##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _________ to __________
 Commission File Nos. 1-8899 and 333-148108
 Claires Stores, Inc.
  Florida
    
    59-0940416(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)3 S.W. 129th Avenue, Pembroke Pines, Florida
    
    33027(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (954) 433-3900
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




---



##### 



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
 PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of October
31, 2009 and January 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Nine Months Ended
October 31, 2009 and November 1, 2008
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended October 31, 2009 and November 1, 2008
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATION
    
    
    33Item 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURE PAGE
    
    
    34EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 October 31, 2009
    
    
    January 31, 2009(In thousands, except shareand per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    165,159
    
    
    $
    204,574Inventories
    
    
    138,817
    
    
    
    103,691Prepaid expenses
    
    
    40,417
    
    
    
    31,837Other current assets
    
    
    27,516
    
    
    
    27,079Total current assets
    
    
    371,909
    
    
    
    367,181Property and equipment:Land and building
    
    
    22,288
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    160,803
    
    
    
    143,702Leasehold improvements
    
    
    230,504
    
    
    
    214,007413,595
    
    
    
    379,997Less accumulated depreciation and amortization
    
    
    (169,969
    )
    
    
    (113,926
    )243,626
    
    
    
    266,071Intangible assets, net of accumulated amortization of $30,733 and
$19,371, respectively
    
    
    587,555
    
    
    
    587,125Deferred
financing costs, net of accumulated amortization of $27,101 and $17,646, respectively
    
    
    50,489
    
    
    
    59,944Other assets
    
    
    60,293
    
    
    
    56,428Goodwill
    
    
    1,544,346
    
    
    
    1,544,3462,242,683
    
    
    
    2,247,843Total assets
    
    $
    2,858,218
    
    
    $
    2,881,095LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Trade accounts payable
    
    $
    66,183
    
    
    $
    53,237Current portion of long-term debt
    
    
    14,500
    
    
    
    14,500Income taxes payable
    
    
    6,186
    
    
    
    6,477Accrued interest payable
    
    
    28,436
    
    
    
    13,316Accrued expenses and other current liabilities
    
    
    105,727
    
    
    
    107,974Total current liabilities
    
    
    221,032
    
    
    
    195,504Long-term debt
    
    
    2,320,481
    
    
    
    2,373,272Revolving credit facility
    
    
    194,000
    
    
    
    194,000Deferred tax liability
    
    
    114,479
    
    
    
    112,829Deferred rent expense
    
    
    22,020
    
    
    
    18,462Unfavorable lease obligations and other long-term liabilities
    
    
    37,134
    
    
    
    42,8712,688,114
    
    
    
    2,741,434Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Common stock par value $0.001 per share; authorized 1,000
shares; issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    613,759
    
    
    
    609,427Accumulated other comprehensive income (loss), net of tax
    
    
    8,131
    
    
    
    (22,319
    )Retained deficit
    
    
    (672,818
    )
    
    
    (642,951
    )(50,928
    )
    
    
    (55,843
    )Total liabilities and stockholders deficit
    
    $
    2,858,218
    
    
    $
    2,881,095
  3




---



##### Table of Contents



CLAIRES
STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 31, 2009
    
    
    November 1, 2008
    
    
    October 31, 2009
    
    
    November 1, 2008Net sales
    
    $
    324,404
    
    
    $
    332,971
    
    
    $
    931,698
    
    
    $
    1,019,947Cost of sales, occupancy and buying
expenses
    
    
    158,294
    
    
    
    170,979
    
    
    
    467,561
    
    
    
    523,228Gross profit
    
    
    166,110
    
    
    
    161,992
    
    
    
    464,137
    
    
    
    496,719Other expenses (income):Selling, general and administrative
    
    
    116,929
    
    
    
    129,121
    
    
    
    336,211
    
    
    
    392,877Depreciation and amortization
    
    
    17,327
    
    
    
    20,024
    
    
    
    54,185
    
    
    
    64,686Severance and transaction-related costs
    
    
    32
    
    
    
    (569
    )
    
    
    406
    
    
    
    5,695Other (income) expense, net
    
    
    (874
    )
    
    
    (2,612
    )
    
    
    (1,182
    )
    
    
    (3,721
    )133,414
    
    
    
    145,964
    
    
    
    389,620
    
    
    
    459,537Operating income
    
    
    32,696
    
    
    
    16,028
    
    
    
    74,517
    
    
    
    37,182Gain on early debt extinguishment
    
    
    16,096
    
    
    
    
    
    
    
    33,200
    
    
    
    Interest expense, net
    
    
    43,716
    
    
    
    50,462
    
    
    
    134,279
    
    
    
    147,858Income (loss) before income tax expense
(benefit)
    
    
    5,076
    
    
    
    (34,434
    )
    
    
    (26,562
    )
    
    
    (110,676
    )Income tax expense (benefit)
    
    
    2,187
    
    
    
    (12,880
    )
    
    
    3,305
    
    
    
    (36,621
    )Net income (loss)
    
    $
    2,889
    
    
    $
    (21,554
    )
    
    $
    (29,867
    )
    
    $
    (74,055
    )Net income (loss)
    
    $
    2,889
    
    
    $
    (21,554
    )
    
    $
    (29,867
    )
    
    $
    (74,055
    )Foreign currency translation and interest
rate swap adjustments, net of tax
    
    
    4,851
    
    
    
    (42,827
    )
    
    
    30,450
    
    
    
    (30,682
    )Comprehensive income (loss)
    
    $
    7,740
    
    
    $
    (64,381
    )
    
    $
    583
    
    
    $
    (104,737
    )
  4




---



##### Table of Contents



CLAIRES
STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 31, 2009
    
    
    November 1, 2008Cash flows from operating activities:Net loss
    
    $
    (29,867
    )
    
    $
    (74,055
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    54,185
    
    
    
    64,686Amortization of lease rights and other assets
    
    
    1,513
    
    
    
    1,593Amortization of debt issuance costs
    
    
    7,845
    
    
    
    7,931Payment in kind interest expense
    
    
    29,415
    
    
    
    15,130Net accretion of favorable (unfavorable) lease obligations
    
    
    (1,594
    )
    
    
    (1,114
    )Loss (gain) on sale/retirement of property and equipment, net
    
    
    39
    
    
    
    (215
    )Gain on early debt extinguishment
    
    
    (33,200
    )
    
    
    Gain on sale of intangible assets/lease rights
    
    
    (598
    )
    
