##### 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 January 1, 2011
 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)
 (Name of each exchange on which registered)
 None
 o þ
 o þ
 þ o
 þ
 o o
  o Large accelerated filer
    
    o Accelerated filer
    

o Non-accelerated filer
    

þ Smaller reporting company(Do not check if a smaller reporting company)
 o þ
 (1)
  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 percent 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  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. (REMOVED AND RESERVED)PART 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 INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESIGNATURESExhibit IndexExhibit 10.31.1Exhibit 10.33.2Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  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  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 this Cautionary Statement.
 
 PART I
 
 ITEM 1.
    
    BUSINESS.
 General




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Industry Overview and Competition
   
    
    Multi-store arts and crafts retailers.This category includes multi-store
arts and crafts chains operating more than 35 stores and comprises: Michaels Stores,
Inc., which operates approximately 1,000 Michaels stores in the United States and
Canada; Jo-Ann Stores, Inc., which operates approximately 520 small-format stores and
230 large-format stores nationwide in addition to sales on its e-commerce site; and
Hobby Lobby Stores, Inc., which operates approximately 470 stores primarily in the
Midwestern and Southeastern United States.
 
    
    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.
   2




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Business and Operating Strategy
  Drive
sales.
 
    
    Customer insight.Understanding our customers expectations of A.C. Moore, along
with product trends and customer interests, is core to our ability to develop stronger
relationships and be our customers store of choice. We primarily utilize our social
networking sites and our REWARDS loyalty program to gain consumer insight, supplemented
by other studies from time to time.
 
    
    Differentiated merchandise assortment.We continually seek to identify new and unique
product lines and merchandise assortments that differentiate us from our competitors.
We regularly review our supplier base and product assortment to ensure that we are
offering newness to our customers and enhancing the overall shopping experience.
 
    
    Improved in-stock position.A high in-stock position is critical to maximizing our
sales potential and enhancing customer loyalty. Since 2007, we have invested
significant resources in supply chain and inventory management systems. We continue to
refine our inventory management processes to ensure we maintain high in-stock levels,
especially on basic craft components that are meaningful to our customers.
 
    
    Integrated marketing/advertising program.We continue to enhance and diversify our
marketing and advertising mix based on our customer and craft consumer preferences. Our
marketing mix is designed to allow us to reach both current and prospective customers in
an efficient manner. Diversified marketing vehicles allow us to market more efficiently
based on our customer product preferences. Through these different vehicles, we can
target our marketing of promotional items, new products and programs, creating both
sales and margin enhancements.
 
    
    Promotional strategies.We continue to test new advertising and marketing vehicles
to enhance both sales and margin. While print advertising remains an important vehicle
for us, we continue to build our direct marketing capabilities to drive profitable sales
and traffic from both existing and prospective customers. We also continue to test
other vehicles based on insight on how our customers and crafters use media.
 
    
    A.C. Moore Rewards program.In July 2009, we launched our REWARDS customer loyalty
program throughout the chain. We utilize this powerful tool to interact with our
customers based on their purchase history and product preferences, delivering targeted
product information and promotions. We believe this initiative will increase our share
of wallet with our existing customers and enable us to differentiate ourselves from our
competition.
 Improve store profitability .
 
    
    Real estate portfolio strategy.Management continually reviews opportunities to open
stores in new and existing markets and to relocate or remodel existing stores where
strategically prudent and economically viable. Existing stores are reviewed on a
periodic basis to identify underperforming locations for potential relocation,
remodeling or closure. During 2010, we opened two new stores,
relocated three stores, and remodeled 12 stores. We also completed several lease
renegotiations, which lowered the cost of occupancy in these stores.
 
    
    Store operations leadership. In fiscal 2010, we reorganized our store operations
leadership team to provide more training and development capabilities within our field
organization. We believe this structure will enhance our ability to improve store
profitability.
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Increase gross margin .
 
    
    Category management.The category management process leverages merchandise assortment
planning tools, the use of a merchandise planning calendar and an open-to-buy process
focused on sales and inventory productivity.
 
    
    Price optimization.We believe we have significant opportunities to increase our
gross margin by optimizing our regular shelf prices and employing our market basket
tools to improve the profitability and sales of promotional products. We believe that
we offer competitive pricing, but there are opportunities to strategically improve
margins while focusing on growing  market share.
 
    
    Supply chain optimization.In addition to our ongoing supply chain initiatives,
which include improving in-stock positions, optimizing inventory levels, increasing
merchandise turns and improving distribution efficiencies, in fiscal 2010 we completed
two significant projects: automated replenishment and advance shipment notification
(ASN) supported cross-docking. Over 70 percent of our products were on automated
replenishment by the end of fiscal 2010, improving service levels to our stores. Our
second key project was ASN supported cross-docking. This program now allows our vendors
to ship orders, which were previously shipped to stores, directly to our warehouse.
Once at our warehouse, these orders are received, combined with orders picked from our
warehouse stock and shipped to the stores on the same trailers. This project has
lowered vendor direct-to-store shipments, reduced freight costs, and enabled us to
leverage our current distribution center to handle the vast majority of all merchandise
sold in our stores, allowing store associates to spend more time serving our customers.
At the end of fiscal 2010, over 90 percent of our merchandise was
shipped to stores directly from our distribution center.
 Merchandising
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Fiscal2010
    
    
    2009
    
    
    2008Art and scrapbooking
    
    
    26.7
    %
    
    
    27.7
    %
    
    
    29.4
    %Traditional crafts
    
    
    34.3
    
    
    
    32.2
    
    
    
    27.7Floral and floral accessories
    
    
    9.0
    
    
    
    8.9
    
    
    
    9.9Fashion crafts
    
    
    8.9
    
    
    
    9.3
    
    
    
    9.6Home décor and frames
    
    
    16.9
    
    
    
    17.3
    
    
    
    17.8Seasonal items
    
    
    4.2
    
    
    
    4.6
    
    
    
    5.6Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Purchasing and Inventory Management
  
    
    The largest 25 vendors accounted for approximately 60 percent of our
purchases;
 
    
    The largest vendor, SBARS, Inc., a distributor of arts and crafts
merchandise, accounted for approximately 17 percent of our purchases; and
 
    
    Approximately 10 percent of our purchases, primarily floral and seasonal
items, were directly imported from foreign manufacturers or their agents, almost
exclusively from China. All of our overseas purchases are denominated in U.S. dollars.
   Marketing
    5




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Store Design and Operations
    Store Expansion, Relocations and Remodels
     6




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Distribution
     Information Technology
    Associates
  Trademarks
   7




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Website and Availability of Information
   
  
 ITEM 1A.
    
    RISK FACTORS.
 Future losses may adversely affect our financial condition and cash flows.
  Our announcement on February 15, 2011 that we are exploring strategic alternatives for the Company
could have a material adverse effect on our business, financial results and operations.
   8




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If we are unable to comply with the terms of our credit facility, it could materially harm our
business and financial condition and restrict our operating flexibility.
    Economic conditions could have a material adverse effect on our business, revenue and protitability.
    9




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Competition could negatively impact our operations and results.
   Our ability to increase sales, profitability and cash flow depends on our ability to increase the
productivity and profitability of existing stores. Continued sales declines in our existing stores
may  further increase our losses and significantly impair cash flow.
  Our real estate strategy may not result in improved profitability.
    10




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Changes in estimates, assumptions and judgments made by management related to our evaluation of
store closure reserves and impairments could significantly affect our financial results.
  Higher costs or any failure to achieve targeted results associated with the implementation of new
programs or initiatives could affect our results of operations adversely.
  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 necessarily 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,
 
    
    merchandise in-stock positions,
 
    
    competitive factors, and
 
    
    general economic and political conditions.
   11




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We may not be able to anticipate successfully changes in merchandise trends and consumer demands
and our failure to do so may lead to lost sales
  The failure to respond accurately to inventory requirements may have a material adverse impact on
our results from operations.
  Unfavorable consumer response to our promotional strategies 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.
   12




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Significant changes in our relationships with key suppliers may adversely impact our business.
  Our reliance on imported merchandise may negatively impact our business in the event of disruptions
or increased costs associated with obtaining such merchandise.
  
    
    Disruptions in the flow of imported goods because of factors such as:
 
    
    Raw material shortages, factory consolidations, work stoppages,
strikes and political unrest;
 
    
    The inability of vendors to secure adequate credit facilities;
 
    
    Problems with trans-ocean shipping, including storage of shipping containers; and
 
    
    Global or international economic uncertainties, crises or disputes.
 
