Note 9. Condensed Consolidating Financial Information

All obligations of Michaels Stores, Inc. under our notes, the Restated Revolving Credit Facility and the Rested Term Loan 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 May 4, 2013, 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

	May 4, 2013
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	32		$	23	$	—		$	55
Merchandise inventories	588			254		—			842
Intercompany receivables	—			442		(442		)	—
Other	108			22		—			130
Total current assets	728			741		(442		)	1,027
Property and equipment, net	272			69		—			341
Goodwill	94			—		—			94
Investment in subsidiaries	451			—		(451		)	—
Other assets	54			3		—			57
Total assets	$	1,599		$	813	$	(893	)	$	1,519

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	4		$	228	$	—		$	232
Accrued liabilities and other	177			123		—			300
Current portion of long-term debt	198			—		—			198
Intercompany payable	442			—		(442		)	—
Other	35			—		—			35
Total current liabilities	856			351		(442		)	765
Long-term debt	2,887			—		—			2,887
Other long-term liabilities	70			11		—			81
Total stockholders’ deficit	(2,214		)	451		(451		)	(2,214		)
Total liabilities and stockholders’ deficit	$	1,599		$	813	$	(893	)	$	1,519

Supplemental Condensed Consolidating Balance Sheet

	February 2, 2013
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	37		$	19	$	—		$	56
Merchandise inventories	590			275		—			865
Intercompany receivables	—			323		(323		)	—
Other	105			21		—			126
Total current assets	732			638		(323		)	1,047
Property and equipment, net	271			67		—			338
Goodwill	94			—		—			94
Investment in subsidiaries	301			—		(301		)	—
Other assets	59			3		—			62
Total assets	$	1,457		$	708	$	(624	)	$	1,541

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	5		$	258	$	—		$	263
Accrued liabilities and other	235			132		—			367
Current portion of long-term debt	150			—		—			150
Intercompany payable	323			—		(323		)	—
Other	39			5		—			44
Total current liabilities	752			395		(323		)	824
Long-term debt	2,891			—		—			2,891
Other long-term liabilities	73			12		—			85
Total stockholders’ deficit	(2,259		)	301		(301		)	(2,259		)
Total liabilities and stockholders’ deficit	$	1,457		$	708	$	(624	)	$	1,541

Supplemental Condensed Consolidating Balance Sheet

	April 28, 2012
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	372		$	13	$	—		$	385
Merchandise inventories	577			297		—			874
Intercompany receivables	—			570		(570		)	—
Other	104			20		—			124
Total current assets	1,053			900		(570		)	1,383
Property and equipment, net	250			60		—			310
Goodwill	95			—		—			95
Investment in subsidiaries	563			—		(563		)	—
Other assets	74			3		—			77
Total assets	$	2,035		$	963	$	(1,133	)	$	1,865

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	10		$	270	$	—		$	280
Accrued liabilities and other	269			119		—			388
Current portion of long-term debt	127			—		—			127
Intercompany payable	570			—		(570		)	—
Other	29			—		—			29
Total current liabilities	1,005			389		(570		)	824
Long-term debt	3,363			—		—			3,363
Other long-term liabilities	85			11		—			96
Total stockholders’ deficit	(2,418		)	563		(563		)	(2,418		)
Total liabilities and stockholders’ deficit	$	2,035		$	963	$	(1,133	)	$	1,865

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Quarter Ended May 4, 2013
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)

Net sales	$	869		$	547		$	(423	)	$	993
Cost of sales and occupancy expense	556			453			(423		)	586
Gross profit	313			94			—			407
Selling, general, and administrative expense	233			38			—			271
Related party expenses	4			—			—			4
Store pre-opening costs	2			—			—			2
Operating income	74			56			—			130
Interest expense	47			—			—			47
Refinancing costs and losses on early extinguishment of debt	7			—			—			7
Intercompany charges (income)	13			(13		)	—			—
Equity in earnings of subsidiaries	69			—			(69		)	—
Income before income taxes	76			69			(69		)	76
Provision for income taxes	29			26			(26		)	29
Net income	47			43			(43		)	47

Other comprehensive income, net of tax:
Actuarial loss on pension plan	(1		)	—			—			(1		)
Comprehensive income	$	46		$	43		$	(43	)	$	46

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Quarter Ended April 28, 2012
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)

Net sales	$	861		$	549		$	(432	)	$	978
Cost of sales and occupancy expense	536			462			(432		)	566
Gross profit	325			87			—			412
Selling, general, and administrative expense	225			35			—			260
Related party expenses	3			—			—			3
Store pre-opening costs	1			—			—			1
Operating income	96			52			—			148
Interest expense	66			—			—			66
Other (income) and expense, net	(1		)	—			—			(1		)
Intercompany charges (income)	17			(17		)	—			—
Equity in earnings of subsidiaries	69			—			(69		)	—
Income before income taxes	83			69			(69		)	83
Provision for income taxes	30			25			(25		)	30
Net income	53			44			(44		)	53

Other comprehensive income, net of tax:
Foreign currency translation adjustment	2			—			—			2
Comprehensive income	$	55		$	44		$	(44	)	$	55

Supplemental Condensed Consolidating Statement of Cash Flows

	Quarter Ended May 4, 2013
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	(8	)	$	34		$	(24	)	$	2

Investing activities:
Cash paid for property and equipment	(16		)	(6		)	—			(22		)
Net cash used in investing activities	(16		)	(6		)	—			(22		)

Financing activities:
Net repayments of short-term debt	39			—			—			39
Intercompany dividends	—			(24		)	24			—
Other financing activities	(20		)	—			—			(20		)
Net cash used in financing activities	19			(24		)	24			19

Decrease in cash and equivalents	(5		)	4			—			(1		)
Beginning cash and equivalents	37			19			—			56
Ending cash and equivalents	$	32		$	23		$	—		$	55

Supplemental Condensed Consolidating Statement of Cash Flows

	Quarter Ended April 28, 2012
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	33		$	25		$	(17	)	$	41

Investing activities:
Cash paid for property and equipment	(15		)	(3		)	—			(18		)
Net cash used in investing activities	(15		)	(3		)	—			(18		)

Financing activities:
Intercompany dividends	—			(17		)	17			—
Other financing activities	(9		)	—			—			(9		)
Net cash used in financing activities	(9		)	(17		)	17			(9		)

Increase in cash and equivalents	9			5			—			14
Beginning cash and equivalents	363			8			—			371
Ending cash and equivalents	$	372		$	13		$	—		$	385