    
    (1,446
    )Stock compensation expense
    
    
    4,332
    
    
    
    6,153(Increase) decrease in:Inventories
    
    
    (30,915
    )
    
    
    (37,704
    )Prepaid expenses
    
    
    (5,193
    )
    
    
    (4,989
    )Other assets
    
    
    (5,567
    )
    
    
    (3,600
    )Increase (decrease) in:Trade accounts payable
    
    
    9,945
    
    
    
    31,874Income taxes payable
    
    
    1,749
    
    
    
    (14,551
    )Accrued expenses and other liabilities
    
    
    (954
    )
    
    
    2,863Accrued interest payable
    
    
    15,121
    
    
    
    18,867Deferred income taxes
    
    
    1,578
    
    
    
    (38,204
    )Deferred rent expense
    
    
    2,895
    
    
    
    7,337Net cash provided by (used in) operating activities
    
    
    20,729
    
    
    
    (19,444
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (17,675
    )
    
    
    (45,267
    )Acquisition of intangible assets/lease rights
    
    
    (484
    )
    
    
    (1,273
    )Proceeds from sale of intangible assets/lease rights
    
    
    2,154
    
    
    
    Net cash used in investing activities
    
    
    (16,005
    )
    
    
    (46,540
    )Cash flows from financing activities:Credit facility proceeds
    
    
    
    
    
    
    194,000Credit facility payments
    
    
    (10,875
    )
    
    
    (10,875
    )Note purchases
    
    
    (36,521
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (47,396
    )
    
    
    183,125Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    3,257
    
    
    
    (9,218
    )Net increase (decrease) in cash and cash equivalents
    
    
    (39,415
    )
    
    
    107,923Cash and cash equivalents at beginning of period
    
    
    204,574
    
    
    
    85,974Cash and cash equivalents at end of period
    
    $
    165,159
    
    
    $
    193,897
  Income taxes paid
    
    $
    2,719
    
    
    $
    15,251Interest paid
    
    
    81,927
    
    
    
    107,186
  5




---



##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. Significant Accounting Policies
 Update to Significant Accounting Policies and Certain Financial Statement Disclosures
  Impairment of Assets
  6




---



##### Table of Contents



7




---



##### Table of Contents



Debt
  Stock Options and Stock-Based Compensation
  Income Taxes
  Recent Accounting Pronouncements
 Accounting Standards Codification
    Business Combinations Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51 Investments  Equity Method and Joint Ventures
 8




---



##### Table of Contents



Investments 
Equity Method and Joint Ventures
  Fair Value
Measurements and Disclosures  Measuring Liabilities at Fair Value Fair Value Measurements
 9




---



##### Table of Contents



3. Segment Information
   Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    November 1,
    
    
    October 31,
    
    
    November 1,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:North America
    
    $
    199,867
    
    
    $
    211,873
    
    
    $
    589,476
    
    
    $
    643,893Europe
    
    
    124,537
    
    
    
    121,098
    
    
    
    342,222
    
    
    
    376,054Total net sales
    
    
    324,404
    
    
    
    332,971
    
    
    
    931,698
    
    
    
    1,019,947Depreciation and amortization:North America
    
    
    11,230
    
    
    
    13,356
    
    
    
    36,479
    
    
    
    42,758Europe
    
    
    6,097
    
    
    
    6,668
    
    
    
    17,706
    
    
    
    21,928Total depreciation and amortization
    
    
    17,327
    
    
    
    20,024
    
    
    
    54,185
    
    
    
    64,686Operating income for reportable segments:North America
    
    
    15,459
    
    
    
    11,642
    
    
    
    44,251
    
    
    
    30,871Europe
    
    
    17,269
    
    
    
    3,817
    
    
    
    30,672
    
    
    
    12,006Total operating income for reportable
segments
    
    
    32,728
    
    
    
    15,459
    
    
    
    74,923
    
    
    
    42,877Severance and transaction-related costs
    
    
    32
    
    
    
    (569
    )
    
    
    406
    
    
    
    5,695Net consolidated operating income
    
    
    32,696
    
    
    
    16,028
    
    
    
    74,517
    
    
    
    37,182Gain on early debt extinguishment
    
    
    16,096
    
    
    
    
    
    
    
    33,200
    
    
    
    Interest expense, net
    
    
    43,716
    
    
    
    50,462
    
    
    
    134,279
    
    
    
    147,858Net consolidated income (loss) before
income tax expense (benefit)
    
    $
    5,076
    
    
    $
    (34,434
    )
    
    $
    (26,562
    )
    
    $
    (110,676
    )
   10




---



##### Table of Contents



4. Debt
  Three Months
    
    
    Nine MonthsPrincipal
    
    
    Purchase
    
    
    Principal
    
    
    PurchaseNote Purchased
    
    Amount
    
    
    Price
    
    
    Amount
    
    
    PriceSenior Subordinated Notes
    
    $
    15,000
    
    
    $
    8,965
    
    
    $
    42,838
    
    
    $
    19,001Senior Toggle Notes
    
    
    27,500
    
    
    
    17,520
    
    
    
    27,500
    
    
    
    17,520$
    42,500
    
    
    $
    26,485
    
    
    $
    70,338
    
    
    $
    36,521
  5. Stock Options and Stock-Based Compensation
  WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual
    
    IntrinsicOptions
    
    Shares
    
    Price
    
    Life (Years)
    
    ValueOutstanding at January 31, 2009
    
    
    6,807,556
    
    
    $
    10.00
    
    
    
    4.6
    
    
    
    Options granted
    
    
    758,100
    
    
    $
    10.00
    
    
    
    6.6
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    (1,270,424
    )
    
    $
    10.00
    
    
    
    
    
    
    
    Options expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at October 31, 2009
    
    
    6,295,232
    
    
    $
    10.00
    
    
    
    4.7
    
    
    
    Exercisable at October 31, 2009
    
    
    1,716,533
    
    
    $
    10.00
    
    
    
    4.7
    
    
    
    
   11




---



##### Table of Contents



6. Income Taxes
   7. Fair Value Measurements and Derivative Instruments
      12




---



##### Table of Contents



Fair Value Measurements at October 31, 2009 UsingQuoted Prices inActive Markets for
    
    Significant
    
    SignificantIdentical Assets
    
    Other Observable
    
    Unobservable(Liabilities)
    
    Inputs
    
    InputsCarrying Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Debt and Credit Facility
    
    $
    (2,528,981
    )
    