    
    Increases in the cost of purchasing or shipping imported merchandise that may result from:
 
    
    Increases in shipping rates imposed by trans-ocean carriers;
 
    
    Changes in currency exchange rates and local economic conditions, including inflation;
 
    
    Failure of the United States to maintain normal trade relations with China; and
 
    
    Import duties, quotas and other trade sanctions.
   13




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Our information technology may prove inadequate.
  We are a retailer that is dependent on attracting and retaining a large number of quality
associates in entry level or part-time positions. Since our ability to meet our labor needs is
subject to factors we cannot control, the performance of our business could be negatively impacted
by changes in these factors and our cost of doing business could increase as a result of changes in
federal, state or local regulations.
  We are dependent upon the services of our senior management team. The loss of Joseph A. Jeffries,
our Chief Executive Officer, David Abelman, our Chief Marketing and Merchandising Officer, or David
Stern, our Chief Financial Officer, could have a negative impact on our ability to execute on our
business and operating strategy.
  An increase in the cost of fuel, oil and oil-based products could impact our margin.
   14




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The Consumer Product Safety Improvement Act and other existing or future government regulation
could harm our business or may cause us to incur additional costs associated with compliance.
  The price and volume of our common stock has been volatile and may continue to be so. This
volatility may mean that, at times, the holders of our common stock may be unable to resell their
shares at or above the price at which they acquired them.
   
    
    our announcement on February 15, 2011 that we are exploring strategic
alternatives, as well as any related developments;
 
    
    economic conditions;
 
    
    changes in our business, operations or prospects;
 
    
    continued operating losses;
 
    
    loss or bankruptcy of any of our distribution partners or suppliers;
 
    
    departure of key personnel;
 
    
    variations in our quarterly operating results;
 
    
    announcements by our competitors of significant contracts, new products or
product enhancements, acquisitions, distribution partnerships, joint ventures or
capital commitments;
 
    
    actions by NASDAQ if we failed to satisfy NASDAQ listing rules;
 
    
    sales of common stock or other securities by us in the future; and
 
    
    fluctuations in stock market prices and volumes.
  EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionJoseph A. Jeffries
    
    
    45
    
    
    Chief Executive Officer and Member of the Board of DirectorsDavid Abelman
    
    
    51
    
    
    Executive Vice President and Chief Merchandising and Marketing OfficerDavid Stern
    
    
    44
    
    
    Executive Vice President and Chief Financial and Administrative OfficerAmy Rhoades
    
    
    39
    
    
    Senior Vice President and General CounselRodney Schriver
    
    
    54
    
    
    Vice President, Chief Accounting Officer and Controller
  15




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS.
   16




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ITEM 2.
    
    PROPERTIES.
  Fiscal YearState
    
    2010
    
    
    2009
    
    
    20081.
    
    Connecticut
    
    
    4
    
    
    
    4
    
    
    
    42.
    
    Delaware
    
    
    2
    
    
    
    2
    
    
    
    23.
    
    Florida
    
    
    6
    
    
    
    6
    
    
    
    64.
    
    Georgia
    
    
    1
    
    
    
    1
    
    
    
    15.
    
    Maine
    
    
    3
    
    
    
    3
    
    
    
    36.
    
    Maryland
    
    
    7
    
    
    
    8
    
    
    
    87.
    
    Massachusetts
    
    
    12
    
    
    
    12
    
    
    
    128.
    
    New Hampshire
    
    
    3
    
    
    
    4
    
    
    
    49.
    
    New Jersey
    
    
    19
    
    
    
    20
    
    
    
    2010.
    
    New York
    
    
    21
    
    
    
    21
    
    
    
    2111.
    
    North Carolina
    
    
    13
    
    
    
    12
    
    
    
    1112.
    
    Pennsylvania
    
    
    25
    
    
    
    25
    
    
    
    2313.
    
    Rhode Island
    
    
    1
    
    
    
    1
    
    
    
    114.
    
    South Carolina
    
    
    5
    
    
    
    4
    
    
    
    415.
    
    Tennessee
    
    
    1
    
    
    
    1
    
    
    
    116.
    
    Virginia
    
    
    9
    
    
    
    9
    
    
    
    917.
    
    West Virginia
    
    
    2
    
    
    
    2
    
    
    
    2Total Stores Open at End of Year
    
    
    134
    
    
    
    135
    
    
    
    132
  Fiscal Year2010
    
    
    2009
    
    
    2008Stores Open at Beginning of Year
    
    
    135
    
    
    
    132
    
    
    
    132Stores Opened During the Year
    
    
    2
    
    
    
    3
    
    
    
    9Stores Closed During the Year
    
    
    (3
    )
    
    
    0
    
    
    
    (9
    )Stores Open at End of Year
    
    
    134
    
    
    
    135
    
    
    
    132Stores Relocated
    
    
    3
    
    
    
    2
    
    
    
    1Stores Remodeled to Nevada Model
    
    
    12
    
    
    
    1
    
    
    
    0Nevada Model Stores Open at End of Year
    
    
    39
    
    
    
    24
    
    
    
    18
   17




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ITEM 3.
    
    LEGAL PROCEEDINGS.
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  High
    
    
    LowFiscal 2010First Quarter
    
    $
    3.62
    
    
    $
    2.41Second Quarter
    
    
    4.20
    
    
    
    2.06Third Quarter
    
    
    2.69
    
    
    
    1.71Fourth Quarter
    
    
    2.90
    
    
    
    1.82Fiscal 2009First Quarter
    
    $
    2.68
    
    
    $
    1.00Second Quarter
    
    
    4.38
    
    
    
    1.87Third Quarter
    
    
    4.21
    
    
    
    2.85Fourth Quarter
    
    
    5.63
    
    
    
    2.29
     18




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##### Table of Contents



ITEM 6.
    
    SELECTED FINANCIAL DATA.
  Fiscal2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(In thousands except per share data)Statement of Operations Data:Net sales
    
    $
    448,058
    
    
    $
    468,889
    
    
    $
    534,665
    
    
    $
    559,693
    
    
    $
    589,506Gross margin
    
    
    185,220
    
    
    
    187,275
    
    
    
    217,281
    
    
    
    228,731
    
    
    
    226,828Selling, general and administrative expenses
    
    
    211,390
    
    
    
    213,268
    
    
    
    232,307
    
    
    
    219,597
    
    
    
    217,923Store pre-opening and closing expenses
    
    
    2,613
    
    
    
    4,477
    
    
    
    8,742
    
    
    
    3,229
    
    
    
    4,616Income (loss) from operations
    
    
    (28,783
    )
    
    
    (30,470
    )
    
    
    (23,768
    )
    
    
    5,470
    
    
    
    913Net income (loss)
    
    
    (30,180
    )
    
    
    (25,903
    )
    
    
    (26,571
    )
    
    
    3,783
    
    
    
    (406
    )Net income (loss) per share, diluted
    
    $
    (1.23
    )
    
    $
    (1.15
    )
    
    $
    (1.31
    )
    
    $
    0.19
    
    
    $
    (0.02
    )Weighted average shares outstanding, diluted
    
    
    24,443
    
    
    
    22,470
    
    
    
    20,301
    
    
    
    20,349
    
    
    
    19,929(In thousands)Balance Sheet Data (as of):Working capital
    
    $
    73,432
    
    
    $
    96,627
    
    
    $
    102,074
    
    
    $
    145,037
    
    
    $
    143,206Total assets
    
    
    237,636
    
    
    
    265,469
    
    
    
    293,746
    
    
    
    321,890
    
    
    
    314,264Total debt
    
    
    19,000
    
    
    
    19,000
    
    
    
    29,071
    
    
    
    21,642
    
    
    
    24,214Shareholders equity
    
    
    131,413
    
    
    
    160,074
    
    
    
    174,300
    
    
    
    199,600
    
    
    
    192,505(In thousands except sales per square foot and store count)Other Data:Cash flows from operating activities
    
    $
    3,564
    
    
    $
    (17,932
    )
    
    $
    17,719
    
    
    $
    8,610
    
    
    $
    31,496Number of stores open at end of period
    
    
    134
    
    
    
    135
    
    
    
    132
    
    
    
    132
    
    
    
    122Net sales per total square foot (1)
    
    $
    146
    
    
    $
    155
    
    
    $
    177
    
    
    $
    198
    
    
    $
    234Average net sales per store (1)
    
    $
    3,295
    
    
    $
    3,519
    
    
    $
    4,047
    
    
    $
    4,674
    
    
    $
    5,401Comparable store sales increase (decrease) (2)
    
    
    (5
    )%
    
    
    (11
    )%
    
    
    (9
    )%
    
    
    (10
    )%
    
    
    0
    %
  
 (1)
    
    Includes only stores open during the entire period.(2)
    
    Stores are added to the comparable store base at the beginning of the fourteenth full month
of operation. Comparable stores that are relocated or remodeled remain in the comparable store
base. Stores that close are removed from the comparable store base as of the beginning of the
month of closure.
 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 Overview
 General
    19




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Business and Operating Strategy
   20




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Drive
sales.
 
