Note 2. Restatement — Share-based Compensation

The Company has determined its previously issued audited consolidated financial statements for the fiscal years ended February 2, 2013 and January 28, 2012, contained an error with respect to ASC 718, Compensation — Stock Compensation. Specifically, participants exercised stock options upon their termination from the Company, and the Company immediately re- purchased the immature shares (shares held less than six months following exercise). The Company repurchased shares in this manner and therefore, under accounting rules, established a pattern of repurchasing immature shares during the third quarter of 2011. The Company determined that, as a result, all stock options should have been treated as liability awards in accordance with the rules of ASC 718-10-25-9 at such time. Under liability accounting, the Company re-measures the fair value of stock compensation each period and recognizes changes in fair value as awards vest and until the award is settled. The Company originally recognized expense ratably over the vesting period based on the grant date fair value of the option. The Company determined the accounting error was material to fiscal 2011 and fiscal 2012 financial statements and those financial statements required restatement. The impact to share-based compensation expense was $18 million ($11 million, net of tax) and $32 million ($20 million, net of tax) for the fiscal years ended February 2, 2013 and January 28, 2012, respectively. As part of the restatement, the Company also recorded other adjustments related to merchandise inventories and closed store reserve which were previously determined to be immaterial to the respective periods. In total, the adjustments resulted in a decline of net income by $14 million for fiscal year ended February 2, 2013, and $19 million for fiscal year ended January 28, 2012. As a result of this restatement, the following footnotes have been restated:

· Note 6 — Income Taxes

· Note 7 — Share-based Compensation Restated

· Note 13 — Segments and Geographic Information

· Note 15 — Condensed Consolidating Financial Information

The following tables illustrate the corrections as associated with certain line items in the financial statements (amounts in millions):

	Consolidated Statements of Comprehensive Income Fiscal 2012
	As Reported		Share-based compensation Adjustment			Other Adjustments			As Restated
Cost of sales and occupancy expense	$	2,632	$	6		$	5		$	2,643
Gross Profit	1,776		(6		)	(5		)	1,765
Selling, general and administrative expense	1,135		(3		)	—			1,132
Share-based compensation	—		15			—			15
Operating income	615		(18		)	(5		)	592
Income before income taxes	338		(18		)	(5		)	315
Provision for income taxes	124		(7		)	(2		)	115
Net income	214		(11		)	(3		)	200
Comprehensive income	214		(11		)	(3		)	200

	Consolidated Statements of Comprehensive Income Fiscal 2011
	As Reported		Share-based compensation Adjustment			Other Adjustments			As Restated
Cost of sales and occupancy expense	$	2,526	$	7		$	(1	)	$	2,532
Gross Profit	1,684		(7		)	1			1,678
Selling, general and administrative expense	1,098		(8		)	—			1,090
Share-based compensation	—		33			—			33
Operating income	569		(32		)	1			538
Income before income taxes	288		(32		)	1			257
Provision for income taxes	112		(12		)	—			100
Net income	176		(20		)	1			157
Comprehensive income	175		(20		)	1			156

	Consolidated Balance Sheet As of February 2, 2013
	As Reported			Share-based compensation Adjustment			Other Adjustments			As Restated
Merchandise inventories	$	865		$	1		$	(4	)	$	862
Total current assets	1,047			1			(4		)	1,044
Deferred income taxes	13			17			—			30
Total non-current assets	156			17			—			173
Share-based compensation liability	—			35			—			35
Income taxes payable	40			(1		)	(2		)	37
Total current liabilities	824			34			(2		)	856
Share-based compensation liability	—			27			—			27
Total long-term liabilities	2,976			27			—			3,003
Additional paid-in capital	49			(12		)	—			37
Accumulated deficit	(2,326		)	(31		)	(2		)	(2,359		)
Total stockholders’ deficit	(2,259		)	(43		)	(2		)	(2,304		)

	Consolidated Balance Sheet As of January 28, 2012
	As Reported			Share-based compensation Adjustment			Other Adjustments		As Restated
Merchandise inventories	$	840		$	4		$	1	$	845
Total current assets	1,334			4			1		1,339
Deferred income taxes	18			11			—		29
Total non-current assets	176			11			—		187
Share-based compensation liability	—			25			—		25
Income taxes payable	19			(1		)	—		18
Total current liabilities	837			24			—		861
Share-based compensation liability	—			19			—		19
Total long-term liabilities	3,459			19			—		3,478
Additional paid-in capital	48			(8		)	—		40
Accumulated deficit	(2,540		)	(20		)	1		(2,559		)
Total stockholders’ deficit	(2,474		)	(28		)	1		(2,501		)

	Cash Flow Data Fiscal 2012
	As Reported			Share-based compensation Adjustment		Other Adjustments		As Restated
Operating Activities:
Net income	$	214		(11	)	(3	)	$	200
Share-based compensation	5			16		—		21
Merchandise inventories	(25		)	5		(1	)	(21		)
Deferred income taxes	2			(4	)	—		(2		)
Accrued liabilities and other	(12		)	(4	)	—		(16		)
Income taxes	19			(1	)	—		18
Net cash provided by operating activities	302			1		(4	)	299
Net cash used in financing activities	(493		)	3		—		(490		)

	Cash Flow Data Fiscal 2011
	As Reported			Share-based compensation Adjustment		Other Adjustments		As Restated
Operating Activities:
Net income	$	176		(20	)	1		$	157
Share-based compensation	9			32		—		41
Merchandise inventories	(14		)	(4	)	(1	)	(19		)
Deferred income taxes	32			(11	)	—		21
Net cash provided by operating activities	413			(4	)	—		409
Net cash used in financing activities	(252		)	4		—		(248		)