    $
    (1,931,037
    )
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    (13,617
    )
    
    $
    
    
    
    $
    (13,617
    )
    
    $
    
 Fair Value Measurements at January 31, 2009 UsingQuoted Prices inActive Markets for
    
    Significant
    
    SignificantIdentical Assets
    
    Other Observable
    
    Unobservable(Liabilities)
    
    Inputs
    
    InputsCarrying Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Debt and Credit Facility
    
    $
    (2,581,772
    )
    
    $
    (734,000
    )
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    (19,734
    )
    
    $
    
    
    
    $
    (19,734
    )
    
    $
    
  Location of Gainor (Loss)
    
    Amount of Gain or (Loss)Amount of Gain or (Loss)
    
    Reclassified from
    
    Reclassified fromDerivatives in Cash
    
    Recognized in OCI on
    
    Accumulated OCI
    
    Accumulated OCI intoFlow Hedging
    
    Derivative
    
    into Income
    
    IncomeRelationships
    
    (Effective Portion)
    
    (Effective Portion)
    
    (Effective Portion)(1)Three months ended
    
    
    
    
    
    Three months endedOctober
    
    November
    
    
    
    
    
    October
    
    November31, 2009
    
    1, 2008
    
    
    
    
    
    31, 2009
    
    1, 2008Interest Rate Swaps
    
    $
    2,266
    
    
    $
    (2,228
    )
    
    Interest Expense
    
    $
    (5,275
    )
    
    $
    (2,180
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive loss to earnings as interest expense is
recognized on the senior term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges. 13




---



##### Table of Contents



Location of Gainor (Loss)
    
    Amount of Gain or (Loss)Amount of Gain or (Loss)
    
    Reclassified from
    
    Reclassified fromDerivatives in Cash
    
    Recognized in OCI on
    
    Accumulated OCI
    
    Accumulated OCI intoFlow Hedging
    
    Derivative
    
    into Income
    
    IncomeRelationships
    
    (Effective Portion)
    
    (Effective Portion)
    
    (Effective Portion)(1)Nine months ended
    
    
    
    
    
    Nine months endedOctober
    
    November
    
    
    
    
    
    October
    
    November31, 2009
    
    1, 2008
    
    
    
    
    
    31, 2009
    
    1, 2008Interest Rate Swaps
    
    $
    3,862
    
    
    $
    2,793
    
    
    Interest Expense
    
    $
    (13,920
    )
    
    $
    (6,070
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive loss to earnings as interest expense is
recognized on the senior term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges.   8. Commitments and Contingencies
  9. Subsequent Events
  10. Supplemental Financial Information
  14




---



##### Table of Contents



Condensed Consolidating Balance Sheet  October 31, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    92,873
    
    
    $
    (5,005
    )
    
    $
    77,291
    
    
    $
    
    
    
    $
    165,159Inventories
    
    
    
    
    
    
    95,005
    
    
    
    43,812
    
    
    
    
    
    
    
    138,817Prepaid expenses
    
    
    592
    
    
    
    15,316
    
    
    
    24,509
    
    
    
    
    
    
    
    40,417Other current assets
    
    
    2,414
    
    
    
    16,042
    
    
    
    9,060
    
    
    
    
    
    
    
    27,516Total current assets
    
    
    95,879
    
    
    
    121,358
    
    
    
    154,672
    
    
    
    
    
    
    
    371,909Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,178
    
    
    
    108,409
    
    
    
    50,216
    
    
    
    
    
    
    
    160,803Leasehold improvements
    
    
    1,706
    
    
    
    138,544
    
    
    
    90,254
    
    
    
    
    
    
    
    230,5043,884
    
    
    
    269,241
    
    
    
    140,470
    
    
    
    
    
    
    
    413,595Less accumulated depreciation and amortization
    
    
    (1,775
    )
    
    
    (107,692
    )
    
    
    (60,502
    )
    
    
    
    
    
    
    (169,969
    )2,109
    
    
    
    161,549
    
    
    
    79,968
    
    
    
    
    
    
    
    243,626Intercompany receivables
    
    
    
    
    
    
    77,969
    
    
    
    90,833
    
    
    
    (168,802
    )
    
    
    Investment in subsidiaries
    
    
    2,250,561
    
    
    
    3,407
    
    
    
    
    
    
    
    (2,253,968
    )
    
    
    Intangible assets, net
    
    
    286,000
    
    
    
    14,161
    
    
    
    287,394
    
    
    
    
    
    
    
    587,555Deferred financing costs, net
    
    
    50,489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,489Other assets
    
    
    18,380
    
    
    
    2,869
    
    
    
    39,044
    
    
    
    
    
    
    
    60,293Goodwill
    
    
    
    
    
    
    1,229,940
    
    
    
    314,406
    
    
    
    
    
    
    
    1,544,3462,605,430
    
    
    
    1,328,346
    
    
    
    731,677
    
    
    
    (2,422,770
    )
    
    
    2,242,683Total assets
    
    $
    2,703,418
    
    
    $
    1,611,253
    
    
    $
    966,317
    
    
    $
    (2,422,770
    )
    
    $
    2,858,218LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Trade accounts payable
    
    $
    1,834
    
    
    $
    21,850
    
    
    $
    42,499
    
    
    $
    
    
    
    $
    66,183Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    (322
    )
    
    
    6,508
    
    
    
    
    
    
    
    6,186Accrued interest payable
    
    
    28,436
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,436Accrued expenses and other current liabilities
    
    
    25,092
    
    
    
    36,084
    
    
    
    44,551
    
    
    
    
    
    
    
    105,727Total current liabilities
    
    
    69,862
    
    
    
    57,612
    
    
    
    93,558
    
    
    
    
    
    
    
    221,032Intercompany payables
    
    
    168,802
    
    
    
    
    
    
    
    
    
    
    
    (168,802
    )
    
    
    Long-term debt
    
    
    2,320,481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,320,481Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Deferred tax liability
    
    
    987
    
    
    
    99,476
    
    
    
    14,016
    
    
    
    
    
    
    
    114,479Deferred rent expense
    
    
    214
    
    
    
    14,879
    
    
    
    6,927
    
    
    
    
    
    
    
    22,020Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    34,420
    
    
    
    2,714
    
    
    
    
    
    
    
    37,1342,684,484
    
    
    
    148,775
    
    
    
    23,657
    
    
    
    (168,802
    )
    
    
    2,688,114Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    613,759
    
    
    
    1,445,795
    
    
    
