.11
    )
    
    $
    (0.13
    )
    
    $
    (0.02
    )
    
    $
    (0.15
    )
    
    $
    0.33
    
    
    $
    (0.08
    )
    
    $
    0.25Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.09
    )
    
    $
    (0.02
    )
    
    $
    (0.11
    )
    
    $
    (0.13
    )
    
    $
    (0.02
    )
    
    $
    (0.15
    )
    
    $
    0.33
    
    
    $
    (0.08
    )
    
    $
    0.24Basic weighted average shares outstanding
    
    
    19,838
    
    
    
    
    
    
    
    19,838
    
    
    
    19,857
    
    
    
    
    
    
    
    19,857
    
    
    
    19,916
    
    
    
    
    
    
    
    19,916
    
    
    
    20,086
    
    
    
    
    
    
    
    20,086Diluted weighted average shares outstanding
    
    
    20,070
    
    
    
    
    
    
    
    19,838
    
    
    
    19,857
    
    
    
    
    
    
    
    19,857
    
    
    
    19,916
    
    
    
    
    
    
    
    19,916
    
    
    
    20,192
    
    
    
    
    
    
    
    20,192
 45




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 (unaudited)
    
    (unaudited)
    
    (unaudited)Three Months Ended March 31, 2006
    
    Six Months Ended June 30, 2006
    
    Nine Months Ended September 30, 2006
    
    Twelve Months Ended December 31, 2006AsPreviouslyReported
    
    Correctionof InventoryValuation
    
    As Restated
    
    AsPreviouslyReported
    
    Correctionof InventoryValuation
    
    As Restated
    
    AsPreviouslyReported
    
    Correctionof InventoryValuation
    
    As Restated
    
    AsPreviouslyReported
    
    Correctionof InventoryValuation
    
    As RestatedCash flows from operating activities:Net income (loss)
    
    $
    250
    
    
    
    (411
    )
    
    $
    (161
    )
    
    $
    (1,519
    )
    
    
    (794
    )
    
    $
    (2,313
    )
    
    $
    (4,165
    )
    
    
    (1,168
    )
    
    $
    (5,333
    )
    
    $
    2,434
    
    
    
    (2,840
    )
    
    $
    (406
    )Adjustments to reconcile net income to net cash provided by operating activities:
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    2,873
    
    
    
    
    
    
    
    2,873
    
    
    
    5,850
    
    
    
    
    
    
    
    5,850
    
    
    
    8,930
    
    
    
    
    
    
    
    8,930
    
    
    
    12,281
    
    
    
    
    
    
    
    12,281Stock-based compensation expense
    
    
    699
    
    
    
    
    
    
    
    699
    
    
    
    1,734
    
    
    
    
    
    
    
    1,734
    
    
    
    2,528
    
    
    
    
    
    
    
    2,528
    
    
    
    3,077
    
    
    
    
    
    
    
    3,077Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Provision for (benefit of) deferred income taxes, net
    
    
    (714
    )
    
    
    (275
    )
    
    
    (989
    )
    
    
    (857
    )
    
    
    (562
    )
    
    
    (1,419
    )
    
    
    (690
    )
    
    
    (853
    )
    
    
    (1,543
    )
    
    
    (3,336
    )
    
    
    (1,113
    )
    
    
    (4,449
    )Changes in assets and liabilities:Inventories
    
    
    (12,255
    )
    
    
    686
    
    
    
    (11,569
    )
    
    
    (23,422
    )
    
    
    1,356
    
    
    
    (22,066
    )
    
    
    (21,108
    )
    
    
    2,022
    
    
    
    (19,086
    )
    
    
    5,895
    
    
    
    3,953
    
    
    
    9,848Prepaid expenses and other current assets
    
    
    1,354
    
    
    
    
    
    
    
    1,354
    
    
    
    (922
    )
    
    
    
    
    
    
    (922
    )
    
    
    1,909
    
    
    
    
    
    
    
    1,909
    
    
    
    (753
    )
    
    
    
    
    
    
    (753
    )Accounts payable, accrued payroll and payroll taxes and accrued expenses
    
    
    (794
    )
    
    
    
    
    
    
    (794
    )
    
    
    (6,996
    )
    
    
    
    
    
    
    (6,996
    )
    
    
    (7,675
    )
    
    
    
    
    
    
    (7,675
    )
    
    
    8,633
    
    
    
    
    
    
    
    8,633Accrued lease liability
    
    
    (62
    )
    
    
    
    
    
    
    (62
    )
    
    
    75
    
    
    
    
    
    
    
    75
    
    
    
    842
    
    
    
    
    
    
    
    842
    
    
    
    2,928
    
    
    
    
    
    
    
    2,928Income taxes payable
    
    
    (2,157
    )
    
    
    
    
    
    
    (2,157
    )
    
    
    (1,679
    )
    
    
    
    
    
    
    (1,679
    )
    
    
    (6,212
    )
    
    
    
    
    
    
    (6,212
    )
    
    
    256
    
    
    
    
    
    
    
    256Other
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    17
    
    
    
    
    
    
    
    17
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Net cash provided by (used in) operating activities
    
    
    (10,766
    )
    
    
    
    
    
    
    (10,766
    )
    
    
    (27,719
    )
    
    
    
    
    
    
    (27,719
    )
    
    
    (25,706
    )
    
    
    
    
    
    
    (25,705
    )
    
    
    31,496
    
    
    
    
    
    
    
    31,496Cash flows from investing activities:Capital expenditures
    
    
    (4,523
    )
    
    
    
    
    
    
    (4,523
    )
    
    
    (9,586
    )
    
    
    
    
    
    
    (9,586
    )
    
    
    (14,591
    )
    
    
    
    
    
    
    (14,591
    )
    
    
    (19,534
    )
    
    
    
    
    
    
    (19,534
    )Proceeds from maturation of marketable securities
    
    
    3,724
    
    
    
    
    
    
    
    3,724
    
    
    
    5,224
    
    
    
    
    
    
    
    5,224
    
    
    
    5,224
    
    
    
    
    
    
    
    5,224
    
    
    
    5,224
    
    
    
    
    
    
    
    5,224Cash flows (used in) investing activities
    
    
    (799
    )
    
    
    
    
    
    
    (799
    )
    
    
    (4,362
    )
    
    
    
    
    
    
    (4,362
    )
    
    
    (9,367
    )
    
    
    
    
    
    
    (9,367
    )
    
    
    (14,310
    )
    
    
    
    
    
    
    (14,310
    )Cash flows from financing activities:Exercise of stock options
    
    
    208
    
    
    
    
    
    
    
    208
    
    
    
    216
    
    
    
    
    
    
    
    216
    
    
    
    850
    
    
    
    
    
    
    
    850
    
    
    
    2,152
    
    
    
    
    
    
    
    2,152Tax benefit of stock options
    
    
    105
    
    
    
    
    
    
    
    105
    
    
    
    119
    
    
    
    
    
    
    
    119
    
    
    
    628
    
    
    
    
    
    
    
    628
    
    
    
    1,606
    
    
    
    
    
    
    
    1,606Repayment of long-term debt
    
    
    (643
    )
    
    
    
    
    
    
    (643
    )
    
    
    (1,286
    )
    
    
    
    
    
    
    (1,286
    )
    
    
    (1,929
    )
    
    
    
    
    
    
    (1,929
    )
    
    
    (2,572
    )
    
    
    
    
    
    
    (2,572
    )Net cash provided by (used in) financing activities
    
    
    (330
    )
    
    
    
    
    
    
    (330
    )
    
    
    (951
    )
    
    
    
    
    
    
    (951
    )
    
    
    (451
    )
    
    
    
    
    
    
    (451
    )
    
    
    1,186
    
    
    
    
    
    
    
    1,186Net decrease in cash and cash equivalents
    
    
    (11,895
    )
    
    
    
    
    
    
    (11,895
    )
    
    
    (33,032
    )
    
    
    
    
    
