Michaels Companies 10-Q 26 Aug 16 2016 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jul. 30, 2016	Aug. 18, 2016
Document and Entity Information
Entity Registrant Name	Michaels Companies, Inc.
Entity Central Index Key	1,593,936
Document Type	10-Q
Document Period End Date	Jul. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--01-28
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		205,810,700
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q2

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Sales	$ 1,060,353	$ 984,270	$ 2,219,233	$ 2,061,870
Cost of sales and occupancy expense	669,656	610,949	1,363,785	1,246,752
Gross profit	390,697	373,321	855,448	815,118
Selling, general, and administrative	302,712	275,699	620,512	571,270
Store pre-opening costs	908	1,040	2,534	3,284
Operating income	87,077	96,582	232,402	240,564
Interest expense	31,954	34,311	64,173	72,127
Losses on early extinguishment of debt and refinancing costs	405	6,072	405	6,072
Other (income) expense, net	(515)	(136)	(69)	59
Income before income taxes	55,233	56,335	167,893	162,306
Provision for income taxes	19,616	20,624	61,511	59,857
Net income	35,617	35,711	106,382	102,449
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	(4,759)	(7,223)	9,450	(2,907)
Comprehensive income	$ 30,858	$ 28,488	$ 115,832	$ 99,542
Earnings per common share:
Basic (in dollars per share)	$ 0.17	$ 0.17	$ 0.51	$ 0.49
Diluted (in dollars per share)	$ 0.17	$ 0.17	$ 0.51	$ 0.49
Weighted-average common shares outstanding:
Basic (in shares)	205,881	206,941	206,437	206,283
Diluted (in shares)	207,547	209,423	208,269	209,240

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jul. 30, 2016	Jan. 30, 2016	Aug. 01, 2015
Current Assets:
Cash and equivalents	$ 114,849	$ 409,391	$ 70,368
Merchandise inventories	1,145,422	1,002,607	1,073,722
Prepaid expenses and other	77,472	77,000	75,027
Accounts receivable, net	26,920	9,484	8,217
Income tax receivables	42,676	1,231	53,499
Total current assets	1,407,339	1,499,713	1,280,833
Property and equipment, at cost	1,724,291	1,661,234	1,632,755
Less accumulated depreciation and amortization	(1,325,603)	(1,282,727)	(1,238,069)
Property and equipment, net	398,688	378,507	394,686
Goodwill	119,074	94,290	94,290
Other intangible assets, net	23,703	471	505
Deferred income taxes	39,780	40,399	42,496
Other assets	12,387	9,897	6,059
Total assets	2,000,971	2,023,277	1,818,869
Current liabilities:
Accounts payable	462,099	457,704	418,745
Accrued liabilities and other	347,349	377,606	349,777
Current portion of long-term debt	66,900	24,900	48,900
Income taxes payable		44,640	873
Total current liabilities	876,348	904,850	818,295
Long-term debt	2,735,187	2,744,942	2,902,099
Other liabilities	97,232	97,580	91,032
Total liabilities	3,708,767	3,747,372	3,811,426
Commitments and contingencies
Stockholders’ Deficit:
Common stock, $0.06775 par value, 350,000 shares authorized; 205,824 shares issued and outstanding at July 30, 2016; 208,996 shares issued and outstanding at January 30, 2016; and 208,011 shares issued and outstanding at August 1, 2015	13,770	13,979	13,952
Additional paid-in capital	493,096	592,420	577,104
Accumulated deficit	(2,202,056)	(2,308,438)	(2,568,901)
Accumulated other comprehensive loss	(12,606)	(22,056)	(14,712)
Total stockholders' deficit	(1,707,796)	(1,724,095)	(1,992,557)
Total liabilities and stockholders' deficit	$ 2,000,971	$ 2,023,277	$ 1,818,869

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Thousands	Jul. 30, 2016	Jan. 30, 2016	Aug. 01, 2015
CONSOLIDATED BALANCE SHEETS
Common Stock, par value (in dollars per share)	$ 0.06775	$ 0.06775	$ 0.06775
Common Stock, shares authorized	350,000	350,000	350,000
Common Stock, shares issued	205,824	208,996	208,011
Common Stock, shares outstanding	205,824	208,996	208,011

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015
Cash flows from operating activities:
Net income	$ 106,382	$ 102,449
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	58,468	55,949
Share-based compensation	6,590	6,225
Debt issuance costs amortization	3,760	4,366
Accretion of long-term debt, net	(124)	(66)
Deferred income taxes	619	6,514
Losses on early extinguishment of debt and refinancing costs	405	6,072
Losses on disposition of property and equipment	35
Excess tax benefits from share-based compensation	(7,271)	(12,952)
Changes in assets and liabilities, excluding acquired net assets:
Merchandise inventories	(58,612)	(115,198)
Prepaid expenses and other	639	(2,875)
Accounts receivable	4,858	4,534
Other assets	(445)	(86)
Accounts payable	(20,171)	(19,546)
Accrued interest	(5,045)	89
Accrued liabilities and other	(35,091)	(53,634)
Income taxes	(78,816)	(62,845)
Other liabilities	(605)	(2,067)
Net cash used in operating activities	(24,424)	(83,071)
Cash flows from investing activities:
Additions to property and equipment	(38,395)	(63,241)
Acquisition of Lamrite West, net of cash acquired	(151,100)
Net cash used in investing activities	(189,495)	(63,241)
Cash flows from financing activities:
Payment of PIK notes		(184,467)
Payments on restated term loan credit facility	(12,450)	(12,450)
Borrowings on asset-based revolving credit facility	42,000	24,000
Payment of debt issuance costs	(3,048)
Payments of dividends	(415)	(443)
Proceeds from stock options exercised	15,058	19,586
Excess tax benefits from share-based compensation	7,271	12,952
Common stock repurchased	(129,039)	(19,822)
Other financing costs		(971)
Net cash used in financing activities	(80,623)	(161,615)
Net change in cash and equivalents	(294,542)	(307,927)
Cash and equivalents at beginning of period	409,391	378,295
Cash and equivalents at end of period	114,849	70,368
Supplemental Cash Flow Information:
Cash paid for interest	65,634	67,707
Cash paid for taxes	$ 138,394	$ 116,713