    876,798
    
    
    
    (2,322,593
    )
    
    
    613,759Accumulated other comprehensive income, net of
tax
    
    
    8,131
    
    
    
    1,529
    
    
    
    6,894
    
    
    
    (8,423
    )
    
    
    8,131Retained deficit
    
    
    (672,818
    )
    
    
    (42,825
    )
    
    
    (34,592
    )
    
    
    77,417
    
    
    
    (672,818
    )(50,928
    )
    
    
    1,404,866
    
    
    
    849,102
    
    
    
    (2,253,968
    )
    
    
    (50,928
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,703,418
    
    
    $
    1,611,253
    
    
    $
    966,317
    
    
    $
    (2,422,770
    )
    
    $
    2,858,218
 15




---



##### Table of Contents



Condensed Consolidating Balance Sheet
January 31, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    154,414
    
    
    $
    211
    
    
    $
    49,949
    
    
    $
    
    
    
    $
    204,574Inventories
    
    
    
    
    
    
    73,445
    
    
    
    30,246
    
    
    
    
    
    
    
    103,691Prepaid expenses
    
    
    434
    
    
    
    14,641
    
    
    
    16,762
    
    
    
    
    
    
    
    31,837Other current assets
    
    
    6
    
    
    
    16,104
    
    
    
    10,969
    
    
    
    
    
    
    
    27,079Total current assets
    
    
    154,854
    
    
    
    104,401
    
    
    
    107,926
    
    
    
    
    
    
    
    367,181Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,025
    
    
    
    103,571
    
    
    
    38,106
    
    
    
    
    
    
    
    143,702Leasehold improvements
    
    
    1,704
    
    
    
    136,554
    
    
    
    75,749
    
    
    
    
    
    
    
    214,0073,729
    
    
    
    262,413
    
    
    
    113,855
    
    
    
    
    
    
    
    379,997Less accumulated depreciation and amortization
    
    
    (1,250
    )
    
    
    (77,042
    )
    
    
    (35,634
    )
    
    
    
    
    
    
    (113,926
    )2,479
    
    
    
    185,371
    
    
    
    78,221
    
    
    
    
    
    
    
    266,071Intercompany receivables
    
    
    
    
    
    
    26,876
    
    
    
    58,416
    
    
    
    (85,292
    )
    
    
    Investment in subsidiaries
    
    
    2,139,955
    
    
    
    (4,061
    )
    
    
    
    
    
    
    (2,135,894
    )
    
    
    Intangible assets, net
    
    
    286,750
    
    
    
    17,960
    
    
    
    282,415
    
    
    
    
    
    
    
    587,125Deferred financing costs, net
    
    
    59,944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,944Other assets
    
    
    19,392
    
    
    
    2,602
    
    
    
    34,434
    
    
    
    
    
    
    
    56,428Goodwill
    
    
    
    
    
    
    1,229,940
    
    
    
    314,406
    
    
    
    
    
    
    
    1,544,3462,506,041
    
    
    
    1,273,317
    
    
    
    689,671
    
    
    
    (2,221,186
    )
    
    
    2,247,843Total assets
    
    $
    2,663,374
    
    
    $
    1,563,089
    
    
    $
    875,818
    
    
    $
    (2,221,186
    )
    
    $
    2,881,095LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Trade accounts payable
    
    $
    2,347
    
    
    $
    21,112
    
    
    $
    29,778
    
    
    $
    
    
    
    $
    53,237Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    
    
    
    
    6,477
    
    
    
    
    
    
    
    6,477Accrued interest payable
    
    
    13,313
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    13,316Accrued expenses and other current liabilities
    
    
    35,795
    
    
    
    35,782
    
    
    
    36,397
    
    
    
    
    
    
    
    107,974Total current liabilities
    
    
    65,955
    
    
    
    56,894
    
    
    
    72,655
    
    
    
    
    
    
    
    195,504Intercompany payables
    
    
    85,292
    
    
    
    
    
    
    
    
    
    
    
    (85,292
    )
    
    
    Long-term debt
    
    
    2,373,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,373,272Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Deferred tax liability
    
    
    
    
    
    
    99,122
    
    
    
    13,707
    
    
    
    
    
    
    
    112,829Deferred rent expense
    
    
    698
    
    
    
    12,532
    
    
    
    5,232
    
    
    
    
    
    
    
    18,462Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    39,074
    
    
    
    3,797
    
    
    
    
    
    
    
    42,8712,653,262
    
    
    
    150,728
    
    
    
    22,736
    
    
    
    (85,292
    )
    
    
    2,741,434Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    609,427
    
    
    
    1,445,795
    
    
    
    876,798
    
    
    
    (2,322,593
    )
    
    
    609,427Accumulated other comprehensive loss, net of tax
    
    
    (22,319
    )
    
    
    (2,326
    )
    
    
    (20,597
    )
    
    
    22,923
    
    
    
    (22,319
    )Retained deficit
    
    
    (642,951
    )
    
    
    (88,369
    )
    
    
    (75,776
    )
    
    
    164,145
    
    
    
    (642,951
    )(55,843
    )
    
    
    1,355,467
    
    
    
    780,427
    
    
    
    (2,135,894
    )
    
    
    (55,843
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,663,374
    
    
    $
    1,563,089
    
    
    $
    875,818
    
    
    $
    (2,221,186
    )
    
    $
    2,881,095
 16




---



##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income

For The Three Months Ended October 31, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    381,633
    
    
    $
    139,537
    
    
    $
    (196,766
    )
    
    $
    324,404Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    289,173
    
    
    
    65,887
    
    
    
    (196,766
    )
    
    
    158,294Gross profit
    
    
    
    
    
    
    92,460
    
    
    
    73,650
    
    
    
    
    
    
    
    166,110Other expenses (income):Selling, general and administrative
    
    
    6,970
    
    
    
    64,904
    
    
    
    45,055
    
    
    
    
    
    
    
    116,929Depreciation and amortization
    
    
    163
    
    
    
    10,374
    
    
    
    6,790
    
    
    
    
    
    
    
    17,327Severance and transaction-related costs
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Other (income) expense
    
    
    (4,310
    )
    
    
    4,328
    
    
    
    (892
    )
    
    
    
    
    
    
    (874
    )2,855
    
    
    
    79,606
    
    
    
    50,953
    
    
    
    
    
    
    
    133,414Operating income (loss)
    
    
    (2,855
    )
    
    
    12,854
    
    
    
    22,697
    
    
    