    
    (33,032
    )
    
    
    (35,524
    )
    
    
    
    
    
    
    (35,524
    )
    
    
    18,372
    
    
    
    
    
    
    
    18,372Cash and cash equivalents at beginning of period
    
    
    57,748
    
    
    
    
    
    
    
    57,748
    
    
    
    57,748
    
    
    
    
    
    
    
    57,748
    
    
    
    57,748
    
    
    
    
    
    
    
    57,748
    
    
    
    57,748
    
    
    
    
    
    
    
    57,748Cash and cash equivalents at end of period
    
    $
    45,853
    
    
    $
    
    
    
    $
    45,853
    
    
    $
    24,716
    
    
    $
    
    
    
    $
    24,716
    
    
    $
    22,224
    
    
    $
    
    
    
    $
    22,224
    
    
    $
    76,120
    
    
    $
    
    
    
    $
    76,120
 46




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
 March 31, 2005
    
    June 30, 2005
    
    September 30, 2005
    
    December 31, 2005As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    Correction
    
    
    
    
    
    As
    
    CorrectionPreviously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of Inventory
    
    
    
    
    
    Previously
    
    of InventoryReported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As Restated
    
    Reported
    
    Valuation
    
    As RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    30,028
    
    
    
    
    
    
    $
    30,028
    
    
    $
    22,229
    
    
    
    
    
    
    $
    22,229
    
    
    $
    15,701
    
    
    
    
    
    
    $
    15,701
    
    
    $
    57,748
    
    
    $
    
    
    
    $
    57,748Marketable securities
    
    
    17,835
    
    
    
    
    
    
    
    17,835
    
    
    
    14,237
    
    
    
    
    
    
    
    14,237
    
    
    
    12,554
    
    
    
    
    
    
    
    12,554
    
    
    
    5,224
    
    
    
    
    
    
    
    5,224Inventories
    
    
    145,525
    
    
    
    (18,691
    )
    
    
    126,834
    
    
    
    154,019
    
    
    
    (18,994
    )
    
    
    135,025
    
    
    
    166,997
    
    
    
    (19,300
    )
    
    
    147,697
    
    
    
    152,646
    
    
    
    (20,348
    )
    
    
    132,298Prepaid expenses and other current assets
    
    
    7,245
    
    
    
    
    
    
    
    7,245
    
    
    
    6,567
    
    
    
    
    
    
    
    6,567
    
    
    
    6,415
    
    
    
    
    
    
    
    6,415
    
    
    
    6,900
    
    
    
    
    
    
    
    6,900Prepaid income taxes
    
    
    1,770
    
    
    
    
    
    
    
    1,770
    
    
    
    3,946
    
    
    
    
    
    
    
    3,946
    
    
    
    5,473
    
    
    
    
    
    
    
    5,473
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax assets
    
    
    586
    
    
    
    6,906
    
    
    
    7,492
    
    
    
    258
    
    
    
    7,024
    
    
    
    7,282
    
    
    
    47
    
    
    
    7,134
    
    
    
    7,181
    
    
    
    734
    
    
    
    7,615
    
    
    
    8,349202,989
    
    
    
    (11,785
    )
    
    
    191,204
    
    
    
    201,256
    
    
    
    (11,970
    )
    
    
    189,286
    
    
    
    207,187
    
    
    
    (12,166
    )
    
    
    195,021
    
    
    
    223,252
    
    
    
    (12,733
    )
    
    
    210,519Non-current liabilitiesProperty and equipment, net
    
    
    81,716
    
    
    
    
    
    
    
    81,716
    
    
    
    83,060
    
    
    
    
    
    
    
    83,060
    
    
    
    87,089
    
    
    
    
    
    
    
    87,089
    
    
    
    88,098
    
    
    
    
    
    
    
    88,098Other assets
    
    
    1,131
    
    
    
    
    
    
    
    1,131
    
    
    
    1,398
    
    
    
    
    
    
    
    1,398
    
    
    
    1,432
    
    
    
    
    
    
    
    1,432
    
    
    
    1,407
    
    
    
    
    
    
    
    1,407$
    285,836
    
    
    $
    (11,785
    )
    
    $
    274,051
    
    
    $
    285,714
    
    
    $
    (11,970
    )
    
    $
    273,744
    
    
    $
    295,708
    
    
    $
    (12,166
    )
    
    $
    283,542
    
    
    $
    312,757
    
    
    $
    (12,733
    )
    
    $
    300,024LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    
    
    
    
    $
    2,571
    
    
    $
    2,571
    
    
    $
    
    
    
    $
    2,571Trade accounts payable
    
    
    36,822
    
    
    
    
    
    
    
    36,822
    
    
    
    34,432
    
    
    
    
    
    
    
    34,432
    
    
    
    45,225
    
    
    
    
    
    
    
    45,225
    
    
    
    46,445
    
    
    
    
    
    
    
    46,445Accrued payroll and payroll taxes
    
    
    3,062
    
    
    
    
    
    
    
    3,062
    
    
    
    4,329
    
    
    
    
    
    
    
    4,329
    
    
    
    2,878
    
    
    
    
    
    
    
    2,878
    
    
    
    3,928
    
    
    
    
    
    
    
    3,928Accrued expenses
    
    
    6,519
    
    
    
    
    
    
    
    6,519
    
    
    
    6,211
    
    
    
    
    
    
    
    6,211
    
    
    
    7,496
    
    
    
    
    
    
    
    7,496
    
    
    
    10,044
    
    
    
    
    
    
    
    10,044Accrued lease liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    153
    
    
    
    
    
    
    
    153Other
current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,679
    
    
    
    
    
    
    
    1,67948,974
    
    
    
    
    
    
    
    48,974
    
    
    
    47,543
    
    
    
    
    
    
    
    47,543
    
    
    
    58,235
    
    
    
    
    
    
    
    58,235
    
    
    
    64,820
    
    
    
    
    
    
    
    64,820Non-current liabilitiesLong-term debt
    
    
    26,143
    
    
    
    
    
    
    
    26,143
    
    
    
    25,500
    
    
    
    
    
    
    
    25,500
    
    
    
    24,792
    
    
    
    
    
    
    
    24,792
    
    
    
    24,215
    
    
    
    
    
    
    
    24,215Deferred tax liability
    
    
    8,311
    
    
    
    
    
    
    
    8,311
    
    
    
    8,076
    
    
    
    
    
    
    
    8,076
    
    
    
    7,841
    
    
    
    
    
    
    
    7,841
    
    
    
    8,039
    
    
    
    
    
    
    
    8,039Accrued lease liability
    
    
    14,446
    
    
    
    
    
    
    
    14,446
    
    
    
    15,176
    
    
    
    
    
    
    
    15,176
    
    
    
    16,939
    
    
    
    
    
    
    
    16,939
    
    
    
    17,174
    
    
    
    
    
    
    
    17,17448,900
    
    
    
    
    
    
    
    48,900
    
    
    
    48,752
    
    
    
    
    
    
    
    48,752
    
    
    
    49,572
    
    
    
    
    
    
    
    49,572
    
    
    
    49,428
    
    
    
    
    
    
    
    49,42897,874
    
    
    
    
    
    
    
    97,874
    
    
    
    96,295
    
    
    
    
    
    
    
    96,295
    
    
    
    107,807
    
    
    
    
    
    
    
    107,807
    
    
    
    114,248
    
    
    
    
    
    
    
    114,248Commitments and contingenciesShareholders equity:Preferred stock, no par value, 10,000,000 shares
authorized; none issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, no par value, 40,000,000 shares authorized;
issued and outstanding 19,687,892; 19,789,441;
19,814,374;
and 19,816,774 shares at March 31, June 30,
September 30
and December 31, 2005, respectively
    
    
    109,626
    
    
    
    
    
    
    
    109,626
    
    
    
    111,133
    
    
    
    
    
    
    
    111,133
    
    
    
    111,515
    
    
    