BASIS OF PRESENTATION

BASIS OF PRESENTATION	6 Months Ended
	Jul. 30, 2016
BASIS OF PRESENTATION
BASIS OF PRESENTATION	1. BASIS OF PRESENTATION All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to The Michaels Companies, Inc. and our consolidated, wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires. Our consolidated financial statements include the accounts of The Michaels Companies, Inc. and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. On February 2, 2016, the Company completed the acquisition of Lamrite West, Inc. and certain of its affiliates and subsidiaries (“Lamrite”) for $150.0 million, prior to certain purchase price adjustments, utilizing our cash on hand. Lamrite operates an international wholesale business under the Darice brand name (“Darice”) and 35 arts and crafts retail stores, located primarily in Ohio and the surrounding states, under the Pat Catan’s brand name (“Pat Catan’s”). See Note 10 for further information. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 30, 2016 filed with the Securities and Exchange Commission (“SEC”) pursuant to section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included. We report on the basis of a 52 - or 53 -week fiscal year, which ends on the Saturday closest to January 31. All references to fiscal year mean the year in which that fiscal year began. References to “fiscal 2016” relate to the 52 weeks ended January 28, 2017 and references to “fiscal 2015” relate to the 52 weeks ended January 30, 2016. In addition, all references to “the second quarter of fiscal 2016” relate to the 13 weeks ended July 30, 2016 and all references to “the second quarter of fiscal 2015” relate to the 13 weeks ended August 1, 2015. Finally, all references to “the six months ended July 30, 2016” relate to the 26 weeks ended July 30, 2016 and all references to “the six months ended August 1, 2015” relate to the 26 weeks ended August 1, 2015. Because of the seasonal nature of our business, the results of operations for the 13 and 26 weeks ended July 30, 2016 are not indicative of the results to be expected for the entire year. Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to our fiscal 2016 presentation, including the reclassification of current deferred income taxes to non-current deferred income taxes and the reclassification of certain unamortized debt issuance costs from non-current assets to a direct reduction of the related long-term debt obligation as a result of new accounting standards adopted in the fourth quarter of fiscal 2015. Share Repurchase Program In March 2016, the Board of Directors authorized the Company to purchase $200.0 million of the Company’s common stock on the open market. The share repurchase program does not have an expiration date, and the timing and number of repurchase transactions under the program will depend on market conditions, corporate considerations, debt agreements and regulatory requirements. Shares repurchased under the program are held as treasury shares until retired. As of July 30, 2016, we have repurchased 4.7 million shares for an aggregate amount of $126.9 million and have $73.1 million of availability remaining under our share repurchase program. Accounting Pronouncements Recently Adopted In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, “Intangibles — Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of fiscal 2016 and its adoption did not have a material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. We are currently evaluating the impact that ASU 2016-09 will have on the consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-04, “Liabilities – Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” (“ASU 2016-04”). ASU 2016-04 requires that breakage on prepaid stored-value product liabilities (for example, prepaid gift cards) be accounted for consistent with the breakage guidance in Topic 606: Revenue from Contracts with Customers . ASU 2016-04 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, with early adoption permitted. This standard is to be applied either using a modified retrospective approach or retrospectively to each period presented. We have evaluated the new standard and it will not have a material impact to the consolidated financial statements once implemented. In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. We are currently evaluating the impact that ASU 2016-02 will have on the consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “ Revenue Recognition (Topic 605) ”, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The standard is to be applied retrospectively, with early application permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In March 2016, the FASB issued ASU No. 2016-08 , “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ” (“ASU 2016-10”) which provides further guidance on identifying performance obligations and improves the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”) which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective date and transition requirements as ASU 2014-09. We are currently evaluating the new standards but do not anticipate a material impact to the consolidated financial statements once implemented.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	6 Months Ended
	Jul. 30, 2016
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS	2. FAIR VALUE MEASUREMENTS As defined in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect less transparent active market data, as well as internal assumptions. These two types of inputs create the following fair value hierarchy: · Level 1—Quoted prices for identical instruments in active markets; · Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and · Level 3—Instruments with significant unobservable inputs. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The table below provides the carrying and fair values of our senior secured term loan facility (“Restated Term Loan Credit Facility”) and our 5.875% senior subordinated notes maturing in 2020 (“2020 Senior Subordinated Notes”) as of July 30, 2016. The fair values of our Restated Term Loan Credit Facility and our 2020 Senior Subordinated Notes were determined based on quoted market prices which are considered Level 2 inputs within the fair value hierarchy. Notional Fair Value Value (in thousands) Restated term loan credit facility $ $ Senior subordinated notes

DEBT

DEBT	6 Months Ended
	Jul. 30, 2016
DEBT
DEBT	3. DEBT Long-term debt consists of the following (in thousands): July 30, January 30, August 1, Interest Rate 2016 2016 2015 Restated term loan credit facility Variable $ $ $ Asset-based revolving credit facility Variable — Senior subordinated notes % Total debt Less unamortized discount/premium and debt costs Total debt, net Less current portion Long-term debt $ $ $ Revolving Credit Facility On May 27, 2016, Michaels Stores, Inc. (“MSI”) entered into an amended and restated credit agreement with Wells Fargo Bank, National Association and other lenders to amend various terms of our senior secured asset-based revolving credit facility (“Restated Revolving Credit Facility”). The amended credit agreement, together with the related security, guarantee and other agreements, is referred to as the “Amended Revolving Credit Facility”. The Amended Revolving Credit Facility provides for senior secured financing of up to $850.0 million, subject to a borrowing base, with the right to request up to $200.0 million of additional commitments. The borrowing base under the Amended Revolving Credit Facility equals the sum of: (i) 90% of eligible credit card receivables, (ii) 85% of eligible trade receivables, (iii) 90% to 92.5% of the appraised value of eligible inventory, plus (iv) 90% to 92.5% of the lesser of (a) the appraised value of eligible inventory supported by letters of credit, and (b) the face amount of the letters of credit, less (v) certain reserves. The Amended Revolving Credit Facility matures in May 2021, subject to a springing maturity date if certain of our outstanding indebtedness has not been repaid, redeemed, refinanced, cash collateralized or if the necessary availability reserves have not been established prior to such time. Our obligations under the Amended Revolving Credit Facility are secured by (subject to certain exceptions) a first priority security interest in the current assets of the borrowers and facility guarantors and a second priority security interest in all other assets. As of July 30, 2016 and August 1, 2015, the borrowing base under our senior secured asset-based revolving credit facility was $696.4 million and $650.0 million, respectively, of which MSI had unused borrowing capacity of $597.1 million and $564.0 million, respectively. As of July 30, 2016 and August 1, 2015, outstanding standby letters of credit, which reduce our borrowing base, totaled $57.3 million and $62.0 million, respectively. As of July 30, 2016 and August 1, 2015, borrowings under our senior secured asset-based revolving credit facility were $42.0 million and $24.0 million, respectively. Debt Issuance Costs Accumulated amortization of debt issuance costs was $61.0 million, $61.0 million and $57.6 million as of July 30, 2016, January 30, 2016 and August 1, 2015, respectively.