    
    Customer insight.Understanding our customers expectations of A.C. Moore, along
with product trends and customer interests, is core to our ability to develop stronger
relationships and be our customers store of choice. We primarily utilize our social
networking sites and our REWARDS loyalty program to gain consumer insight, supplemented
by other studies from time to time.
 
    
    Differentiated merchandise assortment.We continually seek to identify new and unique
product lines and merchandise assortments that differentiate us from our competitors.
We regularly review our supplier base and product assortment to ensure that we are
offering newness to our customers and enhancing the overall shopping experience.
 
    
    Improved in-stock position.A high in-stock position is critical to maximizing our
sales potential and enhancing customer loyalty. Since 2007, we have invested
significant resources in supply chain and inventory management systems. We continue to
refine our inventory management processes to ensure we maintain high in-stock levels,
especially on basic craft components that are meaningful to our customers.
 
    
    Integrated marketing/advertising program.We continue to enhance and diversify our
marketing and advertising mix based on our customer and craft consumer preferences. Our
marketing mix is designed to allow us to reach both current and prospective customers in
an efficient manner. Diversified marketing vehicles allow us to market more efficiently
based on our customer product preferences. Through these different vehicles, we can
target our marketing of promotional items, new products and programs, creating both
sales and margin enhancements.
 
    
    Promotional strategies.We continue to test new advertising and marketing vehicles
to enhance both sales and margin. While print advertising remains an important vehicle
for us, we continue to build our direct marketing capabilities to drive profitable sales
and traffic from both existing and prospective customers. We also continue to test
other vehicles based on insight on how our customers and crafters use media.
 
    
    A.C. Moore Rewards program.In July 2009, we launched our REWARDS customer loyalty
program throughout the chain. We utilize this powerful tool to interact with our
customers based on their purchase history and product preferences, delivering targeted
product information and promotions. We believe this initiative will increase our share
of wallet with our existing customers and enable us to differentiate ourselves from our
competition.
 Improve store profitability .
 
    
    Real estate portfolio strategy.Management continually reviews opportunities to open
stores in new and existing markets and to relocate or remodel existing stores where
strategically prudent and economically viable. Existing stores are reviewed on a
periodic basis to identify underperforming locations for potential relocation,
remodeling or closure. During 2010, we opened two new stores, relocated three stores,
and remodeled 12 stores. We also completed several lease renegotiations, which lowered
the cost of occupancy in these stores.
 
    
    Store operations leadership. In fiscal 2010, we reorganized our store operations
leadership team to provide more training and development capabilities within our field
organization. We believe this structure will enhance our ability to improve store
profitability.
  21




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##### Table of Contents



Increase gross margin .
 
    
    Category management.The category management process leverages merchandise assortment
planning tools, the use of a merchandise planning calendar and an open-to-buy process
focused on sales and inventory productivity.
 
    
    Price optimization.We believe we have significant opportunities to increase our
gross margin by optimizing our regular shelf prices and employing our market basket
tools to improve the profitability and sales of promotional products. We believe that
we offer competitive pricing, but there are opportunities to strategically improve
margins while focusing on growing  market share.
 
    
    Supply chain optimization.In addition to our ongoing supply chain initiatives,
which include improving in-stock positions, optimizing inventory levels, increasing
merchandise turns and improving distribution efficiencies, in fiscal 2010 we completed
two significant projects: automated replenishment and advance shipment notification
(ASN) supported cross-docking. Over 70 percent of our products were on automated
replenishment by the end of fiscal 2010, improving service levels to our stores. Our
second key project was ASN supported cross-docking. This program now allows our vendors
to ship orders, which were previously shipped to stores, directly to our warehouse.
Once at our warehouse, these orders are received, combined with orders picked from our
warehouse stock and shipped to the stores on the same trailers. This project has
lowered vendor direct-to-store shipments, reduced freight costs, and enabled us to
leverage our current distribution center to handle the vast majority of all merchandise
sold in our stores, allowing store associates to spend more time serving our customers.

At the end of fiscal 2010, over 90 percent of our merchandise was
shipped to stores directly from our distribution center.
  22




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Results of Operations
  Fiscal2010
    
    
    2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    58.7
    
    
    
    60.1
    
    
    
    59.4Gross margin
    
    
    41.3
    
    
    
    39.9
    
    
    
    40.6Selling, general and administrative expenses
    
    
    47.2
    
    
    
    45.5
    
    
    
    43.4Store pre-opening and closing expenses
    
    
    0.6
    
    
    
    1.0
    
    
    
    1.6Loss from operations
    
    
    (6.4
    )
    
    
    (6.5
    )
    
    
    (4.4
    )Interest expense (income), net
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.6Loss before income taxes
    
    
    (6.6
    )
    
    
    (6.7
    )
    
    
    (5.0
    )Provision for (benefit from) income taxes
    
    
    0.1
    
    
    
    (1.2
    )
    
    
    (0.0
    )Net loss
    
    
    (6.7
    )%
    
    
    (5.5
    )%
    
    
    (5.0
    )%
 Fiscal 2010 Compared to Fiscal 2009
 Net
Sales .
 Gross Margin .
 Selling, General and Administrative Expenses .
  23




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Store Pre-Opening and Closing Expenses
   Interest Income and Expense.
 Income Taxes .
 Fiscal 2009 Compared to Fiscal 2008
 Net Sales .
 Gross Margin .
  24




---



##### Table of Contents



Selling, General and Administrative Expenses .
  Store Pre-Opening and Closing Expenses
   Interest Income and Expense.
  25




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##### Table of Contents



Income Taxes .
 Quarterly Results and Seasonality
  First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterFiscal 2010 (a)Net sales
    
    $
    105,369
    
    
    $
    99,850
    
    
    $
    99,669
    
    
    $
    143,170Gross margin
    
    
    45,468
    
    
    
    43,554
    
    
    
    42,234
    
    
    
    53,964Loss from operations
    
    
    (7,312
    )
    
    
    (8,958
    )
    
    
    (7,916
    )
    
    
    (4,596
    )Net loss
    
    
    (7,563
    )
    
    
    (9,662
    )
    
    
    (8,147
    )
    
    
    (4,807
    )Net loss per share, diluted
    
    $
    (0.31
    )
    
    $
    (0.40
    )
    
    $
    (0.33
    )
    
    $
    (0.20
    )Diluted average shares outstanding
    
    
    24,342
    
    
    
    24,419
    
    
    
    24,494
    
    
    
    24,531Number of stores open at end of period
    
    
    136
    
    
    
    135
    
    
    
    135
    
    
    
    134Comparable store sales decrease
    
    
    (5
    )%
    
    
    (6
    )%
    
    
    (7
    )%
    
    
    (4
    )%Fiscal 2009Net sales
    
    $
    108,647
    
    
    $
    104,442
    
    
    $
    106,083
    
    
    $
    149,717Gross margin
    
    
    46,547
    
    
    
    43,464
    
    
    
    40,733
    
    
    
    56,531Loss from operations
    
    
    (3,684
    )
    
    
    (8,031
    )
    
    
    (12,694
    )
    
    
    (6,061
    )Net loss
    
    
    (4,308
    )
    
    
    (8,149
    )
    
    
    (12,909
    )
    
    
    (537
    )Net loss per share, diluted
    
    $
    (0.21
    )
    
    $
    (0.38
    )
    
    $
    (0.53
    )
    
    $
    (0.02
    )Diluted average shares outstanding
    
    
    20,305
    
    
    
    21,323
    
    
    
    24,325
    
    
    
    24,325Number of stores open at end of period
    
    
    132
    
    
    
    133
    
    
    
    133
    
    
    
    135Comparable store sales decrease
    
    
    (13
    )%
    
    
    (14
    )%
    
    
    (8
    )%
    
    
    (9
    )%Fiscal 2008Net sales
    
    $
    126,544
    
    
    $
    126,430
    
    
    $
    116,661
    
    
    $
    165,030Gross margin
    
    
    54,111
    
    
    
    52,363
    
    
    
    50,433
    
    
    
    60,374Loss from operations
    
    
    (2,127
    )
    
    
    (6,622
    )
    
    
    (4,285
    )
    
    
    (10,734
    )Net loss
    
    
    (1,767
    )
    
    
    (4,265
    )
    
    
    (7,539
    )
    
    
    (13,000
    )Net loss per share, diluted
    
    $
    (0.09
    )
    
    $
    (0.21
    )
    
    $
    (0.37
    )
    
    $
    (0.64
    )Diluted average shares outstanding
    
    
    20,299
    
    
    
    20,299
    
    
    
    20,300
    
    
    
    20,304Number of stores open at end of period
    
    
    136
    
    
    
    139
    
    
    
    135
    
    
    