    
    
    
    
    111,515
    
    
    
    111,383
    
    
    
    
    
    
    
    111,383Retained earnings
    
    
    78,336
    
    
    
    (11,785
    )
    
    
    66,551
    
    
    
    78,286
    
    
    
    (11,970
    )
    
    
    66,316
    
    
    
    76,386
    
    
    
    (12,166
    )
    
    
    64,220
    
    
    
    87,126
    
    
    
    (12,733
    )
    
    
    74,393187,962
    
    
    
    (11,785
    )
    
    
    176,177
    
    
    
    189,419
    
    
    
    (11,970
    )
    
    
    177,449
    
    
    
    187,901
    
    
    
    (12,166
    )
    
    
    175,735
    
    
    
    198,509
    
    
    
    (12,733
    )
    
    
    185,776$
    285,836
    
    
    $
    (11,785
    )
    
    $
    274,051
    
    
    $
    285,714
    
    
    $
    (11,970
    )
    
    $
    273,744
    
    
    $
    295,708
    
    
    $
    (12,166
    )
    
    $
    283,542
    
    
    $
    312,757
    
    
    $
    (12,733
    )
    
    $
    300,024
 47




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31, 2005
    
    Three Months Ended June 30, 2005
    
    Three Months Ended September 30, 2005
    
    Three Months Ended December 31, 2005As
    
    
    Correction
    
    
    
    
    
    
    As
    
    
    Correction
    
    
    
    
    
    
    As
    
    
    Correction
    
    
    
    
    
    
    As
    
    
    CorrectionPreviously
    
    
    of Inventory
    
    
    
    
    
    
    Previously
    
    
    of Inventory
    
    
    
    
    
    
    Previously
    
    
    of Inventory
    
    
    
    
    
    
    Previously
    
    
    of InventoryReported
    
    

    Valuation
    
    
    As Restated
    
    
    Reported
    
    
    Valuation
    
    
    As Restated
    
    
    Reported
    
    
    Valuation
    
    
    As Restated
    
    
    Reported
    
    
    Valuation
    
    
    As RestatedNet sales
    
    $
    122,879
    
    
    $
    
    
    
    $
    122,879
    
    
    $
    113,489
    
    
    $
    
    
    
    $
    113,489
    
    
    $
    115,094
    
    
    $
    
    
    
    $
    115,094
    
    
    $
    187,974
    
    
    $
    
    
    
    $
    187,974Cost of sales
    
    
    74,751
    
    
    
    327
    
    
    
    75,078
    
    
    
    67,800
    
    
    
    302
    
    
    
    68,102
    
    
    
    68,402
    
    
    
    307
    
    
    
    68,709
    
    
    
    115,628
    
    
    
    1,048
    
    
    
    116,676Gross margin
    
    
    48,128
    
    
    
    (327
    )
    
    
    47,801
    
    
    
    45,689
    
    
    
    (302
    )
    
    
    45,387
    
    
    
    46,692
    
    
    
    (307
    )
    
    
    46,385
    
    
    
    72,346
    
    
    
    (1,048
    )
    
    
    71,298Selling,
general and administrative expenses
    
    
    45,844
    
    
    
    
    
    
    
    45,844
    
    
    
    44,766
    
    
    
    
    
    
    
    44,766
    
    
    
    48,426
    
    
    
    
    
    
    
    48,426
    
    
    
    53,842
    
    
    
    
    
    
    
    53,842Costs related to change in management
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Store pre-opening expenses
    
    
    161
    
    
    
    
    
    
    
    161
    
    
    
    944
    
    
    
    
    
    
    
    944
    
    
    
    1,194
    
    
    
    
    
    
    
    1,194
    
    
    
    1,160
    
    
    
    
    
    
    
    1,160Income (loss) from operations
    
    
    2,123
    
    
    
    (327
    )
    
    
    1,796
    
    
    
    (21
    )
    
    
    (302
    )
    
    
    (323
    )
    
    
    (2,928
    )
    
    
    (307
    )
    
    
    (3,235
    )
    
    
    17,344
    
    
    
    (1,048
    )
    
    
    16,296Interest expense
    
    
    258
    
    
    
    
    
    
    
    258
    
    
    
    292
    
    
    
    
    
    
    
    292
    
    
    
    331
    
    
    
    
    
    
    
    331
    
    
    
    353
    
    
    
    
    
    
    
    353Interest (income)
    
    
    (197
    )
    
    
    
    
    
    
    (197
    )
    
    
    (231
    )
    
    
    
    
    
    
    (231
    )
    
    
    (129
    )
    
    
    
    
    
    
    (129
    )
    
    
    (227
    )
    
    
    
    
    
    
    (227
    )Income
(loss) before income taxes
    
    
    2,062
    
    
    
    (327
    )
    
    
    1,735
    
    
    
    (82
    )
    
    
    (302
    )
    
    
    (384
    )
    
    
    (3,130
    )
    
    
    (307
    )
    
    
    (3,437
    )
    
    
    17,218
    
    
    
    (1,048
    )
    
    
    16,170Provision
for (benefit of) income taxes
    
    
    810
    
    
    
    (133
    )
    
    
    677
    
    
    
    (32
    )
    
    
    (118
    )
    
    
    (150
    )
    
    
    (1,230
    )
    
    
    (110
    )
    
    
    (1,340
    )
    
    
    6,478
    
    
    
    (481
    )
    
    
    5,997Net income (loss)
    
    $
    1,252
    
    
    $
    (194
    )
    
    $
    1,058
    
    
    $
    (50
    )
    
    $
    (184
    )
    
    $
    (234
    )
    
    $
    (1,900
    )
    
    $
    (197
    )
    
    $
    (2,097
    )
    
    $
    10,740
    
    
    $
    (567
    )
    
    $
    10,173Basic net income (loss) per share
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.05
    
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.10
    )
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    0.54
    
    
    $
    (0.03
    )
    
    $
    0.51Diluted net income (loss) per share
    
    $
    0.06
    
    
    $
    (0.01
    )
    
    $
    0.05
    
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.10
    )
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    0.53
    
    
    $
    (0.03
    )
    
    $
    0.51Basic weighted average shares utstanding
    
    
    19,669
    
    
    
    
    
    
    
    19,669
    
    
    
    19,743
    
    
    
    
    
    
    
    19,743
    
    
    
    19,808
    
    
    
    
    
    
    
    19,808
    
    
    
    19,816
    
    
    
    
    
    
    
    19,816Diluted weighted average shares outstanding
    
    
    20,209
    
    
    
    
    
    
    
    20,209
    
    
    
    19,743
    
    
    
    
    
    
    
    19,743
    
    
    
    19,808
    
    
    
    
    
    
    
    19,808
    
    
    
    20,105
    
    
    
    
    
    
    
    20,105
 48




---



##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Three Months Ended March 31, 2005
    
    
    Six Months Ended June 30, 2005
    
    
    Nine Months Ended September 30, 2005
    
    
    Twelve Months Ended December 31, 2005AsPreviouslyReported
    
    
    Correctionof InventoryValuation
    
    
    As Restated
    
    
    AsPreviouslyReported
    
    
    Correctionof InventoryValuation
    
    
    As Restated
    
    
    AsPreviouslyReported
    
    
    Correctionof InventoryValuation
    
    
    As Restated
    
    
    AsPreviouslyReported
    
    
    Correctionof InventoryValuation
    
    
    As RestatedCash flows from operating activities:Net income (loss)
    
    $
    1,252
    
    
    
    (194
    )
    
    $
    1,058
    
    
    $
    1,202
    
    
    
    (378
    )
    
    $
    824
    
    
    $
    (698
    )
    
    
    (575
    )
    
    $
    (1,273
    )
    
    $
    10,042
    
    
    
    (1,141
    )
    
    $
    8,901Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,629
    
    
    
    
    
    
    
    2,629
    
    
    
    5,220
    
    
    
    
    
    
    
    5,220
    
    
    