ACCUMULATED OTHER COMPREHENSIVE

ACCUMULATED OTHER COMPREHENSIVE LOSS	6 Months Ended
	Jul. 30, 2016
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE LOSS	4. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table includes detail regarding changes in the composition of accumulated other comprehensive loss (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Beginning of period $ $ $ $ Foreign currency translation adjustment and other End of period $ $ $ $

EARNINGS PER SHARE

EARNINGS PER SHARE	6 Months Ended
	Jul. 30, 2016
EARNINGS PER SHARE
EARNINGS PER SHARE	5. EARNINGS PER SHARE The Company’s unvested restricted stock awards contain non-forfeitable rights to dividends and meet the criteria of a participating security as defined by ASC 260, “ Earnings Per Share .” Under the two-class method, net income per share is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, net income is allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Diluted earnings per share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding plus the potential dilutive impact from the exercise of stock options and restricted stock units. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There were 1.4 million and 0.4 million anti-dilutive shares during the second quarters of fiscal 2016 and fiscal 2015, respectively. There were 1.8 million and 0.3 million anti-dilutive shares during the six months ended July 30, 2016 and August 1, 2015, respectively. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Basic earnings per common share: Net income $ $ $ $ Less income related to unvested restricted shares Income available to common stockholders - Basic $ $ $ $ Weighted-average common shares outstanding - Basic Basic earnings per common share $ $ $ $ Diluted earnings per common share: Net income $ $ $ $ Less income related to unvested restricted shares Income available to common shareholders - Diluted $ $ $ $ Weighted-average common shares outstanding - Basic Effect of dilutive stock options and restricted stock units Weighted-average common shares outstanding - Diluted Diluted earnings per common share $ $ $ $

SEGMENTS AND GEOGRAPHIC INFORMA

SEGMENTS AND GEOGRAPHIC INFORMATION	6 Months Ended
	Jul. 30, 2016
SEGMENTS AND GEOGRAPHIC INFORMATION
SEGMENTS AND GEOGRAPHIC INFORMATION	6. SEGMENTS AND GEOGRAPHIC INFORMATION We consider Michaels-U.S., Michaels-Canada, Aaron Brothers, Pat Catan’s and Darice to be our operating segments for purposes of determining reportable segments based on the criteria of ASC 280, Segment Reporting (“ASC 280”). We determined that Michaels-U.S., Michaels-Canada, Aaron Brothers and Pat Catan’s have similar economic characteristics and meet the aggregation criteria set forth in ASC 280. Therefore, we combine these operating segments into one reporting segment. Darice does not meet the materiality criteria in ASC 280 and, therefore, is not disclosed as a reportable segment. Our net sales by country are as follows (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 United States $ $ $ $ Canada Total $ $ $ $ Our chief operating decision makers evaluate historical operating performance and forecast future periods’ operating performance based on operating income and earnings before interest, income taxes, depreciation, amortization and losses on early extinguishments of debt and refinancing costs (“EBITDA (excluding losses on early extinguishments of debt and refinancing costs)”). We believe these metrics more closely reflect the operating effectiveness of factors over which management has control. A reconciliation of EBITDA (excluding losses on early extinguishments of debt and refinancing costs) to net income is presented below (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Net income $ $ $ $ Interest expense Losses on early extinguishments of debt and refinancing costs Provision for income taxes Depreciation and amortization Interest income EBITDA (excluding losses on early extinguishments of debt and refinancing costs) $ $ $ $