    132Comparable store sales decrease
    
    
    (12
    )%
    
    
    (5
    )%
    
    
    (9
    )%
    
    
    (9
    )%
 (a)
    
    In the fourth quarter of fiscal 2010 the Company recorded a $774 out of period charge to
Selling, general and administrative expenses and reduction to fixed assets to reflect increased
depreciation in the current period resulting from the correction of understatements of depreciation
in the prior quarters of fiscal 2010. This adjustment had no impact on the full year fiscal 2010
Consolidated Statement of Operations or Consolidated Balance Sheets. The company determined the
impact of this adjustment was not material to the financial position or results of operations for
the current and prior interim periods.
  26




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Liquidity and Capital Resources
       27




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28




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Payments Due By Period ($000)Contractual Obligations
    
    Total
    
    
    < 1 Year
    
    
    1  3 Years
    
    
    4  5 Years
    
    
    > 5 YearsShort-term debt (1)
    
    $
    19,000
    
    
    $
    19,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Store operating leases (2)
    
    
    210,644
    
    
    
    42,752
    
    
    
    101,090
    
    
    
    36,967
    
    
    
    29,834Equipment leases
    
    
    904
    
    
    
    454
    
    
    
    450
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    3,329
    
    
    
    1,796
    
    
    
    1,533
    
    
    
    
    
    
    
    Deferred tax liability (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability for uncertain tax positions (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    233,877
    
    
    $
    64,003
    
    
    $
    103,073
    
    
    $
    36,967
    
    
    $
    29,834
 (1)
    
    Short-term debt represents advances under the Companys line of credit. These advances
are renewed over periods of between 30 and 90 days.(2)
    
    Most store leases have an average initial term of ten years, with three five-year renewal
options, and provide for predetermined escalations 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 35 percent of the minimum lease payments.(3)
    
    Purchase obligations include agreements for goods and services that are enforceable and
legally binding to the Company and that specify all significant terms. 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 7 of the Notes to Consolidated Financial Statements
for additional information regarding our deferred tax position.(5)
    
    The Companys liability for uncertain tax positions was excluded from the table above, as the
timing of any cash payment is uncertain. See Note 7 of the Notes to Consolidated Financial
Statements for additional information regarding our uncertain tax positions.
  29




---



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Critical Accounting Estimates
  Merchandise Inventories.
   Impairment of Long-lived Assets.
  30




---



##### Table of Contents



Reserve for Closed Stores.
 Income Taxes.
   Other Estimates.
 .
  31




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Change in Accounting Principles
 Merchandise Inventories
 New Accounting Pronouncements
  Fair Value of Financial Instruments
 
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
    32




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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
    
    
    34Consolidated Balance Sheets at January 1, 2011 and January 2, 2010
    
    
    35Consolidated Statements of Operations for each of the Three Fiscal Years
in the Period Ended January 1, 2011
    
    
    36Consolidated Statements of Changes in Shareholders Equity for each of the
Three Fiscal Years in the Period Ended January 1, 2011
    
    
    37Consolidated Statements of Cash Flows for each of the Three Fiscal Years
in the Period ended January 1, 2011
    
    
    38Notes to Consolidated Financial Statements
    
    
    39
  33




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Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    
  34




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands except shares)
 January 1,
    
    
    January 2,2011
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,970
    
    
    $
    45,952Inventories
    
    
    111,266
    
    
    
    122,058Prepaid expenses and other current assets
    
    
    9,104
    
    
    
    9,239Prepaid and receivable income taxes
    
    
    
    
    
    
    472Deferred tax assets
    
    
    2,153
    
    
    
    3,577162,493
    
    
    
    181,298Non-current assets:Property and equipment, net
    
    
    73,771
    
    
    
    81,938Other assets
    
    
    1,192
    
    
    
    2,233$
    237,456
    
    
    $
    265,469LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    19,000
    
    
    $
    19,000Trade accounts payable
    
    
    43,131
    
    
    
    37,047Accrued payroll and payroll taxes
    
    
    2,224
    
    
    
    1,973Accrued expenses
    
    
    22,815
    
    
    
    24,580Accrued lease liability
    
    
    2,478
    
    
    
    2,07189,648
    
    
    
    84,671Non-current liabilities:Deferred tax liability and other
    
    
    1,920
    
    
    
    3,344Accrued lease liability
    
    
    14,475
    
    
    
    17,38016,395
    
    
    
    20,724106,043
    
    
    
    105,395Commitments and contingencies (See Note 10)Shareholders 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 25,346,412 and 24,851,594
at January 1, 2011 and January 2, 2010, respectively
    
    
    138,105
    
    
    
    136,586Retained earnings (deficit)
    
    
    (6,692
    )
    
    
    23,488131,413
    
    
    
    160,074$
    237,456
    
    
    $
    265,469
   35




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands except per share data)
 Fiscal2010
    
    
    2009
    
    
    2008Net sales
    
    $
    448,058
    
    
    $
    468,889
    
    
    $
    534,665Cost of sales (including buying and distribution costs)
    
    
    262,838
    
    
    
    281,614
    
    
    
    317,384Gross margin
    
    
    185,220
    
    
    
    187,275
    
    
    
    217,281Selling, general and administrative expenses
    
    
    211,390
    
    
    
    213,268
    
    
    
    232,307Store pre-opening and closing expenses
    
    
    2,613
    
    
    
    4,477
    
    
    
    8,742Loss from operations
    
    
    (28,783
    )
    
    
    (30,470
    )
    
    
    (23,768
    )Interest expense
    
    
    991
    
    
    
    1,417
    
    
    
    4,245Interest (income)
    
    
    (45
    )
    
    
    (319
    )
    
    
    (1,210
    )Loss before income taxes
    
    
    (29,729
    )
    
    
    (31,568
    )
    
    
    (26,803
    )Provision for (benefit from) income taxes
    
    
    451
    
    
    
    (5,665
    )
    
    
    (232
    )Net loss
    
    $
    (30,180
    )
    
    $
    (25,903
    )
    
    $
    (26,571
    )Basic net loss per share
    
    $
    (1.23
    )
    
    $
    (1.15
    )
    
    $
    (1.31
    )Diluted net loss per share
    
    $
    (1.23
    )
    
    $
    (1.15
    )
    
    $
    (1.31
    )Basic weighted average shares outstanding
    
    
    24,443
    
    
    
    22,470
    
    
    
    20,301Diluted weighted average shares outstanding
    
    
    24,443
    
    
    
    22,470
    
    
    
    20,301
   36




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A.C. MOORE ARTS & CRAFTS, INC.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (In thousands except share data)
 AccumulatedRetained
    
    
    OtherCommon
    
    
    Earnings
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    (Deficit)
    
    
    Loss
    
    
    TotalBalance, December 31, 2007
    
    
    20,375,646
    
    
    $
    122,921
    
    
    $
    77,162
    
    
    $
    (483
    )
    
    $
    199,600Net (loss)
    
    
    
    
    
    
    
    
    
    
    (26,571
    )
    
    
    
    
    
    
    (26,571
    )Unrealized (loss), net of taxes of $633
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (951
    )
    
    
    (951
    )Reclassification adjustment, net of taxes of $955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,434
    
    
    
    1,434Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (26,088
    )Exercise of stock options
    
    
    2,200
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Tax benefit from exercise of stock options
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Stock-based compensation expense
    
    
    
    
    
    
    1,977
    
    
    
    
    
    
    
    
    
    
    
    1,977Restricted shares, net
    
    
    89,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (1,200
    )
    
    
    
    
    
    
    (1,200
    )Balance, January 3, 2009
    
    
    20,467,151
    
    
    $
    124,909
    
    
    $
    49,391
    
    
    $
    
    
    
    $
    174,300Net (loss)
    
    
    
    
    
    
    
    
    
    
    (25,903
    )
    
    
    
    
    
    
    (25,903
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (25,903
    )Stock-based compensation expense
    
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    
    
    
    
    1,824Issuance of common stock
    
    
    4,000,000
    
    
    
    9,853
    
    
    
    
    
    
    
    
    
    
    
    9,853Restricted shares, net
    
    
    384,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, January 2, 2010
    
    
    24,851,594
    
    
    
    136,586
    
    
    
    23,488
    
    
    $
    
    
    
    
    160,074Net (loss)
    
    
    
    
    
    
    
    
    
    $
    (30,180
    )
    
    
    
    
    
    
    (30,180
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (30,180
    )Exercise of stock options
    
    
    63,155
    
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    (122
    )Stock-based compensation expense
    
    
    
    
    
    
    1,641
    
    
    
    
    
    
    
    
    
    
    
    1,641Restricted shares, net
    
    
    431,663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, January 1, 2011
    
    
    25,346,412
    
    
    $
    138,105
    
    
    $
    (6,692
    )
    
    $
    
    
    