    7,837
    
    
    
    
    
    
    
    7,837
    
    
    
    10,769
    
    
    
    
    
    
    
    10,769Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on disposal of assets
    
    
    438
    
    
    
    
    
    
    
    438
    
    
    
    438
    
    
    
    
    
    
    
    438
    
    
    
    438
    
    
    
    
    
    
    
    438
    
    
    
    438
    
    
    
    
    
    
    
    438Provision for (benefit of) deferred income taxes, net
    
    
    1,814
    
    
    
    (133
    )
    
    
    1,681
    
    
    
    
    
    
    
    (251
    )
    
    
    (251
    )
    
    
    
    
    
    
    (362
    )
    
    
    (362
    )
    
    
    (484
    )
    
    
    (843
    )
    
    
    (1,327
    )Changes in assets and liabilities:Inventories
    
    
    (2,693
    )
    
    
    327
    
    
    
    (2,366
    )
    
    
    (11,187
    )
    
    
    630
    
    
    
    (10,557
    )
    
    
    (24,165
    )
    
    
    936
    
    
    
    (23,229
    )
    
    
    (9,814
    )
    
    
    1,984
    
    
    
    (7,830
    )Prepaid expenses and other current assets
    
    
    410
    
    
    
    
    
    
    
    410
    
    
    
    1,088
    
    
    
    
    
    
    
    1,088
    
    
    
    1,240
    
    
    
    
    
    
    
    1,240
    
    
    
    755
    
    
    
    
    
    
    
    755Accounts payable, accrued payroll and payroll taxes and accrued expenses
    
    
    (16,132
    )
    
    
    
    
    
    
    (16,132
    )
    
    
    (17,563
    )
    
    
    
    
    
    
    (17,563
    )
    
    
    (6,936
    )
    
    
    
    
    
    
    (6,936
    )
    
    
    (2,118
    )
    
    
    
    
    
    
    (2,118
    )Accrued lease liability
    
    
    651
    
    
    
    
    
    
    
    651
    
    
    
    1,381
    
    
    
    
    
    
    
    1,381
    
    
    
    3,144
    
    
    
    
    
    
    
    3,144
    
    
    
    3,532
    
    
    
    
    
    
    
    3,532Income taxes payable
    
    
    (5,094
    )
    
    
    
    
    
    
    (5,094
    )
    
    
    (4,501
    )
    
    
    
    
    
    
    (4,501
    )
    
    
    (5,840
    )
    
    
    
    
    
    
    (5,840
    )
    
    
    1,160
    
    
    
    
    
    
    
    1,160Other
    
    
    616
    
    
    
    
    
    
    
    616
    
    
    
    349
    
    
    
    
    
    
    
    349
    
    
    
    315
    
    
    
    
    
    
    
    315
    
    
    
    340
    
    
    
    
    
    
    
    340Net cash provided by (used in) operating activities
    
    
    (16,109
    )
    
    
    
    
    
    
    (16,109
    )
    
    
    (23,573
    )
    
    
    
    
    
    
    (23,573
    )
    
    
    (24,665
    )
    
    
    
    
    
    
    (24,665
    )
    
    
    14,620
    
    
    
    
    
    
    
    14,620Cash flows from investing activities:Capital expenditures
    
    
    (1,564
    )
    
    
    
    
    
    
    (1,564
    )
    
    
    (5,499
    )
    
    
    
    
    
    
    (5,499
    )
    
    
    (12,145
    )
    
    
    
    
    
    
    (12,145
    )
    
    
    (16,086
    )
    
    
    
    
    
    
    (16,086
    )Proceeds from maturation of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,598
    
    
    
    
    
    
    
    3,598
    
    
    
    5,004
    
    
    
    
    
    
    
    5,004
    
    
    
    22,570
    
    
    
    
    
    
    
    22,570Investment in marketable securities
    
    
    (277
    )
    
    
    
    
    
    
    (277
    )
    
    
    (277
    )
    
    
    
    
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,236
    )
    
    
    
    
    
    
    (10,236
    )Cash flows (used in) investing activities
    
    
    (1,841
    )
    
    
    
    
    
    
    (1,841
    )
    
    
    (2,178
    )
    
    
    
    
    
    
    (2,178
    )
    
    
    (7,141
    )
    
    
    
    
    
    
    (7,141
    )
    
    
    (3,752
    )
    
    
    
    
    
    
    (3,752
    )Cash flows from financing activities:Exercise of stock options
    
    
    193
    
    
    
    
    
    
    
    193
    
    
    
    838
    
    
    
    
    
    
    
    838
    
    
    
    1,008
    
    
    
    
    
    
    
    1,008
    
    
    
    1,023
    
    
    
    
    
    
    
    1,023Tax benefit of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (643
    )
    
    
    
    
    
    
    (643
    )
    
    
    (1,286
    )
    
    
    
    
    
    
    (1,286
    )
    
    
    (1,929
    )
    
    
    
    
    
    
    (1,929
    )
    
    
    (2,571
    )
    
    
    
    
    
    
    (2,571
    )Net cash provided by (used in) financing activities
    
    
    (450
    )
    
    
    
    
    
    
    (450
    )
    
    
    (448
    )
    
    
    
    
    
    
    (448
    )
    
    
    (921
    )
    
    
    
    
    
    
    (921
    )
    
    
    (1,548
    )
    
    
    
    
    
    
    (1,548
    )Net decrease in cash and cash equivalents
    
    
    (18,400
    )
    
    
    
    
    
    
    (18,400
    )
    
    
    (26,199
    )
    
    
    
    
    
    
    (26,199
    )
    
    
    (32,727
    )
    
    
    
    
    
    
    (32,727
    )
    
    
    9,320
    
    
    
    
    
    
    
    9,320Cash and cash equivalents at beginning of period
    
    
    48,428
    
    
    
    
    
    
    
    48,428
    
    
    
    48,428
    
    
    
    
    
    
    
    48,428
    
    
    
    48,428
    
    
    
    
    
    
    
    48,428
    
    
    
    48,428
    
    
    
    
    
    
    
    48,428Cash and cash equivalents at end of period
    
    $
    30,028
    
    
    $
    
    
    
    $
    30,028
    
    
    $
    22,229
    
    
    $
    
    
    
    $
    22,229
    
    
    $
    15,701
    
    
    $
    
    
    
    $
    15,701
    
    
    $
    57,748
    
    
    $
    
    
    
    $
    57,748
 49




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##### Table of Contents



2. Summary of Significant Accounting Policies
 Organization and Basis of Presentation. .
 Use of Estimates.
 Cash and Cash Equivalents.
 Concentration of Credit Risk.
 Merchandise Inventories.
     50




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##### Table of Contents



Accounting Changes and Error Corrections
 Property and Equipment.
  Impairment of Long-Lived Assets.
 Other Assets
 Revenue Recognition
  Lease Accounting
 Reserve for Closed Stores.
  51




---



##### Table of Contents



Store Pre-opening Expenses.
 Advertising Costs.
 Insurance Liabilities.
 Fair
Value of Financial Instruments.
   52




---



##### Table of Contents



Stock-based Compensation Share-Based
Payment
   2007
    
    2006
    
    2005Average fair value of options granted
    
    $
    7.72
    
    
    $
    8.99
    
    
    $
    9.79Risk free interest rate
    
    
    4.6
    %
    
    
    4.6
    %
    
    
    4.4
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Average expected life
    
    4.5
    yrs
    
    6.0
    yrs
    
    5.0
    yrsExpected stock price volatility
    
    
    38.0
    %
    
    
    44.4
    %
    
    
    38.9
    %
   Accounting for Stock-Based Compensation
 53




---



##### Table of Contents



(In thousands, except per share data)
    
2005Net income
    
     As restated
    
    $
    8,901 Compensation cost, net of tax
    
    
    1,827 Pro forma
    
    
    7,074Basic earnings per share
    
     As restated
    
    $
    0.45 Pro forma
    
    
    0.36Diluted earnings per share
    
     As restated
    
    $
    0.44 Pro forma
    
    
    0.35
 Income Taxes
  3. New Accounting Pronouncements
 The
Fair Value Option for Financial Assets and Financial Liabilities,
 Fair Value Measurements,
 54




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##### Table of Contents



4.
    