CONTINGENCIES

CONTINGENCIES	6 Months Ended
	Jul. 30, 2016
CONTINGENCIES
CONTINGENCIES	7. CONTINGENCIES Rea Claim On September 15, 2011, MSI was served with a lawsuit filed in the California Superior Court in and for the County of Orange (“Superior Court”) by four former store managers as a class action proceeding on behalf of themselves and certain former and current store managers employed by MSI in California. The lawsuit alleged that MSI improperly classified its store managers as exempt employees and as such failed to pay all wages, overtime, waiting time penalties and failed to provide accurate wage statements. The lawsuit also alleged that the foregoing conduct was in breach of various laws, including California’s unfair competition law. On December 3, 2013, the Superior Court entered an order certifying a class of approximately 200 members. MSI succes sfully removed the case to the United States District Court for the Central District of California and on May 8, 2014, the class was decertified. The named plaintiffs’ claims were resolved in September 2014, but the individual claims of 26 former class members remain pending in the Central District of California. In addition, a separate representative action brought on behalf of store managers throughout the state is pending in the California Superior Court, County of San Diego. We believe we have meritorious defenses and intend to defend the lawsuits vigorously. We do not believe the resolution of the lawsuits will have a material effect on our consolidated financial statements . Fair Credit Reporting Claim On December 11, 2014, MSI was served with a lawsuit, Christina Graham v. Michaels Stores, Inc. , filed in the U.S. District Court for the District of New Jersey by a former employee. The lawsuit is a purported class action, bringing plaintiff’s individual claims, as well as claims on behalf of a putative class of applicants who applied for employment with Michaels through an online application, and on whom a background check for employment was procured. The lawsuit alleges that MSI violated the Fair Credit Reporting Act (“FCRA”) and the New Jersey Fair Credit Reporting Act by failing to provide the proper disclosure and obtain the proper authorization to conduct background checks. Since the initial filing, another named plaintiff joined the lawsuit, which was amended in February 2015, Christina Graham and Gary Anderson v. Michaels Stores, Inc. , with substantially similar allegations. The plaintiffs seek statutory and punitive damages as well as attorneys’ fees and costs. Following the filing of the Graham case in New Jersey, five additional purported class action lawsuits with six plaintiffs were filed, Michele Castro and Janice Bercut v. Michaels Stores, Inc. , in the U.S. District Court for the Northern District of Texas, Michelle Bercut v. Michaels Stores, Inc. in the Superior Court of California for Sonoma County, Raini Burnside v. Michaels Stores, Inc. , in the U.S. District Court for the Western District of Missouri, Sue Gettings v. Michaels Stores, Inc ., in the U.S. District Court for the Southern District of New York, and Barbara Horton v. Michaels Stores, Inc., in the U.S. District Court for the Central District of California. All of the plaintiffs alleged violations of the FCRA. In addition, the Castro, Horton and Janice Bercut lawsuits also alleged violations of California’s unfair competition law. The Burnside, Horton and Gettings lawsuits, as well as the claims by Michele Castro, have been dismissed. The Graham, Janice Bercut and Michelle Bercut lawsuits were transferred for centralized pretrial proceedings to the District of New Jersey. The Company intends to defend the remaining lawsuits vigorously. We cannot reasonably estimate the potential loss, or range of loss, related to the lawsuits, if any. Data Security Incident Five putative class actions were filed against MSI relating to the January 2014 data breach. The plaintiffs generally alleged that MSI failed to secure and safeguard customers’ private information including credit and debit card information, and as such, breached an implied contract, and violated the Illinois Consumer Fraud Act (and other states’ similar laws) and are seeking damages including declaratory relief, actual damages, punitive damages, statutory damages, attorneys’ fees, litigation costs, remedial action, pre and post judgment interest, and other relief as available. The cases are as follows: Christina Moyer v. Michaels Stores, Inc ., was filed on January 27, 2014; Michael and Jessica Gouwens v. Michaels Stores, Inc., was filed on January 29, 2014; Nancy Maize and Jessica Gordon v. Michaels Stores, Inc ., was filed on February 21, 2014; and Daniel Ripes v. Michaels Stores, Inc ., was filed on March 14, 2014. These four cases were filed in the United States District Court for the Northern District of Illinois, Eastern Division. On March 18, 2014, an additional putative class action was filed in the United States District Court for the Eastern District of New York, Mary Jane Whalen v. Michaels Stores, Inc. , but was voluntarily dismissed by the plaintiff on April 11, 2014 without prejudice to her right to re ‑file a complaint. On April 16, 2014, an order was entered consolidating the Illinois actions. On July 14, 2014, the Company’s motion to dismiss the consolidated complaint was granted. On December 2, 2014, Whalen filed a new lawsuit against MSI related to the data breach in the United States District Court for the Eastern District of New York, Mary Jane Whalen v. Michaels Stores, Inc. , seeking damages including declaratory relief, monetary damages, statutory damages, punitive damages, attorneys’ fees and costs, injunctive relief, pre and post judgment interest, and other relief as available. The Company filed a motion to dismiss which was granted on December 28, 2015, and judgment was entered in favor of the Company on January 8, 2016. Plaintiff filed a notice of appeal on January 27, 2016, appealing the judgment to the United States Court of Appeals for the Second Circuit. The appeal is pending. The Company intends to defend this lawsuit vigorously. We cannot reasonably estimate the potential loss, or range of loss, related to the lawsuit, if any. In connection with the breach, payment card companies and associations assessed us for unauthorized card charges and costs. We have also incurred other costs associated with the data breach, including legal fees, investigative fees, costs of communications with customers and credit monitoring services provided to our customers. The assessments and other charges and costs are immaterial to the consolidated financial statements. In addition, various states’ attorneys general investigated events related to the data breach, including how it occurred, its consequences and our responses. We fully cooperated in these investigations and we do not expect any further action. Consumer Product Safety Commission Claim On April 21, 2015, the United States Department of Justice, on behalf of the Consumer Product Safety Commission (the “CPSC”), filed a complaint against MSI and Michaels Stores Procurement Company, Inc. (“MSPC”) in the U.S. District Court for the Northern District of Texas. The complaint seeks civil penalties for an alleged failure to timely report a potential product safety hazard to the CPSC related to the breakage of certain glass vases. The complaint also alleges the report contained a material misrepresentation and seeks injunctive relief requiring MSI and MSPC to, among other things, establish internal recordkeeping and compliance monitoring systems. We believe we have meritorious defenses and intend to defend the lawsuit vigorously. We do not believe the resolution of the lawsuit will have a material effect on our consolidated financial statements. General In addition to the litigation discussed above, we are now, and may be in the future, involved in various other lawsuits, claims and proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. For some of the matters disclosed above, as well as other lawsuits involving the Company, we are able to estimate a range of losses in excess of the amounts recorded, if any, in the accompanying consolidated financial statements. As of July 30, 2016, the aggregate estimated loss is approximately $13 million, which includes amounts recorded by the Company.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	6 Months Ended
	Jul. 30, 2016
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS	8. RELATED PARTY TRANSACTIONS Affiliates of, or funds advised by, Bain Capital Partners, LLC (“Bain Capital”) and The Blackstone Group L.P. (“The Blackstone Group”, together with Bain Capital and their applicable affiliates, the “Sponsors”) own approximately 50% of our outstanding common stock as of July 30, 2016. The Blackstone Group owns a majority equity position in RGIS, a vendor we utilize to count our store inventory. Payments associated with this vendor during the second quarters of fiscal 2016 and fiscal 2015 were $1.7 million and $1.5 million, respectively. Payments made during the six months ended July 30, 2016 and August 1, 2015 were $3.7 million and $3.4 million, respectively. These expenses are included in selling, general and administrative (“SG&A”) in the consolidated statements of comprehensive income. The Blackstone Group owns an equity position in Vistar, a vendor we utilize for all of the candy-type items in our stores. Payments associated with this vendor during the second quarters of fiscal 2016 and fiscal 2015 were $6.6 million and $5.7 million, respectively. Payments made during each of the six months ended July 30, 2016 and August 1, 2015 were $12.9 million. These expenses are recognized in cost of sales and occupancy expense in the consolidated statements of comprehensive income as the sales are incurred. The Blackstone Group owns an equity position in Brixmor Properties Group, Excel Trust, Inc., Blackstone Real Estate DDR Retail Holdings III, LLC. and Blackstone Real Estate RC Retail Holdings, LLC., vendors we utilize to lease certain properties. Payments associated with these vendors during the second quarters of fiscal 2016 and fiscal 2015 were $2.9 million and $2.3 million, respectively. Payments made during the six months ended July 30, 2016 and August 1, 2015 were $ 5.3 million and $4.7 million, respectively. These expenses are included in cost of sales and occupancy expense in the consolidated statements of comprehensive income. Certain affiliates of The Blackstone Group have significant influence over US Xpress Enterprises, Inc., a vendor we utilize for transportation services. Payments associated with this vendor during the second quarters of fiscal 2016 and fiscal 2015 were $0.2 million and $0.4 million, respectively. Payments made during the six months ended July 30, 2016 and August 1, 2015 were $0.5 million. These expenses are recognized in cost of sales and occupancy expense in the consolidated statements of comprehensive income as the sales are incurred. Four of our current directors, Joshua Bekenstein, Nadim El Gabbani, Lewis S. Klessel and Peter F. Wallace, are affiliates of Bain Capital or The Blackstone Group. As such, some or all of such directors may have an indirect material interest in payments with respect to debt securities of the Company that have been purchased by affiliates of Bain Capital and The Blackstone Group. As of July 30, 2016, affiliates of The Blackstone Group held $86.0 million of our Restated Term Loan Credit Facility.

CONDENSED CONSOLIDATED FINANCIA

CONDENSED CONSOLIDATED FINANCIAL INFORMATION	6 Months Ended
	Jul. 30, 2016
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL INFORMATION	9. CONDENSED CONSOLIDATED FINANCIAL INFORMATION Our debt covenants restrict MSI, and certain subsidiaries of MSI, from various activities including the incurrence of additional debt, payment of dividends and the repurchase of MSI’s capital stock (subject to certain exceptions), among other things. The following condensed consolidated financial information represents the financial information of MSI and its wholly-owned subsidiaries subject to these restrictions. The information is presented in accordance with the requirements of Rule 12-04 under the SEC’s Regulation S-X. Michaels Stores, Inc. Condensed Consolidated Balance Sheets (in thousands) July 30, January 30, August 1, ASSETS 2016 2016 2015 Current assets: Cash and equivalents $ $ $ Merchandise inventories Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Other assets Total assets $ $ $ LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ $ $ Accrued liabilities and other Current portion of long-term debt Other current liabilities Total current liabilities Long-term debt Other liabilities Total stockholders’ deficit Total liabilities and stockholders’ deficit $ $ $ Michaels Stores, Inc. Condensed Consolidated Statements of Comprehensive Income (in thousands) 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Net sales $ $ $ $ Cost of sales and occupancy expense Gross profit Selling, general and administrative Other operating expense Operating income Interest and other expense Income before income taxes Provision for income taxes Net income $ $ $ $ Other comprehensive income, net of tax: Foreign currency translation adjustment and other Comprehensive income $ $ $ $ Michaels Stores, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) 26 Weeks Ended July 30, August 1, 2016 2015 Cash flows from operating activities: Net cash used in operating activities $ $ Cash flows from investing activities: Additions to property and equipment Acquisition of Lamrite West, net of cash acquired — Net cash used in investing activities Cash flows from financing activities: Net repayments of debt Net borrowings of debt Payment of dividend to Michaels Funding, Inc. Other financing costs Net cash used in financing activities Net change in cash and equivalents Cash and equivalents at beginning of period Cash and equivalents at end of period $ $