    $
    131,413
   37




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A.C. MOORE ARTS & CRAFTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Fiscal2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (30,180
    )
    
    $
    (25,903
    )
    
    $
    (26,571
    )Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    16,686
    
    
    
    16,220
    
    
    
    15,714Stock-based compensation expense
    
    
    1,641
    
    
    
    1,824
    
    
    
    1,977Impairment of fixed assets
    
    
    905
    
    
    
    4,252
    
    
    
    6,016Loss on disposal of assets
    
    
    
    
    
    
    328
    
    
    
    1,112Provision for (benefit of) deferred income taxes, net
    
    
    
    
    
    
    (192
    )
    
    
    2,388Changes in assets and liabilities:Inventories
    
    
    10,792
    
    
    
    (12,693
    )
    
    
    17,012Prepaid expenses and other current assets
    
    
    135
    
    
    
    (893
    )
    
    
    3,594Income taxes receivable
    
    
    472
    
    
    
    1,433
    
    
    
    3,193Accounts payable
    
    
    6,084
    
    
    
    (2,227
    )
    
    
    (9,506
    )Accrued payroll, payroll taxes and accrued expenses
    
    
    (1,514
    )
    
    
    260
    
    
    
    5,560Accrued lease liability
    
    
    (2,499
    )
    
    
    (798
    )
    
    
    (259
    )Income taxes payable
    
    
    
    
    
    
    
    
    
    
    (1,909
    )Other
    
    
    1,042
    
    
    
    458
    
    
    
    (602
    )Net cash provided by (used in) operating activities
    
    
    3,564
    
    
    
    (17,932
    )
    
    
    17,719Cash flows from investing activities:Capital expenditures
    
    
    (9,424
    )
    
    
    (10,335
    )
    
    
    (15,917
    )Cash flows used in investing activities
    
    
    (9,424
    )
    
    
    (10,335
    )
    
    
    (15,917
    )Cash flows from financing activities:Exercise of stock options
    
    
    (122
    )
    
    
    
    
    
    
    8Tax benefit of stock options
    
    
    
    
    
    
    
    
    
    
    3Issuance of common stock
    
    
    
    
    
    
    9,853
    
    
    
    Borrowing under line of credit
    
    
    
    
    
    
    19,000
    
    
    
    10,000Repayment of debt
    
    
    
    
    
    
    (29,071
    )
    
    
    (2,571
    )Net cash provided by (used in) financing activities
    
    
    (122
    )
    
    
    (218
    )
    
    
    7,440Net (decrease) increase in cash and cash equivalents
    
    
    (5,982
    )
    
    
    (28,485
    )
    
    
    9,242Cash and cash equivalents at beginning of period
    
    
    45,952
    
    
    
    74,437
    
    
    
    65,195Cash and cash equivalents at end of period
    
    $
    39,970
    
    
    $
    45,952
    
    
    $
    74,437Supplemental cash flow information:Cash paid (received) during the year for:Interest
    
    $
    993
    
    
    $
    3,343
    
    
    $
    2,190Income taxes, net of refunds
    
    $
    23
    
    
    $
    (7,349
    )
    
    $
    649
   38




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##### Table of Contents



A.C. MOORE ARTS & CRAFTS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies
 Organization and Basis of Presentation. .
 Use of Estimates .
 Fiscal Year.
 Cash and Cash Equivalents.
 Concentration of Credit Risk .
 Merchandise Inventories.
   39




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##### Table of Contents



Property and Equipment.
  Fiscal Year Ended(In thousands)
    
    2010
    
    
    2009
    
    
    2008Land
    
    $
    2,466
    
    
    $
    2,466
    
    
    $
    2,466Buildings and improvements
    
    
    38,370
    
    
    
    38,370
    
    
    
    38,370Furniture, fixtures, software and equipment
    
    
    137,381
    
    
    
    131,036
    
    
    
    129,949Leasehold improvements
    
    
    10,534
    
    
    
    9,555
    
    
    
    8,183Equipment for future stores
    
    
    382
    
    
    
    705
    
    
    
    552189,133
    
    
    
    182,132
    
    
    
    179,520Less: Accumulated depreciation and amortization
    
    
    (115,362
    )
    
    
    (100,194
    )
    
    
    (87,117
    )$
    73,771
    
    
    $
    81,938
    
    
    $
    92,403Depreciation and amortization expense
    
    $
    16,686
    
    
    $
    16,220
    
    
    $
    15,714
   Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Capitalized software development costs
    
    $
    147
    
    
    $
    307
    
    
    $
    5,848Amortization of capitalized software development costs
    
    
    1,309
    
    
    
    1,445
    
    
    
    481
 Impairment of Long-lived Assets .
  40




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##### Table of Contents



Other Assets .
 Revenue Recognition .
  Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Art and scrapbooking
    
    $
    119,961
    
    
    $
    130,003
    
    
    $
    156,898Traditional crafts
    
    
    153,664
    
    
    
    150,810
    
    
    
    148,248Floral and floral accessories
    
    
    40,203
    
    
    
    41,539
    
    
    
    53,057Fashion crafts
    
    
    39,691
    
    
    
    43,828
    
    
    
    51,217Home décor and frames
    
    
    75,823
    
    
    
    81,145
    
    
    
    95,183Seasonal items
    
    
    18,716
    
    
    
    21,564
    
    
    
    30,061Total
    
    $
    448,058
    
    
    $
    468,889
    
    
    $
    534,665
   Lease Accounting .
 Store Pre-opening and Closing Costs .
  41




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##### Table of Contents



Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Store pre-opening costs
    
    $
    418
    
    
    $
    495
    
    
    $
    1,295Store closing costs
    
    
    2,195
    
    
    
    3,982
    
    
    
    7,447$
    2,613
    
    
    $
    4,477
    
    
    $
    8,742
 Reserve for Closed Stores.
 Advertising Costs.
 Insurance Liabilities.
 Fair Value of Financial Instruments.
  42




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##### Table of Contents



Fair Value MeasurementsCarrying
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gains(In thousands)
    
    Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)RecurringJanuary 1, 2011Cash and cash equivalents
    
    $
    39,970
    
    
    $
    39,970
    
    
    $
    
    
    
    $
    
    
    
    $
    January 2, 2010Cash and cash equivalents
    
    $
    45,952
    
    
    $
    45,952
    
    
    $
    
    
    
    $
    
    
    
    $
    NonrecurringJanuary 1, 2011Long-lived assets held
and used (1)
    
    $
    180
    
    
    $
    
    
    
    $
    
    
    
    $
    180
    
    
    $
    (905
    )January 2, 2010Long-lived assets held
and used (1)
    
    $
    1,256
    
    
    $
    
    
    
    $
    
    
    
    $
    1,256
    
    
    $
    (4,300
    )
 (1)
    
    Represents retail store fixed assets written down to their fair value,
resulting in a impairment charge which was included in earnings for the period.  Stock-based Compensation .
  Fiscal2010
    
    
    2009
    
    
    2008Average fair value of awards
    
    $
    1.56
    
    
    $
    1.02
    
    
    $
    2.20Risk free interest rate
    
    
    1.2
    %
    
    
    1.8
    %
    
    
    2.7
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Average expected life in years
    
    
    4.3
    
    
    
    4.5
    
    
    
    4.5Expected stock price volatility
    
    
    71.6
    %
    
    
    60.6
    %
    
    
    46.3
    %
   43




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##### Table of Contents



Income Taxes .
   Liquidity and Capital Resources.
   44




---



##### Table of Contents



2. New Accounting Pronouncements
   3. Impairment of Long-lived Assets
   4. Store Closing Costs
   45




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##### Table of Contents



Non-cancellable
    
    
    Asset
    
    
    Severence,lease
    
    
    related
    
    
    liquidation(In thousands)
    
    obligations
    
    
    charges
    
    
    and other
    
    
    TotalCharges
    
    
    5,702
    
    
    
    580
    
    
    
    1,165
    
    
    
    7,447Non-cash adjustments
    
    
    
    
    
    
    (580
    )
    
    
    
    
    
    
    (580
    )Cash payments
    
    
    
    
    
    
    
    
    
    
    (1,165
    )
    
    
    (1,165
    )Balance, January 3, 2009
    
    $
    5,702
    
    
    $
    
    
    
    $
    
    
    
    $
    5,702Charges
    
    
    3,475
    
    
    
    304
    
    
    
    203
    
    
    
    3,982Non-cash adjustments
    
    
    
    
    
    
    (304
    )
    
    
    
    
    
    
    (304
    )Cash payments
    
    
    (1,796
    )
    
    
    
    
    
    
    (203
    )
    
    
    (1,999
    )Balance, January 2, 2010
    
    $
    7,381
    
    
    $
    
    
    
    $
    
    
    
    $
    7,381Charges
    
    
    1,941
    
    
    