    
    
    
    
    32,696Gain on early debt extinguishment
    
    
    16,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,096Interest expense (income), net
    
    
    43,714
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    43,716Income (loss) before income taxes
    
    
    (30,473
    )
    
    
    12,852
    
    
    
    22,697
    
    
    
    
    
    
    
    5,076Income tax expense (benefit)
    
    
    174
    
    
    
    440
    
    
    
    1,573
    
    
    
    
    
    
    
    2,187Income (loss) from continuing operations
    
    
    (30,647
    )
    
    
    12,412
    
    
    
    21,124
    
    
    
    
    
    
    
    2,889Equity in earnings of subsidiaries
    
    
    33,536
    
    
    
    2,100
    
    
    
    
    
    
    
    (35,636
    )
    
    
    Net income
    
    
    2,899
    
    
    
    14,512
    
    
    
    21,124
    
    
    
    (35,636
    )
    
    
    2,889Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    4,851
    
    
    
    (194
    )
    
    
    1,716
    
    
    
    (1,522
    )
    
    
    4,851Comprehensive income
    
    $
    7,740
    
    
    $
    14,318
    
    
    $
    22,840
    
    
    $
    (37,158
    )
    
    $
    7,740
 Condensed Consolidating Statement of Operations and Comprehensive Loss
For The Three Months Ended November 1, 2008  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    422,260
    
    
    $
    136,281
    
    
    $
    (225,570
    )
    
    $
    332,971Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    330,020
    
    
    
    66,529
    
    
    
    (225,570
    )
    
    
    170,979Gross profit
    
    
    
    
    
    
    92,240
    
    
    
    69,752
    
    
    
    
    
    
    
    161,992Other expenses (income):Selling, general and administrative
    
    
    8,108
    
    
    
    66,553
    
    
    
    54,460
    
    
    
    
    
    
    
    129,121Depreciation and amortization
    
    
    733
    
    
    
    11,735
    
    
    
    7,556
    
    
    
    
    
    
    
    20,024Severance and transaction-related costs
    
    
    (569
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569
    )Other (income) expense
    
    
    (7,608
    )
    
    
    6,857
    
    
    
    (1,861
    )
    
    
    
    
    
    
    (2,612
    )664
    
    
    
    85,145
    
    
    
    60,155
    
    
    
    
    
    
    
    145,964Operating income (loss)
    
    
    (664
    )
    
    
    7,095
    
    
    
    9,597
    
    
    
    
    
    
    
    16,028Interest expense (income), net
    
    
    50,703
    
    
    
    (46
    )
    
    
    (195
    )
    
    
    
    
    
    
    50,462Income (loss) before income taxes
    
    
    (51,367
    )
    
    
    7,141
    
    
    
    9,792
    
    
    
    
    
    
    
    (34,434
    )Income tax expense (benefit)
    
    
    (26,135
    )
    
    
    11,347
    
    
    
    1,908
    
    
    
    
    
    
    
    (12,880
    )Income (loss) from continuing operations
    
    
    (25,232
    )
    
    
    (4,206
    )
    
    
    7,884
    
    
    
    
    
    
    
    (21,554
    )Equity in earnings of subsidiaries
    
    
    3,678
    
    
    
    2,646
    
    
    
    
    
    
    
    (6,324
    )
    
    
    Net income (loss)
    
    
    (21,554
    )
    
    
    (1,560
    )
    
    
    7,884
    
    
    
    (6,324
    )
    
    
    (21,554
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    (42,827
    )
    
    
    (5,124
    )
    
    
    (40,587
    )
    
    
    45,711
    
    
    
    (42,827
    )Comprehensive loss
    
    $
    (64,381
    )
    
    $
    (6,684
    )
    
    $
    (32,703
    )
    
    $
    39,387
    
    
    $
    (64,381
    )
 17




---



##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income
For The Nine Months Ended October 31, 2009
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,043,158
    
    
    $
    380,734
    
    
    $
    (492,194
    )
    
    $
    931,698Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    772,043
    
    
    
    187,712
    
    
    
    (492,194
    )
    
    
    467,561Gross profit
    
    
    
    
    
    
    271,115
    
    
    
    193,022
    
    
    
    
    
    
    
    464,137Other expenses (income):Selling, general and administrative
    
    
    20,957
    
    
    
    179,863
    
    
    
    135,391
    
    
    
    
    
    
    
    336,211Depreciation and amortization
    
    
    1,276
    
    
    
    32,995
    
    
    
    19,914
    
    
    
    
    
    
    
    54,185Severance and transaction-related costs
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    406Other (income) expense
    
    
    (10,548
    )
    
    
    13,811
    
    
    
    (4,445
    )
    
    
    
    
    
    
    (1,182
    )12,091
    
    
    
    226,669
    
    
    
    150,860
    
    
    
    
    
    
    
    389,620Operating income (loss)
    
    
    (12,091
    )
    
    
    44,446
    
    
    
    42,162
    
    
    
    
    
    
    
    74,517Gain on early debt extinguishment
    
    
    33,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,200Interest expense (income), net
    
    
    134,332
    
    
    
    (11
    )
    
    
    (42
    )
    
    
    
    
    
    
    134,279Income (loss) before income taxes
    
    
    (113,223
    )
    
    
    44,457
    
    
    
    42,204
    
    
    
    
    
    
    
    (26,562
    )Income tax expense (benefit)
    
    
    
    
    
    
    2,288
    
    
    
    1,017
    
    
    
    
    
    
    
    3,305Income (loss) from continuing operations
    
    
    (113,223
    )
    
    
    42,169
    
    
    
    41,187
    
    
    
    
    
    
    
    (29,867
    )Equity in earnings of subsidiaries
    
    
    83,356
    
    
    
    3,372
    
    
    
    
    
    
    
    (86,728
    )
    
    
    Net income (loss)
    
    
    (29,867
    )
    
    
    45,541
    
    
    
    41,187
    
    
    
    (86,728
    )
    
    
    (29,867
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    30,450
    
    
    
    3,855
    
    
    
    27,565
    
    
    
    (31,420
    )
    
    
    30,450Comprehensive income
    
    $
    583
    
    
    $
    49,396
    
    
    $
    68,752
    
    
    $
    (118,148
    )
    
    $
    583
 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Nine Months Ended November 1, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,173,323
    
    
    $
    420,993
    
    
    $
    (574,369
    )
    
    $
    1,019,947Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    889,345
    
    
    
    208,252
    
    
    