ACQUISITION

ACQUISITION	6 Months Ended
	Jul. 30, 2016
ACQUISITION
ACQUISITION	10. ACQUISITION On February 2, 2016, we acquired Lamrite for $150.0 million, prior to certain purchase price adjustments, utilizing our cash on hand. Lamrite operates an international wholesale business under the Darice brand name and 35 arts and crafts retail stores (32 as of the acquisition date), located primarily in Ohio and the surrounding states, under the Pat Catan’s brand name. We incurred integration related costs of $1.9 million during the second quarter of fiscal 2016 and $6.0 million during the six months ended July 30, 2016. These expenses have been included in SG&A in the consolidated statements of comprehensive income. The acquisition was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations . The acquisition resulted in goodwill primarily related to the expected benefits resulting from enhancements to our private brand development capability, direct sourcing initiatives and business-to-business capabilities, as well as the value of the existing Lamrite workforce. The goodwill recognized is expected to be deductible for tax purposes. The fair values of the intangible assets acquired were primarily determined by using the income approach. The income approach indicates value for a subject based on the present value of cash flows expected to be generated by the asset. Projected cash flows are discounted at a market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The fair value of inventory was determined based on the estimated selling price of the inventory less the expected costs of selling efforts and a reasonable profit margin. The following table summarizes the cash consideration for the acquisition of Lamrite (in thousands): Purchase contract amount $ Additional consideration to Lamrite shareholders for taxes Working capital and other adjustments Total purchase consideration $ The following table summarizes the fair values of the assets acquired and liabilities assumed from the acquisition of Lamrite as of February 2, 2016 (in thousands): Cash and cash equivalents $ Trade accounts receivable Merchandise inventory Other current assets Property, plant and equipment Net favorable leases Intangible assets (1) Other assets Current liabilities (2) Other long-term liabilities Fair value of net assets acquired Goodwill Total purchase consideration $ (1) Includes customer relationships, trade and brand names and proprietary product designs. Intangible assets include $9.4 million of assets that are being amortized over a range of 6 to 18 years. (2) Includes accounts payable, accrued expenses, accrued payroll and accrued taxes. Since the date of acquisition, the results of Lamrite's operations have been included in the Company’s results of operations. The Company has not presented pro forma financial information for prior periods because the impact on our previously reported consolidated financial statements would not have been material.

BASIS OF PRESENTATION (Policies

BASIS OF PRESENTATION (Policies)	6 Months Ended
	Jul. 30, 2016
BASIS OF PRESENTATION
Basis of Presentation	BASIS OF PRESENTATION All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to The Michaels Companies, Inc. and our consolidated, wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires. Our consolidated financial statements include the accounts of The Michaels Companies, Inc. and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. On February 2, 2016, the Company completed the acquisition of Lamrite West, Inc. and certain of its affiliates and subsidiaries (“Lamrite”) for $150.0 million, prior to certain purchase price adjustments, utilizing our cash on hand. Lamrite operates an international wholesale business under the Darice brand name (“Darice”) and 35 arts and crafts retail stores, located primarily in Ohio and the surrounding states, under the Pat Catan’s brand name (“Pat Catan’s”). See Note 10 for further information. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 30, 2016 filed with the Securities and Exchange Commission (“SEC”) pursuant to section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included. We report on the basis of a 52 - or 53 -week fiscal year, which ends on the Saturday closest to January 31. All references to fiscal year mean the year in which that fiscal year began. References to “fiscal 2016” relate to the 52 weeks ended January 28, 2017 and references to “fiscal 2015” relate to the 52 weeks ended January 30, 2016. In addition, all references to “the second quarter of fiscal 2016” relate to the 13 weeks ended July 30, 2016 and all references to “the second quarter of fiscal 2015” relate to the 13 weeks ended August 1, 2015. Finally, all references to “the six months ended July 30, 2016” relate to the 26 weeks ended July 30, 2016 and all references to “the six months ended August 1, 2015” relate to the 26 weeks ended August 1, 2015. Because of the seasonal nature of our business, the results of operations for the 13 and 26 weeks ended July 30, 2016 are not indicative of the results to be expected for the entire year. Certain prior year amounts have been reclassified in the accompanying consolidated financial statements to conform to our fiscal 2016 presentation, including the reclassification of current deferred income taxes to non-current deferred income taxes and the reclassification of certain unamortized debt issuance costs from non-current assets to a direct reduction of the related long-term debt obligation as a result of new accounting standards adopted in the fourth quarter of fiscal 2015.
Share Repurchase Program	Share Repurchase Program In March 2016, the Board of Directors authorized the Company to purchase $200.0 million of the Company’s common stock on the open market. The share repurchase program does not have an expiration date, and the timing and number of repurchase transactions under the program will depend on market conditions, corporate considerations, debt agreements and regulatory requirements. Shares repurchased under the program are held as treasury shares until retired. As of July 30, 2016, we have repurchased 4.7 million shares for an aggregate amount of $126.9 million and have $73.1 million of availability remaining under our share repurchase program.
Accounting Pronouncements	Accounting Pronouncements Recently Adopted In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, “Intangibles — Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of fiscal 2016 and its adoption did not have a material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. We are currently evaluating the impact that ASU 2016-09 will have on the consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-04, “Liabilities – Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products” (“ASU 2016-04”). ASU 2016-04 requires that breakage on prepaid stored-value product liabilities (for example, prepaid gift cards) be accounted for consistent with the breakage guidance in Topic 606: Revenue from Contracts with Customers . ASU 2016-04 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, with early adoption permitted. This standard is to be applied either using a modified retrospective approach or retrospectively to each period presented. We have evaluated the new standard and it will not have a material impact to the consolidated financial statements once implemented. In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. We are currently evaluating the impact that ASU 2016-02 will have on the consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “ Revenue Recognition (Topic 605) ”, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The standard is to be applied retrospectively, with early application permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In March 2016, the FASB issued ASU No. 2016-08 , “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ” (“ASU 2016-10”) which provides further guidance on identifying performance obligations and improves the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”) which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective date and transition requirements as ASU 2014-09. We are currently evaluating the new standards but do not anticipate a material impact to the consolidated financial statements once implemented.

