##### 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 August 2, 2008
 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 No. 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company
o(Do not check if a smaller reporting company)
 o þ




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##### 



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
 PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets at August 2,
2008 and February 2, 2008
    
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Six Months
Ended August 2, 2008 (Successor Entity), the period from May
29, 2007 through August 4, 2007 (Successor Entity), the
period from May 6, 2007 through May 28, 2007 (Predecessor
Entity) and the period from February 4, 2007 through May 28,
2007 (Predecessor Entity)
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Six Months Ended August 2, 2008 (Successor Entity), the
period from May 29, 2007 through August 4, 2007 (Successor
Entity), and the period from February 4, 2007 through May 28,
2007 (Predecessor Entity)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4T. Controls and Procedures
    
    
    30PART II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURE PAGE
    
    
    32Ex-31.1 Section 302 Certification of CEO
    
    
    34Ex-31.2 Section 302 Certification of CFO
    
    
    35Ex-32.1 Section 906 Certification of CEO
    
    
    36Ex-32.2 Section 906 Certification of CFO
    
    
    37
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 August 2, 2008
    
    
    February 2, 2008(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,236
    
    
    $
    85,974Inventories
    
    
    119,552
    
    
    
    117,679Prepaid expenses
    
    
    47,643
    
    
    
    37,315Other current assets
    
    
    47,591
    
    
    
    37,658Total current assets
    
    
    250,022
    
    
    
    278,626Property and equipment:Land and building
    
    
    22,288
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    140,446
    
    
    
    130,130Leasehold improvements
    
    
    227,550
    
    
    
    211,163390,284
    
    
    
    363,581Less accumulated depreciation and amortization
    
    
    (90,143
    )
    
    
    (53,972
    )300,141
    
    
    
    309,609Intangible assets, net of accumulated amortization of $11,046 and
$4,762, respectively
    
    
    809,954
    
    
    
    777,130Deferred financing costs, net of accumulated amortization of $12,370
and $7,079, respectively
    
    
    65,220
    
    
    
    70,511Other assets
    
    
    76,307
    
    
    
    71,754Goodwill
    
    
    1,841,346
    
    
    
    1,840,8672,792,827
    
    
    
    2,760,262Total assets
    
    $
    3,342,990
    
    
    $
    3,348,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    68,405
    
    
    $
    56,089Current portion of long-term debt
    
    
    14,500
    
    
    
    14,500Income taxes payable
    
    
    6,063
    
    
    
    12,191Accrued interest payable
    
    
    22,565
    
    
    
    19,536Accrued expenses and other liabilities
    
    
    120,206
    
    
    
    117,076Total current liabilities
    
    
    231,739
    
    
    
    219,392Long-term debt
    
    
    2,362,052
    
    
    
    2,363,250Deferred tax liability
    
    
    116,486
    
    
    
    139,506Deferred rent expense
    
    
    14,968
    
    
    
    10,572Unfavorable lease obligations and other liabilities
    
    
    48,986
    
    
    
    10,5772,542,492
    
    
    
    2,523,905Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock par value $0.001 per share; authorized 1,000
shares;
issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    605,116
    
    
    
    601,201Accumulated other comprehensive income, net of tax
    
    
    15,503
    
    
    
    3,358Retained earnings (deficit)
    
    
    (51,860
    )
    
    
    641568,759
    
    
    
    605,200Total liabilities and stockholders equity
    
    $
    3,342,990
    
    
    $
    3,348,497
  3




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
 Successor Entity
    
    
    
    Predecessor EntityThree Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    
    May 6, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    
    May 28, 2007
    
    
    May 28, 2007Net sales
    
    $
    359,973
    
    
    $
    686,976
    
    
    $
    281,190
    
    
    
    $
    84,328
    
    
    $
    424,899Cost of sales, occupancy and buying
expenses
    
    
    180,267
    
    
    
    352,249
    
    
    
    138,276
    
    
    
    
    44,846
    
    
    
    206,438Gross profit
    
    
    179,706
    
    
    
    334,727
    
    
    
    142,914
    
    
    
    
    39,482
    
    
    
    218,461Other expenses (income):Selling, general and administrative
    
    
    132,421
    
    
    
    263,756
    
    
    
    92,746
    
    
    
    
    30,798
    
    
    
    154,482Depreciation and amortization
    
    
    22,561
    
    
    
    44,662
    
    
    
    13,165
    
    
    
