Condensed Consolidating Financial Information

12 Months Ended

Jan. 28, 2012

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

Note 15.  Condensed Consolidating Financial Information

All obligations of Michaels Stores, Inc. under the 2018 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 January 28, 2012, 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 Statement of Operations

	Fiscal Year 2011
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)
Net sales	$	3,684	$	2,369		$	(1,843	)	$	4,210
Cost of sales and occupancy expense	2,390		1,979			(1,843		)	2,526
Gross profit	1,294		390			—			1,684
Selling, general, and administrative expense	953		145			—			1,098
Related party expenses	13		—			—			13
Store pre-opening costs	3		1			—			4
Operating income	325		244			—			569
Interest expense	254		—			—			254
Loss on early extinguishment of debt	18		—			—			18
Other (income) and expense, net	5		4			—			9
Intercompany charges (income)	73		(73		)	—			—
Equity in earnings of subsidiaries	313		—			(313		)	—
Income before income taxes	288		313			(313		)	288
Provision for income taxes	112		121			(121		)	112
Net income	$	176	$	192		$	(192	)	$	176

Supplemental Condensed Consolidating Statement of Operations

	Fiscal Year 2010
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(Restated)								(Restated)
	(In millions)
Net sales	$	3,530	$	2,294		$	(1,793	)	$	4,031
Cost of sales and occupancy expense	2,341		1,919			(1,793		)	2,467
Gross profit	1,189		375			—			1,564
Selling, general, and administrative expense	919		140			—			1,059
Related party expenses	14		—			—			14
Store pre-opening costs	3		—			—			3
Operating income	253		235			—			488
Interest expense	276		—			—			276
Loss on early extinguishment of debt	53		—			—			53
Other (income) and expense, net	12		(2		)	—			10
Intercompany charges (income)	73		(73		)	—			—
Equity in earnings of subsidiaries	310		—			(310		)	—
Income before income taxes	149		310			(310		)	149
Provision for income taxes	46		107			(107		)	46
Net income	$	103	$	203		$	(203	)	$	103

Supplemental Condensed Consolidating Statement of Operations

	Fiscal Year 2009
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(Restated)									(Restated)
	(In millions)
Net sales	$	3,428		$	2,233		$	(1,773	)	$	3,888
Cost of sales and occupancy expense	2,350			1,846			(1,773		)	2,423
Gross profit	1,078			387			—			1,465
Selling, general, and administrative expense	916			136			—			1,052
Related party expenses	14			—			—			14
Store pre-opening costs	2			—			—			2
Operating income	146			251			—			397
Interest expense	257			—			—			257
Other (income) and expense, net	(11		)	(6		)	—			(17		)
Intercompany charges (income)	73			(73		)	—			—
Equity in earnings of subsidiaries	330			—			(330		)	—
Income before income taxes	157			330			(330		)	157
Provision for income taxes	54			105			(105		)	54
Net income	$	103		$	225		$	(225	)	$	103

Supplemental Condensed Consolidating Balance Sheet

	January 28, 2012
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(In millions)
ASSETS
Current assets:
Cash and equivalents	$	363		$	8	$	—		$	371
Merchandise inventories	554			286		—			840
Intercompany receivables	—			466		(466		)	—
Other	103			20		—			123
Total current assets	1,020			780		(466		)	1,334
Property and equipment, net	249			63		—			312
Goodwill, net	95			—		—			95
Investment in subsidiaries	410			—		(410		)	—
Other assets	78			3		—			81
Total assets	$	1,852		$	846	$	(876	)	$	1,822
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	9		$	292	$	—		$	301
Accrued liabilities and other	257			132		—			389
Current portion of long-term debt	127			—		—			127
Intercompany payable	466			—		(466		)	—
Other	19			1		—			20
Total current liabilities	878			425		(466		)	837
Long-term debt	3,363			—		—			3,363
Other long-term liabilities	85			11		—			96
Total stockholders’ deficit	(2,474		)	410		(410		)	(2,474		)
Total liabilities and stockholders’ deficit	$	1,852		$	846	$	(876	)	$	1,822