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	6 Months Ended
	Jul. 30, 2016
FAIR VALUE MEASUREMENTS
Schedule of carrying and fair values of debt	Notional Fair Value Value (in thousands) Restated term loan credit facility $ $ Senior subordinated notes

DEBT (Tables)

DEBT (Tables)	6 Months Ended
	Jul. 30, 2016
DEBT
Schedule of outstanding debt	Long-term debt consists of the following (in thousands): July 30, January 30, August 1, Interest Rate 2016 2016 2015 Restated term loan credit facility Variable $ $ $ Asset-based revolving credit facility Variable — Senior subordinated notes % Total debt Less unamortized discount/premium and debt costs Total debt, net Less current portion Long-term debt $ $ $

ACCUMULATED OTHER COMPREHENSI19

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)	6 Months Ended
	Jul. 30, 2016
ACCUMULATED OTHER COMPREHENSIVE LOSS
Schedule of accumulated other comprehensive loss	The following table includes detail regarding changes in the composition of accumulated other comprehensive loss (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Beginning of period $ $ $ $ Foreign currency translation adjustment and other End of period $ $ $ $

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	6 Months Ended
	Jul. 30, 2016
EARNINGS PER SHARE
Schedule of calculation of basic and diluted earnings per share	The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Basic earnings per common share: Net income $ $ $ $ Less income related to unvested restricted shares Income available to common stockholders - Basic $ $ $ $ Weighted-average common shares outstanding - Basic Basic earnings per common share $ $ $ $ Diluted earnings per common share: Net income $ $ $ $ Less income related to unvested restricted shares Income available to common shareholders - Diluted $ $ $ $ Weighted-average common shares outstanding - Basic Effect of dilutive stock options and restricted stock units Weighted-average common shares outstanding - Diluted Diluted earnings per common share $ $ $ $

SEGMENTS AND GEOGRAPHIC INFOR21

SEGMENTS AND GEOGRAPHIC INFORMATION (Tables)	6 Months Ended
	Jul. 30, 2016
SEGMENTS AND GEOGRAPHIC INFORMATION
Schedule of sales and assets by country	Our net sales by country are as follows (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 United States $ $ $ $ Canada Total $ $ $ $
Schedule of reconciliation of net income to EBITDA	A reconciliation of EBITDA (excluding losses on early extinguishments of debt and refinancing costs) to net income is presented below (in thousands): 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Net income $ $ $ $ Interest expense Losses on early extinguishments of debt and refinancing costs Provision for income taxes Depreciation and amortization Interest income EBITDA (excluding losses on early extinguishments of debt and refinancing costs) $ $ $ $

CONDENSED CONSOLIDATED FINANC22

CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Tables)	6 Months Ended
	Jul. 30, 2016
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Schedule of Condensed Consolidated Balance Sheets	Michaels Stores, Inc. Condensed Consolidated Balance Sheets (in thousands) July 30, January 30, August 1, ASSETS 2016 2016 2015 Current assets: Cash and equivalents $ $ $ Merchandise inventories Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Other assets Total assets $ $ $ LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ $ $ Accrued liabilities and other Current portion of long-term debt Other current liabilities Total current liabilities Long-term debt Other liabilities Total stockholders’ deficit Total liabilities and stockholders’ deficit $ $ $
Schedule of Condensed Consolidated Statements of Comprehensive Income	Michaels Stores, Inc. Condensed Consolidated Statements of Comprehensive Income (in thousands) 13 Weeks Ended 26 Weeks Ended July 30, August 1, July 30, August 1, 2016 2015 2016 2015 Net sales $ $ $ $ Cost of sales and occupancy expense Gross profit Selling, general and administrative Other operating expense Operating income Interest and other expense Income before income taxes Provision for income taxes Net income $ $ $ $ Other comprehensive income, net of tax: Foreign currency translation adjustment and other Comprehensive income $ $ $ $
Schedule of Condensed Consolidated Statements of Cash Flows	Michaels Stores, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) 26 Weeks Ended July 30, August 1, 2016 2015 Cash flows from operating activities: Net cash used in operating activities $ $ Cash flows from investing activities: Additions to property and equipment Acquisition of Lamrite West, net of cash acquired — Net cash used in investing activities Cash flows from financing activities: Net repayments of debt Net borrowings of debt Payment of dividend to Michaels Funding, Inc. Other financing costs Net cash used in financing activities Net change in cash and equivalents Cash and equivalents at beginning of period Cash and equivalents at end of period $ $

ACQUISITION (Tables)

ACQUISITION (Tables)	6 Months Ended
	Jul. 30, 2016
ACQUISITION
Schedule of cash consideration	The following table summarizes the cash consideration for the acquisition of Lamrite (in thousands): Purchase contract amount $ Additional consideration to Lamrite shareholders for taxes Working capital and other adjustments Total purchase consideration $
Schedule of assets acquired and liabilities assumed	The following table summarizes the fair values of the assets acquired and liabilities assumed from the acquisition of Lamrite as of February 2, 2016 (in thousands): Cash and cash equivalents $ Trade accounts receivable Merchandise inventory Other current assets Property, plant and equipment Net favorable leases Intangible assets (1) Other assets Current liabilities (2) Other long-term liabilities Fair value of net assets acquired Goodwill Total purchase consideration $ (1) Includes customer relationships, trade and brand names and proprietary product designs. Intangible assets include $9.4 million of assets that are being amortized over a range of 6 to 18 years. (2) Includes accounts payable, accrued expenses, accrued payroll and accrued taxes.

BASIS OF PRESENTATION (Details)

BASIS OF PRESENTATION (Details) shares in Millions, $ in Millions	Feb. 02, 2016USD ($)store	Jul. 30, 2016USD ($)store	Aug. 01, 2015	Jul. 30, 2016USD ($)storeshares	Jan. 28, 2017	Jan. 30, 2016	Mar. 31, 2016USD ($)
Acquisition
Duration period of fiscal year		91 days	91 days		364 days	364 days
Share Repurchase Program
Common stock share repurchase authorized amount							$ 200
Number of shares repurchased | shares				4.7
Value of shares repurchased				$ 126.9
Remaining amount under share repurchase program		$ 73.1		$ 73.1
Minimum
Acquisition
Duration period of fiscal year					364 days
Maximum
Acquisition
Duration period of fiscal year				371 days
Lamrite
Acquisition
Purchase contract amount	$ 150
Number of stores | store	32	35		35

FAIR VALUE MEASUREMENTS (Debt)

FAIR VALUE MEASUREMENTS (Debt) (Details) $ in Thousands	Jul. 30, 2016USD ($)
Notional Value | Restated term loan credit facility
Fair Value Measurements
Long-term loans and notes	$ 2,269,700
Notional Value | Senior subordinated notes 5.875% due 2020
Fair Value Measurements
Long-term loans and notes	510,000
Fair Value | Restated term loan credit facility
Fair Value Measurements
Long-term loans and notes	2,277,082
Fair Value | Senior subordinated notes 5.875% due 2020
Fair Value Measurements
Long-term loans and notes	$ 530,400

Debt (Details)

Debt (Details) - USD ($) $ in Thousands	Jul. 30, 2016	Jan. 30, 2016	Aug. 01, 2015
Debt
Total debt	$ 2,821,700	$ 2,792,150	$ 2,978,600
Less unamortized discount/premium and debt costs	(19,613)	(22,308)	(27,601)
Total debt, net	2,802,087	2,769,842	2,950,999
Less current portion	(66,900)	(24,900)	(48,900)
Long-term debt	2,735,187	2,744,942	2,902,099
Restated term loan credit facility
Debt
Total debt	2,269,700	$ 2,282,150	2,444,600
Asset-based revolving credit facility
Debt
Total debt	$ 42,000		$ 24,000
Senior subordinated notes 5.875% due 2020
Debt
Stated interest rate (as a percent)	5.875%	5.875%	5.875%
Total debt	$ 510,000	$ 510,000	$ 510,000

