Condensed Consolidating Financial Information

9 Months Ended

Oct. 27, 2012

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

Note 10.  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, Artistree of Canada, ULC and Michaels Stores of Puerto Rico, LLC. As of October 27, 2012, the financial statements of Aaron Brothers Card Services, LLC, Artistree of Canada, ULC and Michaels Stores of Puerto Rico, LLC were immaterial. Each subsidiary guarantor is 100% owned by the parent and all guarantees are joint and several and full and unconditional.

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 27, 2012
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	138		$	23	$	—		$	161
Merchandise inventories	717			359		—			1,076
Intercompany receivables	—			634		(634		)	—
Other	120			30		—			150
Total current assets	975			1,046		(634		)	1,387
Property and equipment, net	277			67		—			344
Goodwill	95			—		—			95
Investment in subsidiaries	623			—		(623		)	—
Other assets	72			3		—			75
Total assets	$	2,042		$	1,116	$	(1,257	)	$	1,901
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	23		$	351	$	—		$	374
Accrued liabilities and other	295			129		—			424
Current portion of long-term debt	180			—		—			180
Intercompany payable	634			—		(634		)	—
Other	8			1		—			9
Total current liabilities	1,140			481		(634		)	987
Long-term debt	3,188			—		—			3,188
Other long-term liabilities	85			12		—			97
Total stockholders’ deficit	(2,371		)	623		(623		)	(2,371		)
Total liabilities and stockholders’ deficit	$	2,042		$	1,116	$	(1,257	)	$	1,901

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	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

	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	121			23		—			144
Total current assets	895			891		(512		)	1,274
Property and equipment, net	251			65		—			316
Goodwill	95			—		—			95
Investment in subsidiaries	481			—		(481		)	—
Other assets	94			1		—			95
Total assets	$	1,816		$	957	$	(993	)	$	1,780
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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	5			—		—			5
Total current liabilities	941			464		(512		)	893
Long-term debt	3,376			—		—			3,376
Other long-term liabilities	71			12		—			83
Total stockholders’ deficit	(2,572		)	481		(481		)	(2,572		)
Total liabilities and stockholders’ deficit	$	1,816		$	957	$	(993	)	$	1,780

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Quarter Ended October 27, 2012
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	883	$	685		$	(554	)	$	1,014
Cost of sales and occupancy expense	574		591			(554		)	611
Gross profit	309		94			—			403
Selling, general, and administrative expense	240		38			—			278
Related party expenses	3		—			—			3
Store pre-opening costs	2		1			—			3
Operating income	64		55			—			119
Interest expense	60		—			—			60
Loss on early extinguishment of debt	3		—			—			3
Other (income) and expense, net	—		—			—			—
Intercompany charges (income)	21		(21		)	—			—
Equity in earnings of subsidiaries	76		—			(76		)	—
Income before income taxes	56		76			(76		)	56
Provision for income taxes	20		27			(27		)	20
Net income	36		49			(49		)	36
Comprehensive income	$	36	$	49		$	(49	)	$	36

Supplemental Condensed Consolidating Statement of Comprehensive Income

	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
Other comprehensive income, net of tax:
Foreign currency translation adjustment	(1		)	—			—			(1		)
Comprehensive income	$	31		$	43		$	(43	)	$	31

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Nine Months Ended October 27, 2012
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	2,520		$	1,756		$	(1,392	)	$	2,884
Cost of sales and occupancy expense	1,624			1,498			(1,392		)	1,730
Gross profit	896			258			—			1,154
Selling, general, and administrative expense	684			106			—			790
Related party expenses	10			—			—			10
Store pre-opening costs	4			1			—			5
Operating income	198			151			—			349
Interest expense	187			—			—			187
Loss on early extinguishment of debt	3			—			—			3
Other (income) and expense, net	(1		)	—			—			(1		)
Intercompany charges (income)	53			(53		)	—			—
Equity in earnings of subsidiaries	204			—			(204		)	—
Income before income taxes	160			204			(204		)	160
Provision for income taxes	58			74			(74		)	58
Net income	102			130			(130		)	102
Comprehensive income	$	102		$	130		$	(130	)	$	102

Supplemental Condensed Consolidating Statement of Comprehensive Income

	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
Comprehensive income	$	79	$	134		$	(134	)	$	79

Supplemental Condensed Consolidating Statement of Cash Flows

	Nine Months Ended October 27, 2012
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	(19	)	$	109		$	(74	)	$	16
Investing activities:
Cash paid for property and equipment	(66		)	(19		)	—			(85		)
Net cash used in investing activities	(66		)	(19		)	—			(85		)
Financing activities:
Net repayments of long-term debt	(123		)	—			—			(123		)
Intercompany dividends	—			(74		)	74			—
Other financing activities	(17		)	(1		)	—			(18		)
Net cash used in financing activities	(140		)	(75		)	74			(141		)
Decrease in cash and equivalents	(225		)	15			—			(210		)
Beginning cash and equivalents	363			8			—			371
Ending cash and equivalents	$	138		$	23		$	—		$	161

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 provided by 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