Note 11. Condensed Consolidating Financial Information

All obligations of the Company under its notes, the Restated Revolving Credit Facility and the Restated Term Loan Credit Facility are guaranteed by each of its subsidiaries other than Aaron Brothers Card Services, LLC, Artistree of Canada, ULC and Michaels Stores of Puerto Rico, LLC and will be guaranteed by its direct parent, Holdings. As of November 2, 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, directly or indirectly, by the Company and such guarantees of each subsidiary guarantor are (and the guarantee of Holdings will be) 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

	November 2, 2013
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	49		$	19	$	—		$	68
Merchandise inventories	745			374		—			1,119
Intercompany receivables	1			614		(614		)	1
Other	129			28		—			157
Total current assets	924			1,035		(614		)	1,345
Property and equipment, net	278			75		—			353
Goodwill	94			—		—			94
Investment in subsidiaries	489			—		(489		)	—
Long-term receivable from Parent	5			—					5
Other assets	66			3		—			69
Total assets	$	1,856		$	1,113	$	(1,103	)	$	1,866

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	13		$	454	$	—		$	467
Accrued liabilities and other	209			133		—			342
Share-based compensation	8			13		—			21
Current portion of long-term debt	203			—		—			203
Intercompany payable	614			—		(614		)	—
Other	9			1		—			10
Total current liabilities	1,056			601		(614		)	1,043
Long-term debt	2,878			—		—			2,878
Share-based compensation	18			10		—			28
Other long-term liabilities	75			13		—			88
Total stockholders’ deficit	(2,171		)	489		(489		)	(2,171		)
Total liabilities and stockholders’ deficit	$	1,856		$	1,113	$	(1,103	)	$	1,866

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	591			271		—			862
Intercompany receivables	—			329		(329		)	—
Other	105			21		—			126
Total current assets	733			640		(329		)	1,044
Property and equipment, net	271			67		—			338
Goodwill	94			—		—			94
Investment in subsidiaries	284			—		(284		)	—
Other assets	76			3		—			79
Total assets	$	1,458		$	710	$	(613	)	$	1,555

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	5		$	258	$	—		$	263
Accrued liabilities and other	235			132		—			367
Share-based compensation	22			13		—			35
Current portion of long-term debt	150			—		—			150
Intercompany payable	329			—		(329		)	—
Other	36			5		—			41
Total current liabilities	777			408		(329		)	856
Long-term debt	2,891			—		—			2,891
Other long-term liabilities	73			12		—			85
Share-based compensation	21			6		—			27
Total stockholders’ deficit	(2,304		)	284		(284		)	(2,304		)
Total liabilities and stockholders’ deficit	$	1,458		$	710	$	(613	)	$	1,555

Supplemental Condensed Consolidating Balance Sheet

	October 27, 2012
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	Restated (in millions)
ASSETS
Current assets:
Cash and equivalents	$	138		$	23	$	—		$	161
Merchandise inventories	717			361		—			1,078
Intercompany receivables	—			637		(637		)	—
Other	120			30		—			150
Total current assets	975			1,051		(637		)	1,389
Property and equipment, net	277			67		—			344
Goodwill	95			—		—			95
Investment in subsidiaries	610			—		(610		)	—
Other assets	86			3		—			89
Total assets	$	2,043		$	1,121	$	(1,247	)	$	1,917

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	23		$	351	$	—		$	374
Accrued liabilities and other	295			129		—			424
Share-based compensation	19			11		—			30
Current portion of long-term debt	180			—		—			180
Intercompany payable	637			—		(637		)	—
Other	6			1		—			7
Total current liabilities	1,160			492		(637		)	1,015
Long-term debt	3,188			—		—			3,188
Other long-term liabilities	85			12		—			97
Share-based compensation	17			7		—			24
Total stockholders’ deficit	(2,407		)	610		(610		)	(2,407		)
Total liabilities and stockholders’ deficit	$	2,043		$	1,121	$	(1,247	)	$	1,917

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Quarter Ended November 2, 2013
	Parent Company		Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	981	$	748		$	(611	)	$	1,118
Cost of sales and occupancy expense	623		653			(611		)	665
Gross profit	358		95			—			453
Selling, general, and administrative expense	265		44			—			309
Share-based compensation expense	3		1						4
Related party expenses	3		—			—			3
Store pre-opening costs	1		1			—			2
Operating income	86		49			—			135
Interest expense	45		—			—			45
Refinancing costs and losses on early extinguishment of debt	—		—			—			—
Other (income) and expense, net	—		—			—			—
Intercompany charges (income)	20		(20		)	—			—
Equity in earnings of subsidiaries	69		—			(69		)	—
Income before income taxes	90		69			(69		)	90
Provision for income taxes	32		25			(25		)	32
Net income	58		44			(44		)	58