Debt (Restated Revolving) (Deta

Debt (Restated Revolving) (Details) - USD ($) $ in Millions	May 27, 2016	Jul. 30, 2016	Jan. 30, 2016	Aug. 01, 2015
Asset-based Revolving Credit Facility
Accumulated amortization of debt issuance costs		$ 61	$ 61	$ 57.6
Michaels Stores | Asset-based revolving credit facility
Asset-based Revolving Credit Facility
Maximum borrowing capacity	$ 850
Percentage of eligible credit card receivables and debit card receivables to determine borrowing base	90.00%
Percentage of eligible trade receivables to determine borrowing base	85.00%
Current availability		696.4		650
Unused borrowing capacity		597.1		564
Outstanding letters of credit		57.3		62
Outstanding borrowings		$ 42		$ 24
Michaels Stores | Asset-based revolving credit facility | Minimum
Asset-based Revolving Credit Facility
Percentage of appraised net orderly liquidation value of eligible inventory to determine borrowing base	90.00%
Percentage of appraised net orderly liquidation value of eligible inventory and eligible letters of credit to determine borrowing base	90.00%
Michaels Stores | Asset-based revolving credit facility | Maximum
Asset-based Revolving Credit Facility
Additional commitments	$ 200
Percentage of appraised net orderly liquidation value of eligible inventory to determine borrowing base	92.50%
Percentage of appraised net orderly liquidation value of eligible inventory and eligible letters of credit to determine borrowing base	92.50%

ACCUMULATED OTHER COMPREHENSI28

ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
Accumulated Other Comprehensive Loss
Balance			$ (1,724,095)
Balance	$ (1,707,796)	$ (1,992,557)	(1,707,796)	$ (1,992,557)
Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive Loss
Balance	(7,847)	(7,489)	(22,056)	(11,805)
Balance	(12,606)	(14,712)	(12,606)	(14,712)
Foreign Currency Translation Adjustment & Other
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss	$ (4,759)	$ (7,223)	$ 9,450	$ (2,907)

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
Earnings per share
Anti-dilutive stock options shares excluded from the computation of earnings per share (in shares)	1,400	400	1,800	300
Basic earnings per common share:
Net income	$ 35,617	$ 35,711	$ 106,382	$ 102,449
Income available to common shareholders - Basic	$ 35,383	$ 35,561	$ 105,675	$ 102,011
Weighted-average common shares outstanding - Basic (in shares)	205,881	206,941	206,437	206,283
Basic earnings per common share (in dollars per share)	$ 0.17	$ 0.17	$ 0.51	$ 0.49
Diluted earnings per common share:
Net income	$ 35,617	$ 35,711	$ 106,382	$ 102,449
Income available to common shareholders - Diluted	$ 35,385	$ 35,563	$ 105,681	$ 102,018
Weighted-average common shares outstanding - Basic (in shares)	205,881	206,941	206,437	206,283
Effect of dilutive stock options and restricted stock units (in shares)	1,666	2,482	1,832	2,957
Weighted-average common shares outstanding - Diluted (in shares)	207,547	209,423	208,269	209,240
Diluted earnings per common share (in dollars per share)	$ 0.17	$ 0.17	$ 0.51	$ 0.49
Restricted shares
Basic earnings per common share:
Less income related to unvested restricted shares	$ (234)	$ (150)	$ (707)	$ (438)
Diluted earnings per common share:
Less income related to unvested restricted shares	$ (232)	$ (148)	$ (701)	$ (431)

SEGMENTS AND GEOGRAPHIC INFOR30

SEGMENTS AND GEOGRAPHIC INFORMATION (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016USD ($)	Aug. 01, 2015USD ($)	Jul. 30, 2016USD ($)item	Aug. 01, 2015USD ($)
Segments
Number of reportable segments | item			1
Net sales	$ 1,060,353	$ 984,270	$ 2,219,233	$ 2,061,870
United States
Segments
Net sales	970,367	896,004	2,034,204	1,879,264
Canada
Segments
Net sales	$ 89,986	$ 88,266	$ 185,029	$ 182,606

SEGMENTS AND GEOGRAPHIC INFOR31

SEGMENTS AND GEOGRAPHIC INFORMATION (EBITDA) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
SEGMENTS AND GEOGRAPHIC INFORMATION
Net income	$ 35,617	$ 35,711	$ 106,382	$ 102,449
Interest expense	31,954	34,311	64,173	72,127
Losses on early extinguishment of debt and refinancing costs	405	6,072	405	6,072
Provision for income taxes	19,616	20,624	61,511	59,857
Depreciation and amortization	28,998	28,004	58,468	55,949
Interest income	(173)	(57)	(453)	(180)
EBITDA (excluding losses on early extinguishments of debt and refinancing costs)	$ 116,417	$ 124,665	$ 290,486	$ 296,274

CONTINGENCIES (Details)

CONTINGENCIES (Details) $ in Millions	Mar. 14, 2014item	Sep. 15, 2011item	Jul. 30, 2016USD ($)item	Dec. 03, 2013item
Commitments and Contingencies
Aggregate estimate of possible loss | $			$ 13
Rea claims
Commitments and Contingencies
Number of plaintiffs		4	26
Number of certified members				200
Fair credit reporting claim
Commitments and Contingencies
Number of plaintiffs			6
Number of pending claims			5
Data security incident
Commitments and Contingencies
Number of pending claims	5
Number of consolidated cases filed	4

RELATED PARTY TRANSACTIONS (Det

RELATED PARTY TRANSACTIONS (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016USD ($)	Aug. 01, 2015USD ($)	Jul. 30, 2016USD ($)item	Aug. 01, 2015USD ($)	Jan. 30, 2016USD ($)
Related Party Transactions
Long-term debt	$ 2,802,087	$ 2,950,999	$ 2,802,087	$ 2,950,999	$ 2,769,842
The Sponsors
Related Party Transactions
Percentage owned by related party			50.00%
The Blackstone Group | Restated term loan credit facility
Related Party Transactions
Long-term debt	86,000		$ 86,000
The Blackstone Group | Store Inventory Count Services | Selling, General and Administrative Expenses
Related Party Transactions
Expenses recognized	1,700	1,500	3,700	3,400
The Blackstone Group | Candy Type Items | Cost of Sales and Occupancy Expense
Related Party Transactions
Expenses recognized	6,600	5,700	12,900	12,900
The Blackstone Group | Lease Services | Cost of Sales and Occupancy Expense
Related Party Transactions
Expenses recognized	2,900	2,300	5,300	4,700
The Blackstone Group | Transportation services | Cost of Sales and Occupancy Expense
Related Party Transactions
Expenses recognized	$ 200	$ 400	$ 500	$ 500
Bain Capital or The Blackstone Group
Related Party Transactions
Number of directors | item			4

