1. © 2011 Financial Operations Networks LLC Cash Management: AP’s Impact on Working Capital Tom Brewer, CPA Michaels Stores Inc. Tuesday, April 12, 2011

2. www.TheAPNetwork.com Page 2 Michaels Stores Category Leader in Arts & Crafts Over 1,000 stores in U.S. and Canada 40,000+ SKUs across a variety of general & kids crafts, art supplies, framing and seasonal/décor categories $4.0 Billion in revenue

3. www.TheAPNetwork.com Page 3 Michaels’ Vision & Strategy A World-Class Performer that: Inspires and enables consumers to experience creativity Leads industry growth & innovation Creates a fun and rewarding place to work that fosters meaningful connections with our communities Vision Strategic Priorities

4. www.TheAPNetwork.com Page 4 Category Leader in Arts & Crafts AP Status Best practice had been implemented —E-invoice —Payment optimization —Vendor management —Aggressive AR —Technology solutions

5. www.TheAPNetwork.com Page 5 AP Status (Cont’d.) ? DPO was not improving

6. www.TheAPNetwork.com Page 6 AP as % of Inventory Static AP Status (Cont’d.)

7. www.TheAPNetwork.com Page 7 Category Leader in Arts & Crafts AP Challenge Improve AP/inventory ratio to 29.7% or by 15% Contribute $30 million working capital

8. www.TheAPNetwork.com Page 8 AP Strategy Not an AP only initiative

9. www.TheAPNetwork.com Page 9 AP Strategy (Cont’d.) Not an AP only initiative Buyers must be an integral part to make significant change with vendor partner

10. www.TheAPNetwork.com Page 10 Not an AP only initiative Buyers must be an integral part to make significant change with vendor partner AP must identify opportunities and prioritize actions AP Strategy (Cont’d.)

11. www.TheAPNetwork.com Page 11 Not an AP only initiative Buyers must be an integral part to make significant change with vendor partner AP must identify opportunities and prioritizes action “C Suite” support is critical AP Strategy (Cont’d.)

12. www.TheAPNetwork.com Page 12 AP Cash Flow – Process Approach Opportunities Analyze the AP data Identify the opportunity areas Benchmark the data to industry standard Detail analysis to find trend, correlations & observation Validate the analysis with category management Initiate discussion with vendor for implementation Prioritize the opportunities Focusing on: Vendor terms, payment discounts and dynamic discounts Sourcing and spend management Purchase management - order quantity, tracking OTB, early/ over Shipments Transaction management Contract management - 12 -

13. www.TheAPNetwork.com Page 13 Co-Sourcing an Enabler and Support for Michaels Overall Strategy Analysis of Data

14. www.TheAPNetwork.com Page 14 Analysis of Data (Cont’d.)

15. www.TheAPNetwork.com Page 15 Corporate strategy was impacting AP DPO by transferring product buys from vendors with 60 days or greater ROG vendors to less than 60 day terms for imports. Analysis of Data (Cont’d.)

16. www.TheAPNetwork.com Page 16 Domestic receipts dropped about $20 million with the majority coming from vendors with 60-day ROG terms Import receipts are shifting to 0-, 15- and 30- day terms Analysis of Data (Cont’d.)

17. www.TheAPNetwork.com Page 17 FCR Date Goods Loaded on Ship Goods Arrive West Coast DC Domestic Check 45 ROG (West Coast) Domestic Check 45 ROG (East Coast) Loss of 39 days for goods shipped & delivered through the West coast Loss of 55 days for goods shipped & delivered through the East coast Day 0 4 20 26 36 60 65 81 2010 FC Import Fundings - 26 Days (average) Goods Arrive East Coast DC Targeted Import Fundings – (60 Days) 60-day terms are a reasonable compromise between Michaels’ traditional import and domestic vendor terms and aligns Michaels with other best-in-class retailers Analysis of Data (Cont’d.)

18. www.TheAPNetwork.com Page 18 RankOpportunityDescription Vendor Terms Analyzed the vendor terms in various aspects and identified opportunities based on payment method, receipt of goods, etc. Payment Discounts Negotiate better payment discount terms by comparing the vendor terms with discounts and those without discounts. Dynamic Discounts Allows Michaels to take discount at lesser % after the actual term date. Ensure compliance to the eligible discount vs. actual discount availed. Credit Card Payment to Vendors Increase in cash flow by another 30 days from vendors who are willing to accept credit card payment. Sourcing/ Spend Management Reduction in spend through vendor consolidation, reverse auction and vendor master rationalization. Other Areas Order quantity, purchasing management, early shipments/over shipments/substitutions Transaction management Contract management 1 3 4 5 2 AP Cash Flow - Opportunities - 18 -

19. www.TheAPNetwork.com Page 19 AP/inv leverage goal on every team member’s performance plan for 2010 Vendors targeted to renegotiate terms Buyers conducted meetings with support of AP AP initiatives driven with technology AP tracked and reported results monthly to “C Suite” and buying teams Results

20. www.TheAPNetwork.com Page 20 Where We Were

21. www.TheAPNetwork.com Page 21 Were We Were (Cont’d.)

22. www.TheAPNetwork.com Page 22 Results

23. www.TheAPNetwork.com Page 23 Inventory dropped $50 million Results (Cont’d.)

24. www.TheAPNetwork.com Page 24 Results (Cont’d.)

25. © 2011 Financial Operations Networks LLC Thank You!