Condensed Consolidating Financial Information

9 Months Ended

Oct. 29, 2011

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

Note 11.  Condensed Consolidating Financial Information

All obligations of Michaels Stores, Inc. under the Senior notes, Senior subordinated notes, Subordinated discount notes, senior secured term loan facility, and senior secured asset-based revolving credit facility are guaranteed by each of our subsidiaries other than Aaron Brothers Card Services, LLC and Artistree of Canada, ULC. As of October 29, 2011, the financial statements of Aaron Brothers Card Services, LLC and Artistree of Canada, ULC were immaterial. Each subsidiary guarantor is 100% owned by the parent and all guarantees are joint and several.

The following condensed consolidating financial information represents the financial information of Michaels Stores, Inc. and its wholly-owned subsidiary guarantors, prepared on the equity basis of accounting.  The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X.  The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had the subsidiary guarantors operated as independent entities.

Supplemental Condensed Consolidating Balance Sheet

	October 29, 2011
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	97		$	14	$	—		$	111
Merchandise inventories	677			342		—			1,019
Intercompany receivables	—			512		(512		)	—
Other	125			23		—			148
Total current assets	899			891		(512		)	1,278
Property and equipment, net	251			65		—			316
Goodwill	95			—		—			95
Investment in subsidiaries	481			—		(481		)	—
Other assets	80			1		—			81
Total assets	$	1,806		$	957	$	(993	)	$	1,770
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	9		$	339	$	—		$	348
Accrued liabilities and other	280			125		—			405
Current portion of long-term debt	135			—		—			135
Intercompany payable	512			—		(512		)	—
Other	7			—		—			7
Total current liabilities	943			464		(512		)	895
Long-term debt	3,376			—		—			3,376
Other long-term liabilities	69			12		—			81
Total stockholders’ (deficit) equity	(2,582		)	481		(481		)	(2,582		)
Total liabilities and stockholders’ (deficit) equity	$	1,806		$	957	$	(993	)	$	1,770

Supplemental Condensed Consolidating Balance Sheet

	January 29, 2011
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	309		$	10	$	—		$	319
Merchandise inventories	571			255		—			826
Intercompany receivables	—			348		(348		)	—
Other	113			17		—			130
Total current assets	993			630		(348		)	$	1,275
Property and equipment, net	234			67		—			301
Goodwill	95			—		—			95
Investment in subsidiaries	295			—		(295		)	—
Other assets	98			1		—			99
Total assets	$	1,715		$	698	$	(643	)	$	1,770
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	7		$	266	$	—		$	273
Accrued liabilities and other	262			122		—			384
Current portion of long-term debt	1			—		—			1
Intercompany payable	348			—		(348		)	—
Other	26			3		—			29
Total current liabilities	644			391		(348		)	687
Long-term debt	3,667			—		—			3,667
Deferred income taxes	2			2		—			4
Other long-term liabilities	66			10		—			76
Total stockholders’ (deficit) equity	(2,664		)	295		(295		)	(2,664		)
Total liabilities and stockholders’ (deficit) equity	$	1,715		$	698	$	(643	)	$	1,770

Supplemental Condensed Consolidating Balance Sheet

	October 30, 2010
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	96		$	19	$	—		$	115
Merchandise inventories	678			326		—			1,004
Intercompany receivables	—			468		(468		)	—
Other	152			15		—			167
Total current assets	926			828		(468		)	1,286
Property and equipment, net	234			68		—			302
Goodwill, net	95			—		—			95
Investment in subsidiaries	458			—		(458		)	—
Other assets	92			1		—			93
Total assets	$	1,805		$	897	$	(926	)	$	1,776
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	1		$	323	$	—		$	324
Accrued liabilities and other	257			104		—			361
Current portion of long-term debt	1			—		—			1
Intercompany payable	468			—		(468		)	—
Other	1			1		—			2
Total current liabilities	728			428		(468		)	688
Long-term debt	3,764			—		—			3,764
Other long-term liabilities	77			11		—			88
Total stockholders’ (deficit) equity	(2,764		)	458		(458		)	(2,764		)
Total liabilities and stockholders’ (deficit) equity	$	1,805		$	897	$	(926	)	$	1,776

Supplemental Condensed Consolidating Statement of Operations

	Quarter Ended October 29, 2011
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	873	$	635		$	(512	)	$	996
Cost of sales and occupancy expense	561		545			(512		)	594
Gross profit	312		90			—			402
Selling, general, and administrative expense	243		36			—			279
Related party expenses	3		—			—			3
Store pre-opening costs	1		1			—			2
Operating income	65		53			—			118
Interest expense	62		—			—			62
Loss on early extinguishment of debt	1		—			—			1
Other (income) and expense, net	1		3			—			4
Intercompany charges (income)	19		(19		)	—			—
Equity in earnings of subsidiaries	69		—			(69		)	—
Income before income taxes	51		69			(69		)	51
Provision for income taxes	19		26			(26		)	19
Net income	$	32	$	43		$	(43	)	$	32