    Store Closure Costs
     5.
    
    Costs Related to Change in Management
  6.
    
    Earnings Per Share
  55




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##### Table of Contents



Years Ended December 31,(In thousands, except per share data)
    
    
    
    
    2006
    
    
    20052007
    
    
    (as restated)
    
    
    (as restated)Net income (loss)
    
    $
    3,783
    
    
    $
    (406
    )
    
    $
    8,901Weighted average shares:Basic
    
    
    20,246
    
    
    
    19,929
    
    
    
    19,758Incremental shares from assumed exercise of stock options
and stock appreciation rights
    
    
    103
    
    
    
    
    
    
    
    391Diluted
    
    
    20,349
    
    
    
    19,929
    
    
    
    20,149Basic net
income (loss) per share
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.45Diluted net
income (loss) per share
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.44Stock options and stock appreciation rights excluded from
calculation because exercise price was greater than average
    
    
    807
    
    
    
    937
    
    
    
    308Potentially dilutive shares excluded from the calculation as the
result would be anti-dilutive
    
    
    
    
    
    
    90
    
    
    
    
 7.
    
    Property and Equipment
  Years Ended December 31,(In thousands)
    
    2007
    
    
    2006Land
    
    $
    2,466
    
    
    $
    2,466Buildings and improvements
    
    
    38,370
    
    
    
    38,370Furniture, fixtures, software and equipment
    
    
    123,589
    
    
    
    107,148Leasehold improvements
    
    
    5,849
    
    
    
    6,205Equipment for future stores
    
    
    2,179
    
    
    
    1,260172,453
    
    
    
    155,449Less: Accumulated depreciation and amortization
    
    
    (73,125
    )
    
    
    (60,181
    )$
    99,328
    
    
    $
    95,268
 8.
    
    Financing Agreement
  56




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##### Table of Contents



9.
    
    Income Taxes
 Accounting for Uncertainty in Income Taxes
  57




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##### Table of Contents



Years Ended December 31,2006
    
    
    20052007
    
    
    (as restated)
    
    
    (as restated)(In thousands)United States federal taxes at statutory rate
    
    $
    1,986
    
    
    $
    206
    
    
    $
    4,930State and local taxes, net
    
    
    176
    
    
    
    119
    
    
    
    551Change in estimates for uncertain tax positions
    
    
    229
    
    
    
    98
    
    
    
    Change in tax rates
    
    
    
    
    
    
    329
    
    
    
    Valuation allowance
    
    
    174
    
    
    
    170
    
    
    
    (52
    )Incentive stock option compensation
    
    
    150
    
    
    
    468
    
    
    
    Tax free interest
    
    
    (614
    )
    
    
    (292
    )
    
    
    (227
    )Other
    
    
    (208
    )
    
    
    (102
    )
    
    
    (19
    )Income tax provision
    
    $
    1,893
    
    
    $
    996
    
    
    $
    5,183
  Years Ended December 31,2006
    
    
    20052007
    
    
    (as restated)
    
    
    (as restated)(In thousands)Current tax expense:Federal
    
    $
    (3,231
    )
    
    $
    4,834
    
    
    $
    5,487State
    
    
    91
    
    
    
    611
    
    
    
    1,023Total current
    
    
    (3,140
    )
    
    
    5,445
    
    
    
    6,510Deferred tax expense:Federal
    
    
    4,922
    
    
    
    (4,550
    )
    
    
    (1,191
    )State
    
    
    111
    
    
    
    101
    
    
    
    (136
    )Total deferred
    
    
    5,033
    
    
    
    (4,449
    )
    
    
    (1,327
    )Total income tax provision
    
    $
    1,893
    
    
    $
    996
    
    
    $
    5,183
  58




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##### Table of Contents



December 31,(In thousands)
    
    
    
    
    2006
    
    
    20052007
    
    
    (as restated)
    
    
    (as restated)Current deferred taxesInventory valuation
    
    $
    2,838
    
    
    $
    9,895
    
    
    $
    8,945Inventory claim receivable
    
    
    
    
    
    
    
    
    
    
    (345
    )Accrued expenses
    
    
    3,277
    
    
    
    2,823
    
    
    
    Deferred revenue
    
    
    1,731
    
    
    
    
    
    
    
    Valuation allowance
    
    
    (544
    )
    
    
    (591
    )
    
    
    (391
    )Other
    
    
    231
    
    
    
    (763
    )
    
    
    134Total current deferred taxes
    
    $
    7,533
    
    
    $
    11,364
    
    
    $
    8,343Non-current deferred taxesProperty and equipment
    
    
    (14,895
    )
    
    
    (14,798
    )
    
    
    (12,747
    )Stock option compensation
    
    
    1,604
    
    
    
    701
    
    
    
    Accrued rent expense
    
    
    6,931
    
    
    
    6,773
    
    
    
    4,708State net
operating loss carryforwards
    
    
    1,895
    
    
    
    424
    
    
    
    107Valuation allowance
    
    
    (2,463
    )
    
    
    (771
    )
    
    
    (484
    )Other
    
    
    304
    
    
    
    1,066
    
    
    
    377Total non-current deferred taxes
    
    
    (6,624
    )
    
    
    (6,605
    )
    
    
    (8,039
    )Net deferred tax
    
    $
    909
    
    
    $
    4,759
    
    
    $
    304Deferred tax assets
    
    $
    18,811
    
    
    $
    21,682
    
    
    $
    14,271Deferred tax liabilities
    
    
    (17,902
    )
    
    
    (16,923
    )
    
    
    (13,967
    )Net deferred tax
    
    $
    909
    
    
    $
    4,759
    
    
    $
    304
  Gross unrecognized tax benefits at January 1, 2007
    
    $
    709Increases in tax positions for prior years
    
    
    46Decreases in tax positions for prior years
    
    
    Increases in tax positions for current year
    
    
    1,721Settlements
    
    
    Lapse in statute of limitations
    
    
    Gross unrecognized tax benefits at December 31, 2007
    
    $
    2,476
   59




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##### Table of Contents



10.
    
    Stock-based Compensation
   Shares
    
    Weighted Average Market PriceRestricted stock awards
    
    
    75,545
    
    
    $
    20.89Stock option and stock appreciation rights
    
    
    31,700
    
    
    $
    15.79
 Share-Based Payment
 2007
    
    2006Average fair
value of options and stock appreciation rights granted
    
    $
    7.72
    
    
    $
    8.99Risk free interest rate
    
    
    4.6
    %
    
    
    4.6
    %Dividend yield
    
    
    
    
    
    
    Average expected life
    
    4.5
    yrs.
    
