| Restatement - Share-based Compensation |
Note 2. Restatement — Share-based Compensation
The Company has determined its previously issued unaudited interim consolidated financial statements for the three month periods ended May 4, 2013 and April 28, 2012, contained an error with respect to ASC 718, Compensation — Stock Compensation. Specifically, former participants in the Company’s Equity Incentive Plan and its successor Plan (The Michaels Companies, Inc. (“Parent”) Equity Incentive Plan, together the “Plan”) exercised stock options upon their termination from the Company, and the Company repurchased the immature shares. The Company consistently 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 all stock options should have been treated as liability awards in accordance with the rules of ASC 718-10-25-9. 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 in accordance with the fixed method of accounting. The Company determined the accounting error was material to fiscal 2011 and fiscal 2012 financial statements and those financial statements required restatement. As a result, the Company is also restating its financial statements for the three months ended May 4, 2013 and April 28, 2012. The impact to share-based compensation cost for the three months ended May 4, 2013 and April 28, 2012, was $5 million ($3, net of tax) and $3 million ($1, net of tax), respectively. As part of the restatement, the Company also recorded other adjustments related to merchandise inventories and the reserve for closed facilities which were previously determined to be immaterial to the respective periods. In total, the adjustments resulted in a decline of Net income by $1 million for the three months ended May 4, 2013, and $2 million for the three months ended April 28, 2012.
The following footnotes have been restated:
· Note 6 — Income Taxes
· Note 8 — Segments and Geographic Information
· Note 10 — Condensed Consolidating Financial Information
The following tables illustrate the correction as associated with certain line items in the unaudited interim consolidated financial statements (amounts in millions):
|
|
|
Consolidated Balance Sheet |
|
|
|
|
May 4, 2013 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Merchandise inventories |
|
$ |
842 |
|
$ |
2 |
|
$ |
(1 |
) |
$ |
843 |
|
|
Total current assets |
|
1,027 |
|
2 |
|
(1 |
) |
1,028 |
|
|
Deferred income taxes |
|
13 |
|
15 |
|
— |
|
28 |
|
|
Total non-current assets |
|
151 |
|
15 |
|
— |
|
166 |
|
|
Share-based compensation liability |
|
— |
|
36 |
|
— |
|
36 |
|
|
Income taxes payable |
|
31 |
|
(4 |
) |
— |
|
27 |
|
|
Total current liabilities |
|
765 |
|
32 |
|
— |
|
797 |
|
|
Share-based compensation liability |
|
— |
|
28 |
|
— |
|
28 |
|
|
Total long-term liabilities |
|
2,968 |
|
28 |
|
— |
|
2,996 |
|
|
Additional paid-in capital |
|
48 |
|
(10 |
) |
— |
|
38 |
|
|
Accumulated deficit |
|
(2,279 |
) |
(33 |
) |
(1 |
) |
(2,313 |
) |
|
Total stockholders’ deficit |
|
(2,214 |
) |
(43 |
) |
(1 |
) |
(2,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet |
|
|
|
|
April 28, 2012 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Merchandise inventories |
|
$ |
874 |
|
$ |
6 |
|
$ |
— |
|
$ |
880 |
|
|
Total current assets |
|
1,383 |
|
6 |
|
— |
|
1,389 |
|
|
Deferred income taxes |
|
18 |
|
13 |
|
— |
|
31 |
|
|
Total non-current assets |
|
172 |
|
13 |
|
— |
|
185 |
|
|
Share-based compensation liability |
|
— |
|
28 |
|
— |
|
28 |
|
|
Income taxes payable |
|
28 |
|
(1 |
) |
— |
|
27 |
|
|
Total current liabilities |
|
824 |
|
27 |
|
— |
|
851 |
|
|
Share-based compensation liability |
|
— |
|
22 |
|
— |
|
22 |
|
|
Total long-term liabilities |
|
3,459 |
|
22 |
|
— |
|
3,481 |
|
|
Additional paid-in capital |
|
49 |
|
(9 |
) |
— |
|
40 |
|
|
Accumulated deficit |
|
(2,487 |
) |
(21 |
) |
— |
|
(2,508 |
) |
|
Total stockholders’ deficit |
|
(2,418 |
) |
(30 |
) |
— |
|
(2,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income |
|
|
|
|
Quarter Ended May 4, 2013 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Cost of sales and occupancy expense |
|
$ |
586 |
|
$ |
1 |
|
$ |
(3 |
) |
$ |
584 |
|
|
Gross Profit |
|
|
407 |
|
|
(1 |
) |
|
3 |
|
|
409 |
|
|
Selling, general and administrative expense |
|
271 |
|
1 |
|
— |
|
272 |
|
|
Share-based compensation |
|
— |
|
3 |
|
— |
|
3 |
|
|
Operating income |
|
130 |
|
(5 |
) |
3 |
|
128 |
|
|
Income before income taxes |
|
76 |
|
(5 |
) |
3 |
|
74 |
|
|
Provision for income taxes |
|
29 |
|
(2 |
) |
1 |
|
28 |
|
|
Net income |
|
47 |
|
(3 |
) |
2 |
|
46 |
|
|
Comprehensive income |
|
46 |
|
(3 |
) |
2 |
|
45 |
|
|
|
|
Consolidated Statements of Comprehensive Income |
|
|
|
|
Quarter Ended April 28, 2012 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Cost of sales and occupancy expense |
|
$ |
566 |
|
$ |
— |
|
$ |
1 |
|
$ |
567 |
|
|
Gross Profit |
|
|
412 |
|
|
— |
|
(1 |
) |
411 |
|
|
Selling, general and administrative expense |
|
260 |
|
(1 |
) |
— |
|
259 |
|
|
Share-based compensation |
|
— |
|
4 |
|
— |
|
4 |
|
|
Operating income |
|
148 |
|
(3 |
) |
(1 |
) |
144 |
|
|
Income before income taxes |
|
83 |
|
(3 |
) |
(1 |
) |
79 |
|
|
Provision for income taxes |
|
30 |
|
(2 |
) |
— |
|
28 |
|
|
Net income |
|
53 |
|
(1 |
) |
(1 |
) |
51 |
|
|
Comprehensive income |
|
55 |
|
(1 |
) |
(1 |
) |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data |
|
|
|
|
Quarter Ended May 4, 2013 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
47 |
|
(3 |
) |
2 |
|
$ |
46 |
|
|
Share-based compensation |
|
(1 |
) |
5 |
|
— |
|
4 |
|
|
Merchandise inventories |
|
23 |
|
— |
|
(3 |
) |
20 |
|
|
Accrued liabilities and other |
|
(39 |
) |
(2 |
) |
— |
|
(41 |
) |
|
Income taxes |
|
(15 |
) |
— |
|
1 |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data |
|
|
|
|
Quarter Ended April 28, 2012 |
|
|
|
|
As
Reported |
|
Share-based
compensation
Adjustment |
|
Other
Adjustments |
|
As
Restated |
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
53 |
|
(1 |
) |
(1 |
) |
$ |
51 |
|
|
Share-based compensation |
|
1 |
|
3 |
|
— |
|
4 |
|
|
Merchandise inventories |
|
(34 |
) |
— |
|
1 |
|
(33 |
) |
|
Income taxes |
|
5 |
|
(2 |
) |
–– |
|
3 |
|
|
|
|
|
|
|
|
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