Supplemental Condensed Consolidating Statement of Operations

	Quarter Ended October 30, 2010
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	849		$	628		$	(509	)	$	968
Cost of sales and occupancy expense	560			541			(509		)	592
Gross profit	289			87			—			376
Selling, general, and administrative expense	233			36			—			269
Related party expenses	3			—			—			3
Store pre-opening costs	1			1			—			2
Operating income	52			50			—			102
Interest expense	69			—			—			69
Loss on early extinguishment of debt	53			—			—			53
Other (income) and expense, net	1			—			—			1
Intercompany charges (income)	21			(21		)	—			—
Equity in earnings of subsidiaries	71			—			(71		)	—
Loss before income taxes	(21		)	71			(71		)	(21		)
Income tax benefit	(9		)	29			(29		)	(9		)
Net loss	$	(12	)	$	42		$	(42	)	$	(12	)

Supplemental Condensed Consolidating Statement of Operations

	Nine Months Ended October 29, 2011
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	2,454	$	1,654		$	(1,302	)	$	2,806
Cost of sales and occupancy expense	1,595		1,390			(1,302		)	1,683
Gross profit	859		264			—			1,123
Selling, general, and administrative expense	673		101			—			774
Related party expenses	10		—			—			10
Store pre-opening costs	3		1			—			4
Operating income	173		162			—			335
Interest expense	188		—			—			188
Loss on early extinguishment of debt	16		—			—			16
Other (income) and expense, net	4		—			—			4
Intercompany charges (income)	52		(52		)	—			—
Equity in earnings of subsidiaries	214		—			(214		)	—
Income before income taxes	127		214			(214		)	127
Provision for income taxes	48		80			(80		)	48
Net income	$	79	$	134		$	(134	)	$	79

Supplemental Condensed Consolidating Statement of Operations

	Nine Months Ended October 30, 2010
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	2,367	$	1,594		$	(1,261	)	$	2,700
Cost of sales and occupancy expense	1,580		1,340			(1,261		)	1,659
Gross profit	787		254			—			1,041
Selling, general, and administrative expense	647		100			—			747
Related party expenses	10		—			—			10
Store pre-opening costs	2		1			—			3
Operating income	128		153			—			281
Interest expense	207		—			—			207
Loss on early extinguishment of debt	53		—			—			53
Other (income) and expense, net	14		(2		)	—			12
Intercompany charges (income)	53		(53		)	—			—
Equity in earnings of subsidiaries	208		—			(208		)	—
Income before income taxes	9		208			(208		)	9
Provision for income taxes	9		85			(85		)	9
Net income	$	—	$	123		$	(123	)	$	—

Supplemental Condensed Consolidating Statement of Cash Flows

	Nine Months Ended October 29, 2011
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash used in operating activities	$	79		$	96		$	(76	)	$	99
Investing activities:
Cash paid for property and equipment	(68		)	(16		)	—			(84		)
Net cash used in investing activities	(68		)	(16		)	—			(84		)
Financing activities:
Net repayments of long-term debt	(205		)	—			—			(205		)
Intercompany dividends	—			(76		)	76			—
Other financing activities	(18		)	—			—			(18		)
Net cash used in financing activities	(223		)	(76		)	76			(223		)
Decrease in cash and equivalents	(212		)	4			—			(208		)
Beginning cash and equivalents	309			10			—			319
Ending cash and equivalents	$	97		$	14		$	—		$	111

Supplemental Condensed Consolidating Statement of Cash Flows

	Nine Months Ended October 30, 2010
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	98		$	96		$	(79	)	$	115
Investing activities:
Cost of business acquisition	(2		)	—			—			(2		)
Cash paid for property and equipment	(53		)	(8		)	—			(61		)
Net cash used in investing activities	(55		)	(8		)	—			(63		)
Financing activities:
Net repayments of long-term debt	(115		)	—			—			(115		)
Intercompany dividends	—			(79		)	79			—
Other financing activities	(39		)	—			—			(39		)
Net cash used in financing activities	(154		)	(79		)	79			(154		)
Decrease in cash and equivalents	(111		)	9			—			(102		)
Beginning cash and equivalents	207			10			—			217
Ending cash and equivalents	$	96		$	19		$	—		$	115