CONDENSED CONSOLIDATED FINANC34

CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Balance Sheet) (Details) - USD ($) $ in Thousands	Jul. 30, 2016	Jan. 30, 2016	Aug. 01, 2015	Jan. 31, 2015
Current Assets:
Cash and equivalents	$ 114,849	$ 409,391	$ 70,368	$ 378,295
Merchandise inventories	1,145,422	1,002,607	1,073,722
Prepaid expenses and other current assets	77,472	77,000	75,027
Total current assets	1,407,339	1,499,713	1,280,833
Property and equipment, net	398,688	378,507	394,686
Goodwill	119,074	94,290	94,290
Other assets	12,387	9,897	6,059
Total assets	2,000,971	2,023,277	1,818,869
Current liabilities:
Accounts payable	462,099	457,704	418,745
Accrued liabilities and other	347,349	377,606	349,777
Current portion of long-term debt	66,900	24,900	48,900
Total current liabilities	876,348	904,850	818,295
Long-term debt	2,735,187	2,744,942	2,902,099
Other liabilities	97,232	97,580	91,032
Total stockholders' deficit	(1,707,796)	(1,724,095)	(1,992,557)
Total liabilities and stockholders' deficit	2,000,971	2,023,277	1,818,869
Michaels Stores
Current Assets:
Cash and equivalents	110,100	404,650	65,631	$ 373,559
Merchandise inventories	1,145,422	1,002,607	1,073,722
Prepaid expenses and other current assets	104,326	87,573	100,437
Total current assets	1,359,848	1,494,830	1,239,790
Property and equipment, net	398,688	378,507	394,686
Goodwill	119,074	94,290	94,290
Other assets	77,503	56,004	55,619
Total assets	1,955,113	2,023,631	1,784,385
Current liabilities:
Accounts payable	462,099	457,704	418,745
Accrued liabilities and other	345,844	375,992	347,983
Current portion of long-term debt	66,900	24,900	48,900
Other current liabilities	3,087	89,996	2,885
Total current liabilities	877,930	948,592	818,513
Long-term debt	2,735,187	2,744,942	2,902,099
Other liabilities	103,296	95,400	91,032
Total stockholders' deficit	(1,761,300)	(1,765,303)	(2,027,259)
Total liabilities and stockholders' deficit	$ 1,955,113	$ 2,023,631	$ 1,784,385

CONDENSED CONSOLIDATED FINANC35

CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015	Jul. 30, 2016	Aug. 01, 2015
Supplemental Condensed Consolidating Statement of Comprehensive Income
Net sales	$ 1,060,353	$ 984,270	$ 2,219,233	$ 2,061,870
Cost of sales and occupancy expense	669,656	610,949	1,363,785	1,246,752
Gross profit	390,697	373,321	855,448	815,118
Selling, general, and administrative	302,712	275,699	620,512	571,270
Operating income	87,077	96,582	232,402	240,564
Income before income taxes	55,233	56,335	167,893	162,306
Provision for income taxes	19,616	20,624	61,511	59,857
Net income	35,617	35,711	106,382	102,449
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	(4,759)	(7,223)	9,450	(2,907)
Comprehensive income	30,858	28,488	115,832	99,542
Michaels Stores
Supplemental Condensed Consolidating Statement of Comprehensive Income
Net sales	1,060,353	984,270	2,219,233	2,061,870
Cost of sales and occupancy expense	669,656	610,949	1,363,785	1,246,752
Gross profit	390,697	373,321	855,448	815,118
Selling, general, and administrative	302,146	275,380	619,411	570,729
Other operating expense	908	1,040	2,534	3,284
Operating income	87,643	96,901	233,503	241,105
Interest and other expense	31,849	34,063	64,519	68,415
Income before income taxes	55,794	62,838	168,984	172,690
Provision for income taxes	19,825	23,034	61,917	63,705
Net income	35,969	39,804	107,067	108,985
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	(4,759)	(7,223)	9,450	(2,907)
Comprehensive income	$ 31,210	$ 32,581	$ 116,517	$ 106,078

CONDENSED CONSOLIDATED FINANC36

CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Cash Flow) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 30, 2016	Aug. 01, 2015
Cash flows from operating activities:
Net cash used in operating activities	$ (24,424)	$ (83,071)
Cash flows from investing activities:
Additions to property and equipment	(38,395)	(63,241)
Acquisition of Lamrite West, net of cash acquired	(151,100)
Net cash used in investing activities	(189,495)	(63,241)
Cash flows from financing activities:
Other financing costs		(971)
Net cash used in financing activities	(80,623)	(161,615)
Net change in cash and equivalents	(294,542)	(307,927)
Cash and equivalents at beginning of period	409,391	378,295
Cash and equivalents at end of period	114,849	70,368
Michaels Stores
Cash flows from operating activities:
Net cash used in operating activities	(11,866)	(80,172)
Cash flows from investing activities:
Additions to property and equipment	(38,395)	(63,241)
Acquisition of Lamrite West, net of cash acquired	(151,100)
Net cash used in investing activities	(189,495)	(63,241)
Cash flows from financing activities:
Net repayments of debt	(12,450)	(12,450)
Net borrowings of debt	42,000	24,000
Payment of dividend to Michaels Funding, Inc.	(126,962)	(188,046)
Other financing costs	4,223	11,981
Net cash used in financing activities	(93,189)	(164,515)
Net change in cash and equivalents	(294,550)	(307,928)
Cash and equivalents at beginning of period	404,650	373,559
Cash and equivalents at end of period	$ 110,100	$ 65,631

ACQUISITION (Details)

ACQUISITION (Details) $ in Thousands	Feb. 02, 2016USD ($)store	Jul. 30, 2016USD ($)store	Jul. 30, 2016USD ($)store	Jan. 30, 2016USD ($)	Aug. 01, 2015USD ($)
Fair values of assets acquired and liabilities assumed
Goodwill		$ 119,074	$ 119,074	$ 94,290	$ 94,290
Lamrite
Acquisition
Number of stores | store	32	35	35
Purchase contract amount	$ 150,000
Additional consideration to Lamrite shareholders for taxes	6,500
Working capital and other adjustments	(3,090)
Total purchase consideration	153,410
Fair values of assets acquired and liabilities assumed
Cash and cash equivalents	2,310
Trade accounts receivable	22,254
Merchandise inventory	83,700
Other current assets	1,202
Property, plant and equipment	25,367
Net favorable leases	2,450
Intangible assets	21,800
Other assets	306
Current liabilities	(30,490)
Other long-term liabilities	(273)
Fair value of net assets acquired	128,626
Goodwill	24,784
Total purchase consideration	153,410
Intangible assets being amortized	$ 9,400
Lamrite | Minimum
Fair values of assets acquired and liabilities assumed
Amortization period	6 years
Lamrite | Maximum
Fair values of assets acquired and liabilities assumed
Amortization period	18 years
Lamrite | Selling, General and Administrative Expenses
Acquisition
Integration costs		$ 1,900	$ 6,000