    126
    
    
    
    128
    
    
    
    2,195Non-cash adjustments
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (126
    )Cash payments
    
    
    (2,529
    )
    
    
    
    
    
    
    (128
    )
    
    
    (2,657
    )Balance, January 1, 2011
    
    $
    6,793
    
    
    $
    
    
    
    $
    
    
    
    $
    6,793
    46




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##### Table of Contents



5. Earnings Per Share
  Fiscal Year(In thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (30,180
    )
    
    $
    (25,903
    )
    
    $
    (26,571
    )Weighted average shares:Basic
    
    
    24,443
    
    
    
    22,470
    
    
    
    20,301Incremental shares from assumed exercise of stock options and stock
appreciation rights
    
    
    
    
    
    
    
    
    
    
    Incremental restricted shares
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    24,443
    
    
    
    22,470
    
    
    
    20,301Basic net income (loss) per share
    
    $
    (1.23
    )
    
    $
    (1.15
    )
    
    $
    (1.31
    )Diluted net income (loss) per share
    
    $
    (1.23
    )
    
    $
    (1.15
    )
    
    $
    (1.31
    )Stock options and stock appreciation rights excluded from the calculation
because the exercise price was greater than the average market price
    
    
    1,953
    
    
    
    1,287
    
    
    
    1,439Potentially dilutive shares excluded from the calculation as the result would
be anti-dilutive
    
    
    1,350
    
    
    
    894
    
    
    
    228
 6. Financing Agreements
     47




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##### Table of Contents



7. Income Taxes
   Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Gross unrecognized tax benefits, beginning of period
    
    $
    610
    
    
    $
    251
    
    
    $
    2,826Increases in tax positions for prior years
    
    
    
    
    
    
    360
    
    
    
    563Decreases in tax positions for prior years
    
    
    
    
    
    
    
    
    
    
    (493
    )Increases in tax positions for current year
    
    
    33
    
    
    
    34
    
    
    
    388Settlements
    
    
    
    
    
    
    (21
    )
    
    
    (3,033
    )Lapse in statute of limitations
    
    
    (8
    )
    
    
    (14
    )
    
    
    Gross unrecognized tax benefits, end of period
    
    $
    635
    
    
    $
    610
    
    
    $
    251
  48




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##### Table of Contents



Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008United States federal taxes at statutory rate
    
    $
    (10,405
    )
    
    $
    (11,049
    )
    
    $
    (9,381
    )State and local taxes, net
    
    
    (1,673
    )
    
    
    (1,842
    )
    
    
    (1,679
    )Change in estimates for uncertain tax positions
    
    
    (8
    )
    
    
    466
    
    
    
    309Valuation allowance
    
    
    12,157
    
    
    
    6,812
    
    
    
    10,474Incentive stock option compensation
    
    
    
    
    
    
    
    
    
    
    32Tax free interest
    
    
    (15
    )
    
    
    (73
    )
    
    
    (304
    )Other
    
    
    394
    
    
    
    20
    
    
    
    317Income tax provision (benefit)
    
    $
    451
    
    
    $
    (5,665
    )
    
    $
    (232
    )
  49




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##### Table of Contents



Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Current tax expense (benefit):Federal
    
    $
    415
    
    
    $
    (5,550
    )
    
    $
    (3,249
    )State
    
    
    36
    
    
    
    57
    
    
    
    629Total current
    
    
    451
    
    
    
    (5,494
    )
    
    
    (2,620
    )Deferred tax expense (benefit):Federal
    
    
    
    
    
    
    (172
    )
    
    
    1,828State
    
    
    
    
    
    
    
    
    
    
    560Total deferred
    
    
    
    
    
    
    (172
    )
    
    
    2,388Total income tax provision (benefit)
    
    $
    451
    
    
    $
    (5,665
    )
    
    $
    (232
    )
  Fiscal Year Ended(In thousands)
    
    2010
    
    
    2009
    
    
    2008Current deferred taxesInventory valuation
    
    $
    2,582
    
    
    $
    2,824
    
    
    $
    2,402Accrued expenses
    
    
    6,810
    
    
    
    6,804
    
    
    
    5,876Deferred revenue
    
    
    228
    
    
    
    209
    
    
    
    265Valuation allowance
    
    
    (7,468
    )
    
    
    (6,260
    )
    
    
    (3,943
    )Total current deferred taxes
    
    $
    2,152
    
    
    $
    3,577
    
    
    $
    4,600Non-current deferred taxesProperty and equipment
    
    
    (8,767
    )
    
    
    (10,676
    )
    
    
    (14,501
    )Stock option compensation
    
    
    3,425
    
    
    
    3,040
    
    
    
    2,368Accrued rent expense
    
    
    4,611
    
    
    
    5,628
    
    
    
    5,946Federal net operating losses and credits
    
    
    16,949
    
    
    
    7,580
    
    
    
    6,328State net operating loss carryforwards
    
    
    6,259
    
    
    
    4,658
    
    
    
    3,412Valuation allowance
    
    
    (24,253
    )
    
    
    (13,304
    )
    
    
    (8,577
    )Other
    
    
    (99
    )
    
    
    (227
    )
    
    
    529Total non-current deferred taxes
    
    
    (1,876
    )
    
    
    (3,301
    )
    
    
    (4,495
    )Net deferred tax assets
    
    $
    276
    
    
    $
    276
    
    
    $
    105Deferred tax assets
    
    $
    40,863
    
    
    $
    30,743
    
    
    $
    27,126Deferred tax liabilities
    
    
    (40,587
    )
    
    
    (30,467
    )
    
    
    (27,021
    )Net deferred tax assets
    
    $
    276
    
    
    $
    276
    
    
    $
    105
   50




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##### Table of Contents



8. Stock-based Compensation
   Fiscal(In thousands except per share data and # of months)
    
    2010
    
    
    2009
    
    
    2008Stock-based compensation expense
    
    $
    1,641
    
    
    $
    1,824
    
    
    $
    1,977Effect on net income
    
    
    1,641
    
    
    
    1,824
    
    
    
    1,977Effect on earnings per share
    
    
    0.07
    
    
    
    0.08
    
    
    
    0.10Market value in excess of grant price for options exercised
    
    
    250
    
    
    
    
    
    
    
    6Intrinsic value of options outstanding
    
    
    342
    
    
    
    551
    
    
    
    27Unrecognized compensation cost
    
    $
    3,679
    
    
    $
    2,399
    
    
    $
    3,264Months over which compensation costs will be recognized
    
    
    35
    
    
    
    45
    
    
    
    57Shares available for future grant
    
    
    2,533
    
    
    
    4,148
    
    
    
    734
  tock Options and Stock Appreciation Rights
  Fiscal 2010
    
    
    Fiscal 2009Stock Options and
    
    
    Weighted Average
    
    
    Stock Options and
    
    
    Weighted AverageStock Appreciation Rights
    
    
    Exercise Price
    
    
    Stock Appreciation Rights
    
    
    Exercise PriceOutstanding at beginning of period
    
    
    1,631,616
    
    
    $
    6.52
    
    
    
    1,500,454
    
    
    $
    15.34Activity:Granted
    
    
    1,815,028
    
    
    
    2.74
    
    
    
    357,054
    
    
    
    1.94Expired
    
    
    505,204
    
    
    
    16.61
    
    
    
    26,968
    
    
    
    2.88Forfeited
    
    
    284,108
    
    
    
    3.59
    
    
    
    198,923
    
    
    
    10.14Exercised
    
    
    160,934
    
    
    
    1.22
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    2,496,398
    
    
    $
    6.81
    
    
    
    1,631,616
    
    
    $
    6.52
   51




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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 Price1.00  2.50
    
    
    542,913
    
    
    
    6.4
    
    
    $
    1.88
    
    
    
    465,654
    
    
    
    5.8
    
    
    $
    1.902.51  5.00
    
    
    1,268,692
    
    
    
    6.1
    
    
    
    2.97
    
    
    
    
    
    
    
    
    
    
    
    5.01  10.00
    
    
    179,658
    
    
    
    3.4
    
    
    
    7.26
    
    
    
    266,777
    
    
    
    4.7
    
    
    
    7.1810.01  20.00
    
    
    180,268
    
    
    
    3.6
    
    
    
    17.96
    
    
    
    360,618
    
    
    
    5.4
    
    
    
    17.7220.01  26.67
    
    
    324,867
    
    
    
    4.1
    
    
    
    23.57
    
    
    
    538,567
    
    
    
    4.5
    
    
    
    23.072,496,398
    
    
    
    5.5
    
    
    $
    6.81
    
    
    
    1,631,616
    
    
    
    5.1
    
    
    $
    6.52
 Restricted Stock
   Fiscal 2010
    
    
    Fiscal 2009Number of
    
    
    Weighted Average
    
    
    Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair Value
    
    
    Shares
    
    
    Grant Date Fair ValueOutstanding at beginning of period
    
    
    526,734
    
    
    $
    5.40
    
    
    
    162,535
    
    
    $
    11.86Activity:Granted
    
    
    609,552
    
    
    
    2.39
    
    
    
    473,852
    
    
    
    2.15Vested
    
    
    169,079
    
    
    
    3.77
    
    
    
    20,244
    
    
    
    10.38Cancelled
    
    
    159,651
    
    
    
    5.87
    
    
    
    89,409
    
    
    
    5.84Outstanding at end of period
    
    
    807,556
    
    
    $
    3.01
    
    
    
    526,734
    
    
    $
    5.40
 9.
    
