Michael's Stores--More than Needlepoint (for insiders).

There comes a point when a man must refuse to answer to his leader if he is also to answer to his own conscience.
-- Lord Hartley William Shawcross

Michael’s Stores, Inc. (MIK-39.09), is the nation’s largest specialty retailer providing materials, ideas, and education for creative activities in home décor, art, and craft projects. The Company’s recently filed annual proxy reveals that when it comes to the most senior of executives, car giveaways are the preferred ‘other compensation,’ not needlepoint and doll-making supplies:

• R. Michael Rouleau, the President and CEO, made $1.3 million in salary and bonus in 2005. Other annual compensation included (i) $15,078, $23,884 and $20,494 for the personal use of a company-owned automobile in fiscal 2005, 2004 and 2003, respectively, and the transfer of a company-owned automobile, valued at $55,380, to Mr. Rouleau in fiscal 2004. As if owning one luxury vehicle just given to him were not enough, the Company recently disclosed that in connection with Mr. Rouleau’s retirement on March 15, 2006, Mr. Rouleau’s [2005] company-paid automobile was transferred to him in connection with his impending retirement and Michaels would make a tax gross-up payment to Mr. Rouleau for the income tax effect of this transfer, too.

The 10Q Detective might have overlooked Mr. Rouleau’s apparent fondess for luxury automobiles, were it not for the fact that the Company had just fully vested and made available for exercise to Rouleau all options to purchase common stock issued prior to August 5, 2005. One would think that with the $10.6 million Mr. Rouleau received upon the exercise of these shares, might he not have afforded the price of a second family car with his own monies?

• Mr. Charles J. Wyly, Jr. is the Chairman of the Board and a co-founder of Michael’s Stores, Inc. In his role of Chairman of the Board, Michael’s Stores remunerated to him a salary of $450,000. Under ‘other annual compensation,’ Wyly also received $22,322, $21,366 and $21,355 for the personal use of a company-owned automobile in fiscal 2005, 2004 and 2003, respectively. In fiscal year 2004, the Company also transferred to him a company-owned valued at $51,550. Charles J. Wyly, Jr., is the beneficial owner of 4.4% of common stock, currently valued at approximately $225.7 million.
• In fiscal 2005, Michael’s Stores paid $263,654 in salary to Donald R. Miller, Jr., Vice President — Market Development. In connection with his employment with Michaels in fiscal 2005, Mr. Miller also (i) earned a cash bonus of $116,100, (ii) received $24,239 for the personal use of a company-owned automobile, (iii) was transferred the ownership of another company-owned automobile, valued at $53,405. In addition, Michaels (i) reimbursed Mr. Miller $16,867 for golf/health club membership dues and the related tax gross-up. (Mr. Miller is the son-in-law of Charles J. Wyly, Jr.)
• During fiscal year 2005, Sam Wyly, the brother of Charles and co-founder of Michael’s Stores, was compensated for his service as Vice Chairman of the Board with (i) $18,750 per month, (ii) options to purchase 117,500 shares of common stock, and (iii) $17,764 for the personal use of a company-owned automobile. Sam Wyly is the beneficial owner of 3.4% of common stock, currently valued at approximately $176.5 million.

Michael’s Stores relies to a significant extent on foreign manufacturers located in Asia, Canada, and Mexico for various products that the Company sells. Many of its domestic suppliers purchase a portion of their products from foreign sources, too. The 10Q Detective can only hope that when it comes to automobiles, that Michael’s Stores buys American.