    
    4,417
    
    
    
    19,652Transaction-related costs
    
    
    296
    
    
    
    6,264
    
    
    
    2,061
    
    
    
    
    69,186
    
    
    
    72,672Other income
    
    
    (549
    )
    
    
    (1,109
    )
    
    
    (396
    )
    
    
    
    (135
    )
    
    
    (1,476
    )154,729
    
    
    
    313,573
    
    
    
    107,576
    
    
    
    
    104,266
    
    
    
    245,330Operating income (loss)
    
    
    24,977
    
    
    
    21,154
    
    
    
    35,338
    
    
    
    
    (64,784
    )
    
    
    (26,869
    )Interest expense (income), net
    
    
    48,739
    
    
    
    97,396
    
    
    
    35,928
    
    
    
    
    (1,123
    )
    
    
    (4,876
    )Loss before income taxes
    
    
    (23,762
    )
    
    
    (76,242
    )
    
    
    (590
    )
    
    
    
    (63,661
    )
    
    
    (21,993
    )Income tax expense (benefit)
    
    
    (6,831
    )
    
    
    (23,741
    )
    
    
    217
    
    
    
    
    8,890
    
    
    
    21,779Net loss
    
    $
    (16,931
    )
    
    $
    (52,501
    )
    
    $
    (807
    )
    
    
    $
    (72,551
    )
    
    $
    (43,772
    )Net loss
    
    $
    (16,931
    )
    
    $
    (52,501
    )
    
    $
    (807
    )
    
    
    $
    (72,551
    )
    
    $
    (43,772
    )Foreign currency
translation and interest
rate swap adjustments, net
of tax
    
    
    2,831
    
    
    
    12,145
    
    
    
    3,745
    
    
    
    
    (883
    )
    
    
    8,440Comprehensive income (loss)
    
    $
    (14,100
    )
    
    $
    (40,356
    )
    
    $
    2,938
    
    
    
    $
    (73,434
    )
    
    $
    (35,332
    )
  4




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Successor Entity
    
    
    
    Predecessor EntitySix Months
    
    
    May 29, 2007
    
    
    
    February 4, 2007Ended
    
    
    Through
    
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    
    May 28, 2007Cash flows from operating activities:Net loss
    
    $
    (52,501
    )
    
    $
    (807
    )
    
    
    $
    (43,772
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    44,662
    
    
    
    13,165
    
    
    
    
    19,652Amortization of lease rights and other assets
    
    
    1,013
    
    
    
    248
    
    
    
    
    622Amortization of debt issuance costs
    
    
    5,291
    
    
    
    1,730
    
    
    
    
    Payment in kind interest expense
    
    
    6,052
    
    
    
    
    
    
    
    
    Net accretion of favorable (unfavorable) lease obligations
    
    
    (543
    )
    
    
    
    
    
    
    
    Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    73(Gain) loss on sale/retirement of property and equipment and other
assets, net
    
    
    (175
    )
    
    
    461
    
    
    
    
    1,201Excess tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    (2,885
    )Stock compensation expense
    
    
    3,915
    
    
    
    888
    
    
    
    
    8,946(Increase) decrease in:Inventories
    
    
    (1,840
    )
    
    
    10,811
    
    
    
    
    (10,932
    )Prepaid expenses
    
    
    (10,280
    )
    
    
    (15,639
    )
    
    
    
    6,389Other assets
    
    
    (6,096
    )
    
    
    (30,254
    )
    
    
    
    (2,941
    )Increase (decrease) in:Trade accounts payable
    
    
    12,304
    
    
    
    (12,141
    )
    
    
    
    31,202Income taxes payable
    
    
    (16,152
    )
    
    
    (3,161
    )
    
    
    
    (11,732
    )Accrued expenses and other liabilities
    
    
    12,575
    
    
    
    (72,680
    )
    
    
    
    39,727Accrued interest payable
    
    
    3,029
    
    
    
    24,866
    
    
    
    
    Deferred income taxes
    
    
    (19,273
    )
    
    
    (385
    )
    
    
    
    6,723Deferred rent expense
    
    
    4,676
    
    
    
    1,039
    
    
    
    
    373Net cash provided by (used in) operating activities
    
    
    (13,343
    )
    
    
    (81,859
    )
    
    
    
    42,646Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (31,626
    )
    
    
    (18,910
    )
    
    
    
    (27,988
    )Acquisition of predecessor entity
    
    
    
    
    