    6.0
    yrs.Expected stock price volatility
    
    
    38.0
    %
    
    
    44.4
    %
 60




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##### Table of Contents



(In thousands except per share data and # of months)
    
    2007
    
    2006Stock-based compensation expense
    
    $
    2,644
    
    
    $
    3,076Effect on net income
    
    
    1,759
    
    
    
    2,382Effect on earnings per share
    
    
    0.09
    
    
    
    0.12Market value in excess of grant price for options exercised
    
    
    1,071
    
    
    
    4,000Intrinsic value of options outstanding
    
    
    963
    
    
    
    3,500Unrecognized compensation cost
    
    $
    4,295
    
    
    $
    3,700Months over which compensation costs will be recognized
    
    
    48
    
    
    
    35Shares available for future grant
    
    
    1,094
    
    
    
    403
  Stock Options and Stock Appreciation Rights
  2007
    
    
    2006Stock Options and
    
    
    Weighted Average
    
    
    Stock Options and
    
    
    Weighted AverageStock Appreciation Rights
    
    
    Exercise Price
    
    
    Stock Appreciation Rights
    
    
    Exercise PriceOutstanding at beginning of period
    
    
    1,367,678
    
    
    $
    19.50
    
    
    
    1,485,067
    
    
    $
    16.97Activity:Granted
    
    
    336,300
    
    
    
    20.52
    
    
    
    342,000
    
    
    
    18.07Forfeited
    
    
    322,869
    
    
    
    22.50
    
    
    
    109,065
    
    
    
    23.67Exercised
    
    
    131,503
    
    
    
    12.63
    
    
    
    350,324
    
    
    
    6.17Outstanding at end of period
    
    
    1,249,606
    
    
    $
    19.82
    
    
    
    1,367,678
    
    
    $
    19.50
 61




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##### Table of Contents



Stock Options and
    
    
    Stock Options andStock Appreciation Rights Outstanding
    
    
    Stock Appreciation Rights ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    Average
    
    
    WeightedRemaining Life
    
    
    Average
    
    
    
    
    
    
    Remaining Life
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    
    (Years)
    
    
    Exercise Price
    
    
    Shares
    
    
    (Years)
    
    
    Exercise Price2.88  4.50
    
    
    65,204
    
    
    
    2.1
    
    
    $
    3.47
    
    
    
    65,204
    
    
    
    2.1
    
    
    $
    3.474.51  8.50
    
    
    53,186
    
    
    
    3.2
    
    
    
    8.25
    
    
    
    53,186
    
    
    
    3.2
    
    
    
    8.258.51  18.50
    
    
    325,900
    
    
    
    8.5
    
    
    
    17.42
    
    
    
    145,667
    
    
    
    8.6
    
    
    
    17.3518.51  22.00
    
    
    488,158
    
    
    
    6.1
    
    
    
    20.54
    
    
    
    225,424
    
    
    
    5.7
    
    
    
    20.5722.01  27.15
    
    
    317,158
    
    
    
    6.7
    
    
    
    24.93
    
    
    
    253,508
    
    
    
    6.6
    
    
    
    25.411,249,606
    
    
    
    6.5
    
    
    $
    19.43
    
    
    
    742,990
    
    
    
    6.1
    
    
    $
    19.20
 Restricted Stock
   2007Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair ValueOutstanding at beginning of period
    
    $
    
    
    
    $
    Activity:Granted
    
    
    75,545
    
    
    
    20.89Vested
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Outstanding at end of period
    
    $
    75,545
    
    
    $
    20.89
 11.
    
    Retirement Plan
  12.
    
    Commitments and Contingencies
 Commitments
  62




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##### Table of Contents



Year Ended December 31,(In thousands)
    
    2007
    
    
    2006
    
    
    2005Minimum rentals
    
    $
    36,036
    
    
    $
    33,024
    
    
    $
    29,017Contingent payments
    
    
    83
    
    
    
    76
    
    
    
    62$
    36,119
    
    
    $
    33,100
    
    
    $
    29,079
  2008
    
    $
    44,1552009
    
    
    44,0832010
    
    
    42,5462011
    
    
    38,8142012
    
    
    33,740Thereafter
    
    
    97,239Total minimum future rentals
    
    $
    300,577
 Contingencies
    63




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##### Table of Contents



13.
    
    Related Party Transactions
      64




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES.
 Background
   Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
  65




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##### Table of Contents



Internal Control  Integrated Framework
  Plan for Remediation of Material Weakness
   66




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
  Code of Ethical Business Conduct
 Code of Ethical Business Conduct www.acmoore.com
 
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
  67




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##### Table of Contents



Equity Compensation Plan Information
  (c)(a)
    
    
    
    Number of securitiesNumber of securities
    
    (b)
    
    remaining available forto be issued upon
    
    Weighted-average
    
    future issuance underexercise of outstanding
    
    exercise price of
    
    equity compensationoptions, warrants and
    
    outstanding options,
    
    plans (excluding securitiesPlan Category
    
    rights
    
    warrants and rights
    
    reflected in column (a))Equity compensation
plans approved by
security holders
(1)
    
    
    1,249,606
    
    
    $
    19.43
    
    
    
    1,094,496Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,249,606
    
    
    $
    19.43
    
    
    
    1,094,496
 
 (1)
    
    These plans are our 1997 Employee, Director and Consultant Stock Option Plan, 2002
Stock Option Plan and 2007 Stock Incentive Plan. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDANCE.
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 (a)
    
    The following documents are filed as part of this Annual Report on Form 10-K:
 (1)
    
    Financial Statements:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets at December 31, 2007 and 2006Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2007Consolidated Statements of Changes in Shareholders Equity for each of the
three years in the period ended December 31, 2007
 68




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##### Table of Contents



Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2007Notes to Consolidated Financial Statements
 (2)
    
    Financial Statement Schedules:Schedule II  Valuation and Qualifying AccountsAll other schedules have been omitted because they are not applicable,
not required or the information is included elsewhere herein.(3)
    
    Exhibits:The exhibits filed as part of this report are listed under exhibits at
subsection (b) of this Item 15.
 (b)
    
    Exhibits:
 Exhibit Number
    
    Description3.1(1)
    
    Articles of Incorporation.3.1.1(2)
    
    Amendment to Articles of Incorporation.3.1.2(3)
    
    Amendment to Articles of Incorporation.3.2(4)
    
    Amended and Restated Bylaws.+10.1(1)
    
    1997 Employee, Director and Consultant Stock Option Plan.+10.2(1)
    
    Form of Incentive Stock Option Agreement under the 1997
Employee, Director and Consultant Stock Option Plan.+10.3(5)
    
    2002 Stock Option Plan.+10.4(6)
    
    Form of Incentive Stock Option/Non-Qualified Option Agreement
under the 2002 Stock Option Plan.+10.5(7)
    
    2007 Annual Incentive Plan.+10.6(8)
    
    2007 Stock Incentive Plan.+10.7(8)
    
    Form of Stock Unit Agreement under the 2007 Stock Incentive Plan.+10.8(8)
    
    Form of Nonqualified Stock Option Agreement under the 2007 Stock Incentive Plan.
 69




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##### Table of Contents



Exhibit Number
    
    Description+10.9(8)
    
    Form of Incentive Stock Option Agreement under the 2007 Stock
Incentive Plan.+10.10(8)
    
    Form of Stock Appreciation Rights Agreement under the 2007 Stock
Incentive Plan.+10.11(8)
    
    Form of Restricted Stock Agreement under the 2007 Stock
Incentive Plan.10.12(9)
    
    Indenture of Lease, dated August 14, 1995, between Freeway 130
L.L.C. and A.C. Moore, Inc.10.13(10)
    
    Second Amendment to Lease, dated as of March 25, 1998, between
Freeway 130 L.L.C. and A.C. Moore, Inc.10.14(11)
    
    Loan Agreement dated as of October 28, 2003, by and between
Wachovia Bank, National Association and the Company, A.C. Moore
Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc.
and A.C. Moore Urban Renewal, LLC. The Company will furnish to
the Securities and Exchange Commission a copy of any omitted
exhibits or schedules upon request.10.15(11)
    
    Construction Loan Agreement dated as of October 28, 2003, by and
between Wachovia Bank, National Association and the Company,
A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood
Assets, Inc. and A.C. Moore Urban Renewal, LLC. The Company will
furnish to the Securities and Exchange Commission a copy of any
omitted exhibits or schedules upon request.10.16(11)
    
    Mortgage, Assignment of Rents and Security Agreement and
Financing Statement dated as of October 28, 2003, by and between
A.C. Moore Urban Renewal, LLC and Wachovia Bank, National
Association. The Company will furnish to the Securities and
Exchange Commission a copy of any omitted exhibits upon request.10.17(12)
    
    Modification Number One to Promissory Note dated as of November
3, 2004, by and between Wachovia Bank, National Association and
the Company, A.C. Moore Incorporated, Moorestown Finance, Inc.,
Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.18(13)
    