Supplemental Condensed Consolidating Balance Sheet

	January 29, 2011
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(Restated)								(Restated)
	(In millions)
ASSETS
Current assets:
Cash and equivalents	$	309		$	10	$	—		$	319
Merchandise inventories	571			255		—			826
Intercompany receivables	—			348		(348		)	—
Other	109			17		—			126
Total current assets	989			630		(348		)	$	1,271
Property and equipment, net	234			67		—			301
Goodwill, net	95			—		—			95
Investment in subsidiaries	295			—		(295		)	—
Other assets	112			1		—			113
Total assets	$	1,725		$	698	$	(643	)	$	1,780
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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	24			3		—			27
Total current liabilities	642			391		(348		)	685
Long-term debt	3,667			—		—			3,667
Other long-term liabilities	70			12		—			82
Total stockholders’ deficit	(2,654		)	295		(295		)	(2,654		)
Total liabilities and stockholders’ deficit	$	1,725		$	698	$	(643	)	$	1,780

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2011
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)
Operating activities:
Net cash provided by operating activities	$	394		$	234		$	(215	)	$	413
Investing activities:
Cash paid for property and equipment	(88		)	(21		)	—			(109		)
Net cash used in investing activities	(88		)	(21		)	—			(109		)
Financing activities:
Net repayments of long-term debt	(227		)	—			—			(227		)
Intercompany dividends	—			(215		)	215			—
Other financing activities	(25		)	—			—			(25		)
Net cash provided by financing activities	(252		)	(215		)	215			(252		)
Increase in cash and equivalents	54			(2		)	—			52
Beginning cash and equivalents	309			10			—			319
Ending cash and equivalents	$	363		$	8		$	—		$	371

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2010
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)
Operating Activities:
Net cash provided by operating activities	$	426		$	301		$	(289	)	$	438
Investing Activities:
Cost of business acquisition	(2		)	—			—			(2		)
Cash paid for property and equipment	(69		)	(12		)	—			(81		)
Net cash used in investing activities	(71		)	(12		)	—			(83		)
Financing Activities:
Net repayments of long-term debt	(225		)	—			—			(225		)
Intercompany dividends	—			(289		)	289			—
Other financing activities	(28		)	—			—			(28		)
Net cash used in financing activities	(253		)	(289		)	289			(253		)
Increase in cash and equivalents	102			—			—			102
Beginning cash and equivalents	207			10			—			217
Ending cash and equivalents	$	309		$	10		$	—		$	319

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2009
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(In millions)
Operating activities:
Net cash provided by operating activities	$	397		$	525		$	(517	)	$	405
Investing activities:
Cash paid for property and equipment	(38		)	(5		)	—			(43		)
Net cash used in investing activities	(38		)	(5		)	—			(43		)
Financing activities:
Net borrowings of long-term debt	(171		)	—			—			(171		)
Intercompany dividends	—			(517		)	517			—
Other financing activities	(7		)	—			—			(7		)
Net cash used in financing activities	(178		)	(517		)	517			(178		)
Increase in cash and equivalents	181			3			—			184
Beginning cash and equivalents	26			7			—			33
Ending cash and cash equivalents	$	207		$	10		$	—		$	217

MICHAELS STORES, INC.

UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA

(In millions)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Fiscal 2011:
Net sales	$	953	$	857	$	996	$	1,404
Cost of sales and occupancy expense	560		529		594		843
Gross profit	393		328		402		561
Selling, general, and administrative expense	254		241		279		324
Operating income	135		82		118		234
Loss on early extinguishment of debt (1)	11		4		1		2
Net income	37		10		32		97

	First				Second			Third			Fourth
	Quarter				Quarter			Quarter			Quarter
	As		As		As			As			As
	Reported		Restated		Reported			Reported			Reported
Fiscal 2010:
Net sales	$	901	$	901	$	831		$	968		$	1,331
Cost of sales and occupancy expense	547		547		520			592			808
Gross profit	354		354		311			376			523
Selling, general, and administrative expense	245		245		233			269			312
Operating income	105		105		74			102			207
Loss on early extinguishment of debt (2)	—		—		—			53			—
Net income (loss)	13		18		(1		)	(12		)	98

We report on the basis of a 52 or 53-week fiscal year, which ends on the Saturday closest to January 31. Our interim periods each contain 13 weeks, with the first quarter ending on a Saturday 13 weeks after the end of our previous fiscal year. For fiscal years that contain 53 weeks, our fourth quarter contains 14 weeks.

(1) The loss on early extinguishment of debt relates to the early extinguishment of $163 million face value, or $155 million accreted value of our outstanding 13% Subordinated Discount Notes due 2016 and $7 million face value of our 113/8% Senior Subordinated Notes.

(2) The loss on early extinguishment of debt relates to the early extinguishment of our 2014 Notes.