    (574,369
    )
    
    
    523,228Gross profit
    
    
    
    
    
    
    283,978
    
    
    
    212,741
    
    
    
    
    
    
    
    496,719Other expenses (income):Selling, general and administrative
    
    
    24,969
    
    
    
    200,364
    
    
    
    167,544
    
    
    
    
    
    
    
    392,877Depreciation and amortization
    
    
    2,244
    
    
    
    37,648
    
    
    
    24,794
    
    
    
    
    
    
    
    64,686Severance and transaction-related costs
    
    
    3,737
    
    
    
    
    
    
    
    1,958
    
    
    
    
    
    
    
    5,695Other (income) expense
    
    
    (16,765
    )
    
    
    15,189
    
    
    
    (2,145
    )
    
    
    
    
    
    
    (3,721
    )14,185
    
    
    
    253,201
    
    
    
    192,151
    
    
    
    
    
    
    
    459,537Operating income (loss)
    
    
    (14,185
    )
    
    
    30,777
    
    
    
    20,590
    
    
    
    
    
    
    
    37,182Interest expense (income), net
    
    
    148,922
    
    
    
    (300
    )
    
    
    (764
    )
    
    
    
    
    
    
    147,858Income (loss) before income taxes
    
    
    (163,107
    )
    
    
    31,077
    
    
    
    21,354
    
    
    
    
    
    
    
    (110,676
    )Income tax expense (benefit)
    
    
    (64,201
    )
    
    
    29,150
    
    
    
    (1,570
    )
    
    
    
    
    
    
    (36,621
    )Income (loss) from continuing operations
    
    
    (98,906
    )
    
    
    1,927
    
    
    
    22,924
    
    
    
    
    
    
    
    (74,055
    )Equity in earnings of subsidiaries
    
    
    24,851
    
    
    
    4,878
    
    
    
    
    
    
    
    (29,729
    )
    
    
    Net income (loss)
    
    
    (74,055
    )
    
    
    6,805
    
    
    
    22,924
    
    
    
    (29,729
    )
    
    
    (74,055
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    (30,682
    )
    
    
    (5,085
    )
    
    
    (34,147
    )
    
    
    39,232
    
    
    
    (30,682
    )Comprehensive income (loss)
    
    $
    (104,737
    )
    
    $
    1,720
    
    
    $
    (11,223
    )
    
    $
    9,503
    
    
    $
    (104,737
    )
 18




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows
Nine Months Ended October 31, 2009
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (29,867
    )
    
    $
    45,541
    
    
    $
    41,187
    
    
    $
    (86,728
    )
    
    $
    (29,867
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (83,356
    )
    
    
    (3,372
    )
    
    
    
    
    
    
    86,728
    
    
    
    Depreciation and amortization
    
    
    1,276
    
    
    
    32,995
    
    
    
    19,914
    
    
    
    
    
    
    
    54,185Amortization of lease rights and other assets
    
    
    
    
    
    
    36
    
    
    
    1,477
    
    
    
    
    
    
    
    1,513Amortization of debt issuance costs
    
    
    7,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,845Payment in kind interest expense
    
    
    29,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,415Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (1,885
    )
    
    
    291
    
    
    
    
    
    
    
    (1,594
    )Loss on sale/retirement of property and equipment and
other assets, net
    
    
    3
    
    
    
    17
    
    
    
    19
    
    
    
    
    
    
    
    39Gain on early debt extinguishment
    
    
    (33,200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,200
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (598
    )
    
    
    
    
    
    
    (598
    )Stock compensation expense
    
    
    2,901
    
    
    
    
    
    
    
    1,431
    
    
    
    
    
    
    
    4,332(Increase) decrease in:Inventories
    
    
    
    
    
    
    (21,560
    )
    
    
    (9,355
    )
    
    
    
    
    
    
    (30,915
    )Prepaid expenses
    
    
    (158
    )
    
    
    (674
    )
    
    
    (4,361
    )
    
    
    
    
    
    
    (5,193
    )Other assets
    
    
    (1,487
    )
    
    
    (2,215
    )
    
    
    (1,865
    )
    
    
    
    
    
    
    (5,567
    )Increase (decrease) in:Trade accounts payable
    
    
    (510
    )
    
    
    1,319
    
    
    
    9,136
    
    
    
    
    
    
    
    9,945Income taxes payable
    
    
    
    
    
    
    (216
    )
    
    
    1,965
    
    
    
    
    
    
    
    1,749Accrued expenses and other liabilities
    
    
    (4,585
    )
    
    
    302
    
    
    
    3,329
    
    
    
    
    
    
    
    (954
    )Accrued interest payable
    
    
    15,124
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    15,121Deferred income taxes
    
    
    987
    
    
    
    1,035
    
    
    
    (444
    )
    
    
    
    
    
    
    1,578Deferred rent expense
    
    
    (486
    )
    
    
    2,348
    
    
    
    1,033
    
    
    
    
    
    
    
    2,895Net cash provided by (used in) operating activities
    
    
    (96,098
    )
    
    
    53,671
    
    
    
    63,156
    
    
    
    
    
    
    
    20,729Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (162
    )
    
    
    (9,723
    )
    
    
    (7,790
    )
    
    
    
    
    
    
    (17,675
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (87
    )
    
    
    (397
    )
    
    
    
    
    
    
    (484
    )Proceeds from sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    2,154
    
    
    
    
    
    
    
    2,154Net cash used in investing activities
    
    
    (162
    )
    
    
    (9,810
    )
    
    
    (6,033
    )
    
    
    
    
    
    
    (16,005
    )Cash flows from financing activities:Credit facility payments
    
    
    (10,875
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,875
    )Note purchases
    
    
    (36,521
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,521
    )Intercompany activity, net
    
    
    82,115
    
    
    
    (48,835
    )
    
    
    (33,280
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    34,719
    
    
    
    (48,835
    )
    
    
    (33,280
    )
    
    
    
    
    
    
    (47,396
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (242
    )
    
    
    3,499
    
    
    
    
    
    
    
    3,257Net increase (decrease) in cash and cash equivalents
    
    
    (61,541
    )
    
    
    (5,216
    )
    
    
    27,342
    
    
    
    
    
    
    
    (39,415
    )Cash and cash equivalents at beginning of period
    
    
    154,414
    
    
    
    211
    
    
    
    49,949
    
    
    
    
    
    
    
    204,574Cash and cash equivalents at end of period
    
    $
    92,873
    
    
    $
    (5,005
    )
    