    Promissory Note and Loan Modification Agreement dated as of
February 22, 2006, by and between Wachovia Bank, National
Association and the Company, A.C. Moore Incorporated, Moorestown
Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban
Renewal, LLC.10.19(2)
    
    Promissory Note and Loan Modification Agreement dated as of
March 12, 2007 by and between Wachovia Bank, National
Association and the Company, A.C. Moore Incorporated, Moorestown
Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban
Renewal, LLC.
 70




---



##### Table of Contents



Exhibit Number
    
    Description10.20(14)
    
    Promissory Note and Loan Modification Agreement, dated January
24, 2008, by and between Wachovia Bank, National Association and
the Company, A.C. Moore Incorporated, Moorestown Finance, Inc.,
Blackwood Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.21(15)
    
    Amended and Restated Swap Transaction Confirmation, signed on
December 8, 2006 and effective as of November 27, 2006.10.22(15)
    
    Amended and Restated Swap Transaction Confirmation, signed on
December 8, 2006 and effective as of November 27, 2006.+10.23(16)
    
    Employment Agreement, effective as of June 1, 2006, between the
Company and Rick A. Lepley.+10.24(16)
    
    Form of Option Agreement between the Company and Rick A. Lepley.+10.25(17)
    
    First Amendment, dated as of November 15, 2006, to the
Employment Agreement, dated as of June 1, 2006, between the
Company and Rick A. Lepley.+10.26(3)
    
    Second Amendment, dated as of November 19, 2007, to the
Employment Agreement, dated as of June 1, 2006, between the
Company and Rick A. Lepley, as amended by the First Amendment,
dated as of November 15, 2006.+10.27(16)
    
    Agreement and Complete and Full General Release, effective as of
June 1, 2006, between the Company and Jack Parker.+10.28(16)
    
    Agreement and Complete and Full General Release, effective as of
June 1, 2006, between the Company and Leslie H. Gordon.+10.29(18)
    
    Amendment No. One, dated September 6, 2006, to Agreement and
Complete and Full General Release, dated June 1, 2006, between
the Company and Leslie H. Gordon.+10.30(19)
    
    Agreement and Complete and Full General Release, effective as of
June 8, 2006, between the Company and Patricia A. Parker.+10.31(20)
    
    Agreement and Complete and Full General Release, dated July 31,
2006, between the Company and Janet Parker.+10.32(2)
    
    Employment Agreement, effective as of July 24, 2006, between the
Company and Amy Rhoades.+10.33(2)
    
    First Amendment, dated as of November 15, 2006, to the
Employment Agreement, dated as of July 24, 2006, between the
Company and Amy Rhoades.+10.34(3)
    
    Second Amendment, dated as of November 19, 2007, to the
Employment Agreement, dated as of July 24, 2006, by and between
the Company and Amy Rhoades, as amended by the First Amendment,
dated as of November 15, 2006.
 71




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##### Table of Contents



Exhibit Number
    
    Description+10.35(18)
    
    Employment Agreement, signed on September 6, 2006 and effective
as of September 13, 2006, between the Company and Marc D. Katz.+10.36(18)
    
    Form of Non-Qualified Option Agreement between the Company and
Marc D. Katz.+10.37(21)
    
    Separation Agreement, dated July 17, 2007, between the Company
and Lawrence H. Fine.+10.38(22)
    
    Letter Agreement, dated July 3, 2007, between the Company and
Craig R. Davis.+10.39(23)
    
    Letter Agreement, dated November 28, 2007, between the Company
and Joseph A. Jeffries.21.1
    
    Subsidiaries of the Company.23.1
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) promulgated under the Securities Exchange Act of 1934,
as amended (the Exchange Act).31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) promulgated under the Exchange Act.32.1
    
    Certification of the Companys Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Companys Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 +
    
    Management contract or compensatory plan or arrangement.(1)
    
    Incorporated by reference to the Companys Registration Statement on Form S-1 (File
No. 333-32859) filed on August 5, 1997.(2)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December 31,
2006.(3)
    
    Incorporated by reference to the Companys Form 8-K filed on November 21, 2007.(4)
    
    Incorporated by reference to the Companys Form 8-K filed on August 27, 2004. 72




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##### Table of Contents



(5)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on April
22, 2002.(6)
    
    Incorporated by reference to the Companys Form 8-K filed on August 9, 2006.(7)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on April
30, 2007.(8)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (File
No. 333-143612) filed on June 8, 2007.(9)
    
    Incorporated by reference to Amendment No. 1 to the Companys Registration Statement
on Form S-1 (File No. 333-32859) filed on September 16, 1997.(10)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 1998.(11)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended
September 30, 2003.(12)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 2004.(13)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 2005.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on January 30, 2008.(15)
    
    Incorporated by reference to the Companys Form 8-K filed on December 14, 2006.(16)
    
    Incorporated by reference to the Companys Form 8-K filed on June 7, 2006.(17)
    
    Incorporated by reference to the Companys Form 8-K filed on November 16, 2006.(18)
    
    Incorporated by reference to the Companys Form 8-K filed on September 6, 2006.(19)
    
    Incorporated by reference to the Companys Form 8-K filed on June 14, 2006.(20)
    
    Incorporated by reference to the Companys Form 8-K filed on July 31, 2006.(21)
    
    Incorporated by reference to the Companys Form 8-K filed on July 20, 2007.(22)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended June 30,
2007.(23)
    
    Incorporated by reference to the Companys Form 8-K filed on November 28, 2007. 73




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##### Table of Contents



SCHEDULE II
A.C. MOORE ARTS & CRAFTS, INC.
Valuation and Qualifying Accounts
  Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EDeductions -Write-offs,Balance at
    
    Additions -
    
    Payments andDescription
    
    Beginning of
    
    Charged to
    
    Other
    
    Balance at EndLower of Cost or Market Reserve
    
    Period
    
    Expense
    
    Adjustments
    
    of Period2007
    
    $
    1,315
    
    
    $
    1,489
    
    
    $
    1,013
    
    
    $
    1,7912006
    
    
    1,525
    
    
    
    462
    
    
    
    672
    
    
    
    1,3152005
    
    
    1,467
    
    
    
    501
    
    
    
    443
    
    
    
    1,525
 Deductions -Write-offs,Balance at
    
    Additions -
    
    Payments andDescription
    
    Beginning of
    
    Charged to
    
    Other
    
    Balance at EndIncome Tax Valuation Allowance
    
    Period
    
    Expense
    
    Adjustments
    
    of Period2007
    
    $
    1,362
    
    
    $
    1,645
    
    
    $
    
    
    
    $
    3,0072006
    
    
    875
    
    
    
    487
    
    
    
    
    
    
    
    1,3622005
    
    
    820
    
    
    
    107
    
    
    
    52
    
    
    
    875
 74




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##### Table of Contents



SIGNATURES
  A.C. MOORE ARTS & CRAFTS, INC.Date: March 26, 2008
    By:
    /s/ Rick A. LepleyRick A. LepleyPresident and Chief Executive Officer  Signature
    
    Capacity
    
    Date/s/ Rick A. Lepley

Rick A. Lepley
    
    President, Chief Executive
Officer and Director (Principal
Executive Officer)
    
    March 26, 2008/s/ Marc Katz

Marc Katz
    
    Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    March 26, 2008/s/ Michael J. Joyce

Michael J. Joyce
    
    Chairman of the Board of Directors
    
    March 26, 2008/s/ Joseph F. Coradino

Joseph F. Coradino
    
    Director
    
    March 26, 2008/s/ Neil A. McLachlan

Neil A. McLachlan
    
    Director
    
    March 26, 2008/s/ Thomas S. Rittenhouse

Thomas S. Rittenhouse
    
    Director
    
    March 26, 2008/s/ Lori J. Schafer

Lori J. Schafer
    
    Director
    
    March 26, 2008
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Exhibit Index
 Exhibit Number
    