    Retirement Plan   52




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##### Table of Contents



10. Commitments and Contingencies
 Commitments
   Fiscal(In thousands)
    
    2010
    
    
    2009
    
    
    2008Minimum rentals
    
    $
    38,725
    
    
    $
    38,097
    
    
    $
    40,508Contingent payments
    
    
    9
    
    
    
    68
    
    
    
    46$
    38,734
    
    
    $
    38,165
    
    
    $
    40,554
  Fiscal Year
    
    Rent Obligation2011
    
    $
    42,7522012
    
    
    39,2322013
    
    
    33,6242014
    
    
    28,2342015
    
    
    21,613Thereafter
    
    
    45,189Total minimum future rentals
    
    $
    210,644
 Contingencies
  11. Related Party Transactions
   53




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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.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
   Changes in Internal Control over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
   54




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
  Code of Ethical Business Conduct
 Code of Ethical Business Conduct
 
 ITEM 11.
    
    EXECUTIVE COMPENSATION.
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  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)
    
    
    2,496,398
    
    
    $
    6.81
    
    
    
    2,532,822Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,496,398
    
    
    $
    6.81
    
    
    
    2,532,822
 
 (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 INDEPENDENCE.
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES.
   55




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
 (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 January 1, 2011 and January 2, 2010Consolidated Statements of Operations for each of the three fiscal years
in the period ended January 1, 2011Consolidated Statements of Changes in Shareholders Equity for each of the
three fiscal years in the period ended January 1, 2011Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended January 1, 2011Notes to Consolidated Financial Statements(2)
    
    Financial Statement Schedule: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.
  56




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##### Table of Contents



Exhibit Number

    
    Description4.1
    (18)
    
    Registration Rights Agreement, dated May 27, 2009.+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.+10.6.1
    (19)
    
    Amendment to 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)
    
    Amended and Restated Loan Agreement, dated as of May 31, 2008, between
the Company and Wachovia Bank, National Association (Wachovia).10.13
    (9)
    
    Amendment to Loan Documents, dated as of May 31, 2008, between the
Company and Wachovia.10.14
    (9)
    
    Amended and Restated Promissory Note, dated as of May 31, 2008, between
the Company and Wachovia.10.15
    (10)
    
    Promissory Note and Loan Modification, dated as of September 18, 2008,
between the Company and Wachovia Bank, National Association.10.16
    (11)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.
  57




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##### Table of Contents



Exhibit Number
    
    Description10.17
    (11)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.10.18

(20)
    
    Credit Agreement, dated as of January 15, 2009, among A.C. Moore
Incorporated, as the Lead Borrower, the Borrowers now or hereafter
party thereto, the Guarantors now or hereafter party thereto, each
lender from time to time party thereto, and Wells Fargo Retail Finance,
LLC, as Administrative Agent, Collateral Agent and Swing Line Lender.10.19
    (12)
    
    Security Agreement, dated as of January 15, 2009, by and among A.C.
Moore Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance,
Inc., Blackwood Assets, Inc., and Wells Fargo Retail Finance, LLC, as
collateral agent.10.20
    (12)
    
    Guaranty, dated as of January 15, 2009, by A.C. Moore Arts & Crafts,
Inc., Moorestown Finance, Inc., and Blackwood Assets, Inc. in favor of
Wells Fargo Retail Finance, LLC, as administrative agent and collateral
agent, and the Credit Parties.10.20.1

(26)
    
    First Amendment, dated as of March 4, 2011, to the Credit Agreement,
dated as of January 15, 2009, between the Company and Wells Fargo
Retail Finance, LLC.+10.21
    (13)
    
    Employment Agreement, effective as of June 1, 2006, between the Company
and Rick A. Lepley.+10.22
    (13)
    
    Form of Option Agreement between the Company and Rick A. Lepley.+10.23
    (14)
    
    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.+10.24
    (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.+10.25
    (21)
    
    Third Amendment, dated as of December 3, 2008, 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, and by the Second Amendment, dated as of November 19, 2007.+10.25.1

(22)
    
    Agreement and Release, dated as of March 31, 2010, between the Company
and Rick A. Lepley.+10.26
    (15)
    
    Letter Agreement, dated November 28, 2007, between the Company and
Joseph A. Jeffries.+10.27
    (9)
    
    First Amendment, dated August 6, 2008, to Employment Letter dated
November 28, 2007, between the Company and Joseph A. Jeffries.+10.27.1

(20)
    
    Amended and Restated Employment Letter, dated as of August 10, 2009,
between the Company and Joseph A. Jeffries.+10.27.2

(22)
    
    Special Award Agreement, dated March 29, 2010, between the Company and
Joseph A. Jeffries.+10.27.3

(23)
    
    Amended and Restated Employment Letter, dated August 19, 2010, between
the Company and Joseph A. Jeffries.+10.29
    (2)
    
    Employment Agreement, effective as of July 24, 2006, between the
Company and Amy Rhoades.
  58




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##### Table of Contents



Exhibit Number

    
    Description+10.30
    (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.+10.31
    (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.+10.31.1
    
    
    Third Amendment, dated as of March 28, 2011, 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, and the Second Amendment, dated as of November 19, 2007.+10.32
    (16)
    
    Form of Special Retention Award Agreement.+10.33

(20)
    
    Employment Letter, dated as of May 17, 2009, between the Company and
David Abelman.+10.33.1

(25)
    
    Amendment One, dated as of March 16, 2010, to Employment Letter, dated
as of May 7, 2009, between the Company and David Abelman.+10.33.2
    
    
    Amendment Two, dated as of March 28, 2011, between the Company and
David Abelman.+10.34

(20)
    
    Employment Letter, dated as of May 13, 2009, between the Company and
David Stern.+10.34.1

(25)
    
    Special Award Agreement, dated as of November 24, 2009, between the
Company and David Stern.+10.35

(24)
    
    Letter agreement, dated December 6, 2010, between the Company and
Rodney Schriver.10.36

(18)
    
    Securities Purchase Agreement, dated May 27, 2009.18.1

(17)
    
    Preferability letter provided by PricewaterhouseCoopers LLC, our
independent registered public accounting firm to change our method of
accounting for valuing store inventories to weighted average cost.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.
  59




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##### Table of Contents



Exhibit Number
    
    Description32.1
    
    
    Certification of 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 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 September 1, 2010.(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 the Companys Form 10-Q for the quarter ended June 30,
2008.(10)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended
September 30, 2008.(11)
    
    Incorporated by reference to the Companys Form 8-K filed on December 14, 2006.(12)
    
    Incorporated by reference to the Companys Form 8-K filed on January 22, 2009.(13)
    
    Incorporated by reference to the Companys Form 8-K filed on June 7, 2006.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on November 16, 2006.(15)
    
    Incorporated by reference to the Companys Form 8-K filed on November 28, 2007.(16)
    
    Incorporated by reference to the Companys Form 8-K filed on April 4, 2008.(17)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended March
31, 2008.(18)
    
    Incorporated by reference to the Companys Form 8-K filed May 27, 2009. .(19)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on July
24, 2009.(20)
    
    Incorporated by reference to the Companys Form 10-Q for the fiscal quarter ended
July 4, 2009.(21)
    
    Incorporated by reference to the Companys Form 10-K for the fiscal year ended
January 3, 2009.(22)
    
    Incorporated by reference to the Companys Form 8-K filed on March 29, 2010.(23)
    
    Incorporated by reference to the Companys Form 8-K filed on August 25, 2010.(24)
    
    Incorporated by reference to the Companys Form 8-K filed on December 16, 2010.(25)
    
    Incorporated by reference to the Companys Form 10-K filed on March 18, 2010.(26)
    
    Incorporated by reference to the Companys Form 8-K filed on March 10, 2011.  60




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##### Table of Contents



SCHEDULE II
A.C. MOORE ARTS & CRAFTS, INC.
Valuation and Qualifying Accounts
 (In thousands)
 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EDeductions -Write-offs,Balance at
    