    $
    77,291
    
    
    $
    
    
    
    $
    165,159
 19




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For The Nine Months Ended November 1, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (74,055
    )
    
    $
    6,805
    
    
    $
    22,924
    
    
    $
    (29,729
    )
    
    $
    (74,055
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (24,851
    )
    
    
    (4,878
    )
    
    
    
    
    
    
    29,729
    
    
    
    Depreciation and amortization
    
    
    2,244
    
    
    
    37,648
    
    
    
    24,794
    
    
    
    
    
    
    
    64,686Amortization of lease rights and other assets
    
    
    
    
    
    
    41
    
    
    
    1,552
    
    
    
    
    
    
    
    1,593Amortization of debt issuance costs
    
    
    7,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,931Payment in kind interest expense
    
    
    15,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,130Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (1,520
    )
    
    
    406
    
    
    
    
    
    
    
    (1,114
    )(Gain) loss on sale / retirement of property and
equipment and other assets, net
    
    
    
    
    
    
    7
    
    
    
    (222
    )
    
    
    
    
    
    
    (215
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (1,446
    )
    
    
    
    
    
    
    (1,446
    )Stock compensation expense
    
    
    4,516
    
    
    
    
    
    
    
    1,637
    
    
    
    
    
    
    
    6,153(Increase) decrease in:Inventories
    
    
    
    
    
    
    (22,265
    )
    
    
    (15,439
    )
    
    
    
    
    
    
    (37,704
    )Prepaid expenses
    
    
    (553
    )
    
    
    (79
    )
    
    
    (4,357
    )
    
    
    
    
    
    
    (4,989
    )Other assets
    
    
    (137
    )
    
    
    (3,232
    )
    
    
    (231
    )
    
    
    
    
    
    
    (3,600
    )Increase (decrease) in:Trade accounts payable
    
    
    3,444
    
    
    
    8,255
    
    
    
    20,175
    
    
    
    
    
    
    
    31,874Income taxes payable
    
    
    8,383
    
    
    
    (17,468
    )
    
    
    (5,466
    )
    
    
    
    
    
    
    (14,551
    )Accrued expenses and other liabilities
    
    
    2,455
    
    
    
    (3,056
    )
    
    
    3,464
    
    
    
    
    
    
    
    2,863Accrued interest payable
    
    
    18,855
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    18,867Deferred income taxes
    
    
    
    
    
    
    (35,756
    )
    
    
    (2,448
    )
    
    
    
    
    
    
    (38,204
    )Deferred rent expense
    
    
    (122
    )
    
    
    5,621
    
    
    
    1,838
    
    
    
    
    
    
    
    7,337Net cash provided by (used in) operating activities
    
    
    (36,760
    )
    
    
    (29,877
    )
    
    
    47,193
    
    
    
    
    
    
    
    (19,444
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (78
    )
    
    
    (31,307
    )
    
    
    (13,882
    )
    
    
    
    
    
    
    (45,267
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (1,273
    )
    
    
    
    
    
    
    (1,273
    )Net cash used in investing activities
    
    
    (78
    )
    
    
    (31,307
    )
    
    
    (15,155
    )
    
    
    
    
    
    
    (46,540
    )Cash flows from financing activities:Credit facility proceeds
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Credit facility payments
    
    
    (10,875
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,875
    )Intercompany activity, net
    
    
    (16,740
    )
    
    
    57,413
    
    
    
    (40,673
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    166,385
    
    
    
    57,413
    
    
    
    (40,673
    )
    
    
    
    
    
    
    183,125Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (358
    )
    
    
    (8,860
    )
    
    
    
    
    
    
    (9,218
    )Net increase (decrease) in cash and cash equivalents
    
    
    129,547
    
    
    
    (4,129
    )
    
    
    (17,495
    )
    
    
    
    
    
    
    107,923Cash and cash equivalents at beginning of period
    
    
    25,835
    
    
    
    1,892
    
    
    
    58,247
    
    
    
    
    
    
    
    85,974Cash and cash equivalents at end of period
    
    $
    155,382
    
    
    $
    (2,237
    )
    
    $
    40,752
    
    
    $
    
    
    
    $
    193,897
 
 Item2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   20




---



##### Table of Contents



Business Overview
        
    
    Accessories  includes hair goods, handbags, small leather goods, and other fashion
classifications, such as scarves, headwear, attitude glasses, leg wear and seasonal
accessories, such as sunglasses, sandals, slippers and cold weather merchandise including
hats, gloves, scarves and boots, as well as cosmetics
    
    Jewelry  includes earrings, ear piercing, necklaces, bracelets and rings
   21




---



##### Table of Contents



Current Market Conditions
  Consolidated Results of Operations
  Three Months
    
    Three MonthsEnded
    
    EndedOctober 31,
    
    November 1,2009
    
    2008Net sales
    
    $
    324,404
    
    
    $
    332,971Increase (decrease) in same store sales
    
    
    (0.3
    )%
    
    
    (6.3
    )%Gross profit percentage
    
    
    51.2
    %
    
    
    48.7
    %Selling, general and administrative expenses as a percentage of
net sales
    
    
    36.0
    %
    
    
    38.8
    %Depreciation and amortization as a percentage of net sales
    
    
    5.3
    %
    
    
    6.0
    %Severance and transaction-related costs as percentage of net sales
    
    
    0.0
    %
    
    
    (0.2
    )%Operating income
    
    $
    32,696
    
    
    $
    16,028Gain on early debt extinguishment
    
    $
    16,096
    
    
    $
    Net income (loss)
    
    $
    2,889
    
    
    $
    (21,554
    )Number of stores at the end of the period (1)
    
    
    2,954
    
    
    
    3,074
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. Nine Months
    
    Nine MonthsEnded
    
    EndedOctober 31,
    
    November 1,2009
    
    2008Net sales
    
    $
    931,698
    
    
    $
    1,019,947Increase (decrease) in same store sales
    
    
    (3.2
    )%
    
    
    (6.8
    )%Gross profit percentage
    
    
    49.8
    %
    
    
    48.7
    %Selling, general and administrative expenses as a percentage of
net sales
    
    
    36.1
    %
    
    
    38.5
    %Depreciation and amortization as a percentage of net sales
    
    
    5.8
    %
    
    
    6.3
    %Severance and transaction-related costs as percentage of net sales
    
    
    0.0
    %
    
    
    0.6
    %Operating income
    
    $
    74,517
    
    
    $
    37,182Gain on early debt extinguishment
    
    $
    33,200
    
    
    $
    Net loss
    
    $
    (29,867
    )
    