Comprehensive income	$	58	$	44		$	(44	)	$	58

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	573		593			(554		)	612
Gross profit	310		92			—			402
Selling, general, and administrative expense	239		38			—			277
Share-based compensation expense	1		1			—			2
Related party expenses	3		—			—			3
Store pre-opening costs	2		1			—			3
Operating income	65		52			—			117
Interest expense	60		—			—			60
Refinancing costs and losses on early extinguishment of debt	3		—			—			3
Other (income) and expense, net	—		—			—			—
Intercompany charges (income)	21		(21		)	—			—
Equity in earnings of subsidiaries	73		—			(73		)	—
Income before income taxes	54		73			(73		)	54
Provision for income taxes	19		26			(26		)	19
Net income	35		47			(47		)	35
Comprehensive income	$	35	$	47		$	(47	)	$	35

Supplemental Condensed Consolidating Statement of Comprehensive Income

	Nine Months Ended November 2, 2013
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	2,633		$	1,829		$	(1,447	)	$	3,015
Cost of sales and occupancy expense	1,702			1,561			(1,447		)	1,816
Gross profit	931			268			—			1,199
Selling, general, and administrative expense	721			114			—			835
Share-based compensation expense	12			3						15
Related party expenses	10			—			—			10
Store pre-opening costs	4			1			—			5
Operating income	184			150			—			334
Interest expense	137			—			—			137
Refinancing costs and losses on early extinguishment of debt	7			—			—			7
Other (income) and expense, net	—			1			—			1
Intercompany charges (income)	44			(44		)	—			—
Equity in earnings of subsidiaries	193			—			(193		)	—
Income before income taxes	189			193			(193		)	189
Provision for income taxes	68			69			(69		)	68
Net income	121			124			(124		)	121
Other comprehensive income, net of tax:
Foreign currency translation adjustment	(2		)	—			—			(2		)
Comprehensive income	$	119		$	124		$	(124	)	$	119

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	1,625			1,503			(1,392		)	1,736
Gross profit	895			253			—			1,148
Selling, general, and administrative expense	681			106			—			787
Share-based compensation expense	7			2			—			9
Related party expenses	10			—			—			10
Store pre-opening costs	4			1			—			5
Operating income	193			144			—			337
Interest expense	187			—			—			187
Refinancing costs and losses on early extinguishment of debt	3			—			—			3
Other (income) and expense, net	(1		)	—			—			(1		)
Intercompany charges (income)	53			(53		)	—			—
Equity in earnings of subsidiaries	197			—			(197		)	—
Income before income taxes	148			197			(197		)	148
Provision for income taxes	53			71			(71		)	53
Net income	95			126			(126		)	95
Comprehensive income	$	95		$	126		$	(126	)	$	95

Supplemental Condensed Consolidating Statement of Cash Flows

	Nine Months Ended November 2, 2013
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	51		$	94		$	(71	)	$	74

Investing activities:
Cash paid for property and equipment	(59		)	(23		)	—			(82		)
Net cash used in investing activities	(59		)	(23		)	—			(82		)

Financing activities:
Net repayments of short-term debt	36			—			—			36
Intercompany dividends	—			(71		)	71			—
Other financing activities	(16		)	—			—			(16		)
Net cash provided by (used in) financing activities	20			(71		)	71			20

Increase in cash and equivalents	12			—			—			12
Beginning cash and equivalents	37			19			—			56
Ending cash and equivalents	$	49		$	19		$	—		$	68

Supplemental Condensed Consolidating Statement of Cash Flows

	Nine Months Ended October 27, 2012
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	Restated (in millions)
Operating activities:
Net cash (used in) provided by operating activities	$	(22	)	$	109		$	(74	)	$	13

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	(14		)	(1		)	—			(15		)
Net cash used in financing activities	(137		)	(75		)	74			(138		)

Decrease in cash and equivalents	(225		)	15			—			(210		)
Beginning cash and equivalents	363			8			—			371
Ending cash and equivalents	$	138		$	23		$	—		$	161