    
    Additions -
    
    
    Additions -
    
    
    Payments andDescription
    
    Beginning of
    
    
    Charged to
    
    
    Charged to
    
    
    Other
    
    
    Balance at EndIncome Tax Valuation Allowance
    
    Period
    
    
    Expense
    
    
    Other Accounts
    
    
    Adjustments
    
    
    of Period2010
    
    $
    19,564
    
    
    $
    
    
    
    $
    12,157
    (a)
    
    $
    
    
    
    $
    31,7212009
    
    
    12,520
    
    
    
    
    
    
    
    13,080
    (a)
    
    
    6,036
    
    
    
    19,5642008
    
    
    3,007
    
    
    
    10,474
    
    
    
    
    
    
    
    961
    
    
    
    12,520
 (a)
    
    Represents additions to net deferred tax assets against which the Company records a
valuation allowance. Deductions -Write-offs,Balance at
    
    
    Additions -
    
    
    Additions -
    
    
    Payments andDescription
    
    Beginning of
    
    
    Charged to
    
    
    Charged to
    
    
    Other
    
    
    Balance at EndSales Returns Allowance
    
    Period
    
    
    Expense
    
    
    Other Accounts
    
    
    Adjustments
    
    
    of Period2010
    
    $
    231
    
    
    $
    
    
    
    $
    
    
    
    $
    5
    
    
    $
    2262009
    
    
    206
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    2312008
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    206
  61




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##### Table of Contents



SIGNATURES
  A.C. MOORE ARTS & CRAFTS, INC.Date: March 31, 2011
    By:
    /s/ Joseph A. JeffriesJoseph A. JeffriesChief Executive Officer
(Principal executive officer)  Signature
    
    Capacity
    
    Date/s/ Joseph A. Jeffries

Joseph A. Jeffries
    
    Chief Executive Officer
(Principal Executive Officer)
    
    March 31, 2011/s/ Rodney B. Schriver

Rodney B. Schriver
    
    Vice President and Controller
(Principal Accounting Officer)
    
    March 31, 2011/s/ Michael J. Joyce

Michael J. Joyce
    
    Chairman of the Board of Directors
    
    March 31, 2011/s/ Joseph F. Coradino

Joseph F. Coradino
    
    Director
    
    March 31, 2011/s/ Neil A. McLachlan

Neil A. McLachlan
    
    Director
    
    March 31, 2011/s/ Thomas S. Rittenhouse

Thomas S. Rittenhouse
    
    Director
    
    March 31, 2011/s/ Lori J. Schafer

Lori J. Schafer
    
    Director
    
    March 31, 2011
  62




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##### Table of Contents



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.4.1
    (18)
    
    Registration Rights Agreement, dated May 27, 2009.+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.+10.6.1
    (19)
    
    Amendment to 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)
    
    Amended and Restated Loan Agreement, dated as of May 31, 2008, between
the Company and Wachovia Bank, National Association (Wachovia).
  63




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##### Table of Contents



Exhibit Number

    
    Description10.13
    (9)
    
    Amendment to Loan Documents, dated as of May 31, 2008, between the
Company and Wachovia.10.14
    (9)
    
    Amended and Restated Promissory Note, dated as of May 31, 2008, between
the Company and Wachovia.10.15
    (10)
    
    Promissory Note and Loan Modification, dated as of September 18, 2008,
between the Company and Wachovia Bank, National Association.10.16
    (11)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.10.17
    (11)
    
    Amended and Restated Swap Transaction Confirmation, signed on December
8, 2006 and effective as of November 27, 2006.10.18

(20)
    
    Credit Agreement, dated as of January 15, 2009, among A.C. Moore
Incorporated, as the Lead Borrower, the Borrowers now or hereafter
party thereto, the Guarantors now or hereafter party thereto, each
lender from time to time party thereto, and Wells Fargo Retail Finance,
LLC, as Administrative Agent, Collateral Agent and Swing Line Lender.10.19
    (12)
    
    Security Agreement, dated as of January 15, 2009, by and among A.C.
Moore Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance,
Inc., Blackwood Assets, Inc., and Wells Fargo Retail Finance, LLC, as
collateral agent.10.20
    (12)
    
    Guaranty, dated as of January 15, 2009, by A.C. Moore Arts & Crafts,
Inc., Moorestown Finance, Inc., and Blackwood Assets, Inc. in favor of
Wells Fargo Retail Finance, LLC, as administrative agent and collateral
agent, and the Credit Parties.10.20.1

(26)
    
    First Amendment, dated as of March 4, 2011, to the Credit Agreement,
dated as of January 15, 2009, between the Company and Wells Fargo
Retail Finance, LLC.+10.21
    (13)
    
    Employment Agreement, effective as of June 1, 2006, between the Company
and Rick A. Lepley.+10.22
    (13)
    
    Form of Option Agreement between the Company and Rick A. Lepley.+10.23
    (14)
    
    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.+10.24
    (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.+10.25
    (21)
    
    Third Amendment, dated as of December 3, 2008, 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, and by the Second Amendment, dated as of November 19, 2007.
  64




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##### Table of Contents



Exhibit Number

    
    Description+10.25.1

(22)
    
    Agreement and Release, dated as of March 31, 2010, between the Company
and Rick A. Lepley.+10.26
    (15)
    
    Letter Agreement, dated November 28, 2007, between the Company and
Joseph A. Jeffries.+10.27
    (9)
    
    First Amendment, dated August 6, 2008, to Employment Letter dated
November 28, 2007, between the Company and Joseph A. Jeffries.+10.27.1

(20)
    
    Amended and Restated Employment Letter, dated as of August 10, 2009,
between the Company and Joseph A. Jeffries.+10.27.2

(22)
    
    Special Award Agreement, dated March 29, 2010, between the Company and
Joseph A. Jeffries.+10.27.3

(23)
    
    Amended and Restated Employment Letter, dated August 19, 2010, between
the Company and Joseph A. Jeffries.+10.29
    (2)
    
    Employment Agreement, effective as of July 24, 2006, between the
Company and Amy Rhoades.+10.30
    (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.+10.31
    (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.+10.31.1
    
    
    Third Amendment, dated as of March 28, 2011, 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, and the Second Amendment, dated as of November 19, 2007.+10.32
    (16)
    
    Form of Special Retention Award Agreement.+10.33

(20)
    
    Employment Letter, dated as of May 17, 2009, between the Company and
David Abelman.+10.33.1

(25)
    
    Amendment One, dated as of March 16, 2010, to Employment Letter, dated
as of May 7, 2009, between the Company and David Abelman.+10.33.2
    
    
    Amendment Two, dated as of March 28, 2011, between the Company and
David Abelman.+10.34

(20)
    
    Employment Letter, dated as of May 13, 2009, between the Company and
David Stern.+10.34.1

(25)
    
    Special Award Agreement, dated as of November 24, 2009, between the
Company and David Stern.+10.35

(24)
    
    Letter agreement, dated December 6, 2010, between the Company and
Rodney Schriver.10.38

(18)
    
    Securities Purchase Agreement, dated May 27, 2009.18.1

(17)
    
    Preferability letter provided by PricewaterhouseCoopers LLC, our
independent registered public accounting firm to change our method of
accounting for valuing store inventories to weighted average cost.21.1
    
    
    Subsidiaries of the Company.
  65




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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 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 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 September 1, 2010.(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 the Companys Form 10-Q for the quarter ended June 30,
2008.(10)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended
September 30, 2008.(11)
    
    Incorporated by reference to the Companys Form 8-K filed on December 14, 2006.(12)
    
    Incorporated by reference to the Companys Form 8-K filed on January 22, 2009.(13)
    
    Incorporated by reference to the Companys Form 8-K filed on June 7, 2006.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on November 16, 2006.(15)
    
    Incorporated by reference to the Companys Form 8-K filed on November 28, 2007.(16)
    
    Incorporated by reference to the Companys Form 8-K filed on April 4, 2008.(17)
    
    Incorporated by reference to the Companys Form 10-Q for the quarter ended March
31, 2008.(18)
    
    Incorporated by reference to the Companys Form 8-K filed May 27, 2009. .(19)
    
    Incorporated by reference to the Companys Definitive Proxy Statement filed on July
24, 2009.(20)
    
    Incorporated by reference to the Companys Form 10-Q for the fiscal quarter ended
July 4, 2009.(21)
    
    Incorporated by reference to the Companys Form 10-K for the fiscal year ended
January 3, 2009.(22)
    
    Incorporated by reference to the Companys Form 8-K filed on March 29, 2010.(23)
    
    Incorporated by reference to the Companys Form 8-K filed on August 25, 2010.(24)
    
    Incorporated by reference to the Companys Form 8-K filed on December 16, 2010.(25)
    
    Incorporated by reference to the Companys Form 10-K filed on March 18, 2010.(26)
    
    Incorporated by reference to the Companys Form 8-K filed on March 10, 2011.  66