    $
    (74,055
    )Number of stores at the end of the period (1)
    
    
    2,954
    
    
    
    3,074
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. 22




---



##### Table of Contents



Net sales
      Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    November 1,
    
    October 31,
    
    November 1,% of Total
    
    2009
    
    2008
    
    2009
    
    2008Accessories
    
    
    54.5
    
    
    
    48.8
    
    
    
    51.5
    
    
    
    46.7Jewelry
    
    
    45.5
    
    
    
    51.2
    
    
    
    48.5
    
    
    
    53.3100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Gross profit
    23




---



##### Table of Contents



Selling, general and administrative expenses
   Depreciation and amortization expense
   Severance and transaction-related costs
  Other (income) expense
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    November 1,
    
    
    October 31,
    
    
    November 1,2009
    
    
    2008
    
    
    2009
    
    
    2008Gain on sale of
intangible asset
    
    $
    
    
    
    $
    (1,446
    )
    
    $
    (598
    )
    
    $
    (1,446
    )Equity (income) loss
    
    
    (411
    )
    
    
    (386
    )
    
    
    777
    
    
    
    (285
    )Royalty income
    
    
    (334
    )
    
    
    (654
    )
    
    
    (1,141
    )
    
    
    (1,519
    )Other (income) expense
    
    
    (129
    )
    
    
    (126
    )
    
    
    (220
    )
    
    
    (471
    )$
    (874
    )
    
    $
    (2,612
    )
    
    $
    (1,182
    )
    
    $
    (3,721
    )
 24




---



##### Table of Contents



Interest expense, net
   Income taxes
  Segment Operations
  North America
  Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    November 1,
    
    October 31,
    
    November 1,2009
    
    2008
    
    2009
    
    2008Net sales
    
    $
    199,867
    
    
    $
    211,873
    
    
    $
    589,476
    
    
    $
    643,893Increase (decrease) in same store sales
    
    
    (1.9
    )%
    
    
    (8.7
    )%
    
    
    (5.0
    )%
    
    
    (9.7
    )%Gross profit percentage
    
    
    51.2
    %
    
    
    48.1
    %
    
    
    50.0
    %
    
    
    48.2
    %Number of stores at the end of the period (1)
    
    
    2,001
    
    
    
    2,144
    
    
    
    2,001
    
    
    
    2,144
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores.    25




---



##### Table of Contents



Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    November 1,
    
    October 31,
    
    November 1,% of Total
    
    2009
    
    2008
    
    2009
    
    2008Accessories
    
    
    49.3
    
    
    
    43.7
    
    
    
    46.1
    
    
    
    41.3Jewelry
    
    
    50.7
    
    
    
    56.3
    
    
    
    53.9
    
    
    
    58.7100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Europe
  Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    November 1,
    
    October 31,
    
    November 1,2009
    
    2008
    
    2009
    
    2008Net sales
    
    $
    124,537
    
    
    $
    121,098
    
    
    $
    342,222
    
    
    $
    376,054Increase (decrease) in same store sales
    
    
    2.3
    %
    
    
    (1.8
    )%
    
    
    0.0
    %
    
    
    (1.3
    )%Gross profit percentage
    
    
    51.2
    %
    
    
    49.7
    %
    
    
    49.5
    %
    
    
    49.6
    %Number of stores at the end of the
period (1)
    
    
    953
    
    
    
    930
    
    
    
    953
    
    
    
    930
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores.    26




---



##### Table of Contents



Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    Ended% of Total
    
    October 31, 2009
    
    November 1, 2008
    
    October 31, 2009
    
    November 1, 2008Accessories
    
    
    62.9
    
    
    
    57.6
    
    
    
    60.6
    
    
    
    55.9Jewelry
    
    
    37.1
    
    
    
    42.4
    
    
    
    39.4
    
    
    
    44.1100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Financial Resources and Liquidity
  Nine Months
    
    Nine MonthsEnded
    
    EndedOctober 31, 2009
    
    November 1, 2008Operating activities
    
    $
    20,729
    
    
    $
    (19,444
    )Investing activities
    
    
    (16,005
    )
    
    
    (46,540
    )Financing activities
    
    
    (47,396
    )
    
    
    183,125
 Cash flows from operating activities
  Cash flows from investing activities
  Cash flows from financing activities
   27




---



##### Table of Contents



Cash position
     Credit Facility and Notes
   
    
    incur additional indebtedness;
    
    pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness;
    
    make certain investments;
    
    create or incur certain liens;
 28




---



##### Table of Contents




    
    create restrictions on the payment of dividends or other distributions to us from our
subsidiaries;
    
    transfer or sell assets;
    
    engage in certain transactions with our affiliates; and
    
    merge or consolidate with other companies or transfer all or substantially all of our
assets.
  Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
 Accounting Standards Codification
    29




---



##### Table of Contents



Business Combinations Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51 Investments  Equity Method and Joint Ventures Investments 
Equity Method and Joint Ventures
  Fair Value
Measurements and Disclosures  Measuring Liabilities at Fair Value Fair Value Measurements
 Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  30




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Cash and cash equivalents
  Foreign Currency
   31




---



##### Table of Contents



Interest Rates
   General Market Risk
  
 Item 4. Controls and Procedures
     32




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 10.1
    
    Guarantee and Collateral Agreement, dated and effective as of
May 29, 2007, among Bauble Holdings Corp., Bauble Acquisition Sub, Inc., and
Credit Suisse, dated as of May 29, 2007 (re-filed with Schedules and Exhibit
attached)10.2
    
    Mortgage, Assignment of Leases and Rents, Security Agreement
and Fixture Filing, dated as of May 29, 2007 (re-filed with Exhibit A legal
description attached)31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
 33




---



##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.December 8, 2009
    By:
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer
(principal executive officer)December 8, 2009
    By:
    /s/ J. Per BrodinJ. Per Brodin, Senior Vice President and ChiefFinancial Officer (principal financial and accounting officer) 34




---



##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION10.1
    
    Guarantee and Collateral Agreement, dated and effective as of May 29, 2007,
among Bauble Holdings Corp., Bauble Acquisition Sub, Inc., and Credit Suisse, dated as
of May 29, 2007 (re-filed with Schedules and Exhibit attached)10.2
    
    Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated as of May 29, 2007 (re-filed with Exhibit A legal description attached)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 35