    Description3.1(1)
    
    Articles of Incorporation.3.1.1(2)
    
    Amendment to Articles of Incorporation.3.1.2(3)
    
    Amendment to Articles of Incorporation.3.2(4)
    
    Amended and Restated Bylaws.+10.1(1)
    
    1997 Employee, Director and Consultant Stock Option Plan.+10.2(1)
    
    Form of Incentive Stock Option Agreement under the 1997 Employee,
Director and Consultant Stock Option Plan.+10.3(5)
    
    2002 Stock Option Plan.+10.4(6)
    
    Form of Incentive Stock Option/Non-Qualified Option Agreement under
the 2002 Stock Option Plan.+10.5(7)
    
    2007 Annual Incentive Plan.+10.6(8)
    
    2007 Stock Incentive Plan.+10.7(8)
    
    Form of Stock Unit Agreement under the 2007 Stock Incentive Plan.+10.8(8)
    
    Form of Nonqualified Stock Option Agreement under the 2007 Stock
Incentive Plan.+10.9(8)
    
    Form of Incentive Stock Option Agreement under the 2007 Stock
Incentive Plan.+10.10(8)
    
    Form of Stock Appreciation Rights Agreement under the 2007 Stock
Incentive Plan.+10.11(8)
    
    Form of Restricted Stock Agreement under the 2007 Stock Incentive Plan.10.12(9)
    
    Indenture of Lease, dated
August 14, 1995, between Freeway 130 L.L.C. and A.C. Moore, Inc.10.13(10)
    
    Second Amendment to Lease, dated as of March 25, 1998, between Freeway
130 L.L.C. and A.C. Moore, Inc.10.14(11)
    
    Loan Agreement dated as of October 28, 2003, by and between Wachovia
Bank, National Association and the Company, A.C. Moore Incorporated,
Moorestown Finance, Inc., Blackwood Assets, Inc. and A.C. Moore Urban
Renewal, LLC. The Company will furnish to the Securities and Exchange
Commission a copy of any omitted exhibits or schedules upon request.
 76




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##### Table of Contents



Exhibit Number
    
    Description10.15(11)
    
    Construction Loan Agreement dated as of October 28, 2003, by and
between Wachovia Bank, National Association and the Company, A.C.
Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc.
and A.C. Moore Urban Renewal, LLC. The Company will furnish to the
Securities and Exchange Commission a copy of any omitted exhibits or
schedules upon request.10.16(11)
    
    Mortgage, Assignment of Rents and Security Agreement and Financing
Statement dated as of October 28, 2003, by and between A.C. Moore
Urban Renewal, LLC and Wachovia Bank, National Association. The
Company will furnish to the Securities and Exchange Commission a copy
of any omitted exhibits upon request.10.17(12)
    
    Modification Number One to Promissory Note dated as of November 3,
2004, by and between Wachovia Bank, National Association and the
Company, A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood
Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.18(13)
    
    Promissory Note and Loan Modification Agreement dated as of February
22, 2006, by and between Wachovia Bank, National Association and the
Company, A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood
Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.19(2)
    
    Promissory Note and Loan Modification Agreement dated as of March 12,
2007 by and between Wachovia Bank, National Association and the
Company, A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood
Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.20(14)
    
    Promissory Note and Loan Modification Agreement, dated January 24,
2008, by and between Wachovia Bank, National Association and the
Company, A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood
Assets, Inc. and A.C. Moore Urban Renewal, LLC.10.21(15)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.10.22(15)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.+10.23(16)
    
    Employment Agreement, effective as of June 1, 2006, between the
Company and Rick A. Lepley.+10.24(16)
    
    Form of Option Agreement between the Company and Rick A. Lepley.+10.25(17)
    
    First Amendment, dated as of November 15, 2006, to the Employment
Agreement, dated as of June 1, 2006, between the Company and Rick A.
Lepley.
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##### Table of Contents



Exhibit Number
    
    Description+10.26(3)
    
    Second Amendment, dated as of November 19, 2007, to the Employment
Agreement, dated as of June 1, 2006, between the Company and Rick A.
Lepley, as amended by the First Amendment, dated as of November 15,
2006.+10.27(16)
    
    Agreement and Complete and Full General Release, effective as of June
1, 2006, between the Company and Jack Parker.+10.28(16)
    
    Agreement and Complete and Full General Release, effective as of June
1, 2006, between the Company and Leslie H. Gordon.+10.29(18)
    
    Amendment No. One, dated September 6, 2006, to Agreement and Complete
and Full General Release, dated June 1, 2006, between the Company and
Leslie H. Gordon.+10.30(19)
    
    Agreement and Complete and Full General Release, effective as of June
8, 2006, between the Company and Patricia A. Parker.+10.31(20)
    
    Agreement and Complete and Full General Release, dated July 31, 2006,
between the Company and Janet Parker.+10.32(2)
    
    Employment Agreement, effective as of July 24, 2006, between the
Company and Amy Rhoades.+10.33(2)
    
    First Amendment, dated as of November 15, 2006, to the Employment
Agreement, dated as of July 24, 2006, between the Company and Amy
Rhoades.+10.34(3)
    
    Second Amendment, dated as of November 19, 2007, to the Employment
Agreement, dated as of July 24, 2006, by and between the Company and
Amy Rhoades, as amended by the First Amendment, dated as of November
15, 2006.+10.35(18)
    
    Employment Agreement, signed on September 6, 2006 and effective as of
September 13, 2006, between the Company and Marc D. Katz.+10.36(18)
    
    Form of Non-Qualified Option Agreement between the Company and Marc D.
Katz.+10.37(21)
    
    Separation Agreement, dated July 17, 2007, between the Company and
Lawrence H. Fine.+10.38(22)
    
    Letter Agreement, dated July 3, 2007, between the Company and Craig R.
Davis.+10.39(23)
    
    Letter Agreement, dated November 28, 2007, between the Company and
Joseph A. Jeffries.21.1
    
    Subsidiaries of the Company.
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##### Table of Contents



Exhibit Number
    
    Description23.1
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a14(a)
promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a14(a)
promulgated under the Exchange Act.32.1
    
    Certification of the Companys Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Companys Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 +
    
    Management contract or compensatory plan or arrangement.(1)
    
    Incorporated by reference to the Companys Registration Statement on Form S-1 (File
No. 333-32859) filed on August 5, 1997.(2)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December 31,
2006.(3)
    
    Incorporated by reference to the Companys Form 8-K filed on November 21, 2007.(4)
    
    Incorporated by reference to the Companys Form 8-K filed on August 27, 2004.(5)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on April
22, 2002.(6)
    
    Incorporated by reference to the Companys Form 8-K filed on August 9, 2006.(7)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on April
30, 2007.(8)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (File
No. 333-143612) filed on June 8, 2007.(9)
    
    Incorporated by reference to Amendment No. 1 to the Companys Registration Statement
on Form S-1 (File No. 333-32859) filed on September 16, 1997.(10)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 1998.(11)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended
September 30, 2003.(12)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 2004. 79




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##### Table of Contents



(13)
    
    Incorporated by reference to the Companys Form 10-K for the year ended December
31, 2005.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on January 30, 2008.(15)
    
    Incorporated by reference to the Companys Form 8-K filed on December 14, 2006.(16)
    
    Incorporated by reference to the Companys Form 8-K filed on June 7, 2006.(17)
    
    Incorporated by reference to the Companys Form 8-K filed on November 16, 2006.(18)
    
    Incorporated by reference to the Companys Form 8-K filed on September 6, 2006.(19)
    
    Incorporated by reference to the Companys Form 8-K filed on June 14, 2006.(20)
    
    Incorporated by reference to the Companys Form 8-K filed on July 31, 2006.(21)
    
    Incorporated by reference to the Companys Form 8-K filed on July 20, 2007.(22)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended June 30,
2007.(23)
    
    Incorporated by reference to the Companys Form 8-K filed on November 28, 2007. 80