    
    (3,040,369
    )
    
    
    
    Acquisition of intangible assets/lease rights
    
    
    (775
    )
    
    
    (3,540
    )
    
    
    
    (81
    )Net cash used in investing activities
    
    
    (32,401
    )
    
    
    (3,062,819
    )
    
    
    
    (28,069
    )Cash flows from financing activities:Credit facility proceeds
    
    
    
    
    
    
    1,450,000
    
    
    
    
    Credit facility payments
    
    
    (7,250
    )
    
    
    
    
    
    
    
    Note offerings proceeds
    
    
    
    
    
    
    935,000
    
    
    
    
    Capital contribution
    
    
    
    
    
    
    595,675
    
    
    
    
    Stock option proceeds
    
    
    
    
    
    
    
    
    
    
    
    177Excess tax benefit from stock compensation
    
    
    
    
    
    
    
    
    
    
    
    2,885Option conversion payment
    
    
    
    
    
    
    (7,924
    )
    
    
    
    Financing fees paid
    
    
    
    
    
    
    (77,411
    )
    
    
    
    Dividends paid
    
    
    
    
    
    
    (7,252
    )
    
    
    
    (9,065
    )Net cash provided by (used in) financing activities:
    
    
    (7,250
    )
    
    
    2,888,088
    
    
    
    
    (6,003
    )Effect of foreign currency exchange rate changes on cash and cash equivalents
    
    
    2,256
    
    
    
    (1,344
    )
    
    
    
    1,025Net increase (decrease) in cash and cash equivalents
    
    
    (50,738
    )
    
    
    (257,934
    )
    
    
    
    9,599Cash and cash equivalents at beginning of period
    
    
    85,974
    
    
    
    350,476
    
    
    
    
    340,877Cash and cash equivalents at end of period
    
    $
    35,236
    
    
    $
    92,542
    
    
    
    $
    350,476Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    14,668
    
    
    $
    4,528
    
    
    
    $
    22,820Interest paid
    
    
    83,964
    
    
    
    10,280
    
    
    
    
    86
  5




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
  2. Acquisition of Claires Stores, Inc.
     6




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##### Table of Contents



Predecessor Entity
    
    
    Successor EntityMay 28,
    
    
    Transaction
    
    
    May 29,2007
    
    
    Adjustments
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    350,476
    
    
    $
    (186,053
    )
    
    $
    164,423Inventories
    
    
    133,156
    
    
    
    
    
    
    
    133,156Prepaid expenses
    
    
    29,792
    
    
    
    
    
    
    
    29,792Other current assets
    
    
    36,378
    
    
    
    
    
    
    
    36,378Total current assets
    
    
    549,802
    
    
    
    (186,053
    )
    
    
    363,749Property and equipment:Land and buildings
    
    
    17,272
    
    
    
    5,016
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    289,974
    
    
    
    (194,125
    )
    
    
    95,849Leasehold improvements
    
    
    305,469
    
    
    
    (120,083
    )
    
    
    185,386612,715
    
    
    
    (309,192
    )
    
    
    303,523Less accumulated depreciation and amortization
    
    
    (336,240
    )
    
    
    336,240
    
    
    
    276,475
    
    
    
    27,048
    
    
    
    303,523Intangible assets, net
    
    
    55,629
    
    
    
    753,424
    
    
    
    809,053Deferred debt issuance costs, net
    
    
    
    
    
    
    77,411
    
    
    
    77,411Other assets
    
    
    35,589
    
    
    
    27,570
    
    
    
    63,159Goodwill
    
    
    201,552
    
    
    
    1,638,181
    
    
    
    1,839,733292,770
    
    
    
    2,496,586
    
    
    
    2,789,356Total assets
    
    $
    1,119,047
    
    
    $
    2,337,581
    
    
    $
    3,456,628LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    87,854
    
    
    $
    (753
    )
    
    $
    87,101Current portion of long-term debt
    
    
    
    
    
    
    10,875
    
    
    
    10,875Income taxes payable
    
    
    11,355
    
    
    
    3,611
    
    
    
    14,966Accrued expenses and other liabilities
    
    
    170,444
    
    
    
    531
    
    
    
    170,975Total current liabilities
    
    
    269,653
    
    
    
    14,264
    
    
    
    283,917Long-term debt
    
    
    
    
    
    
    2,374,125
    
    
    
    2,374,125Deferred tax liability
    
    
    21,534
    
    
    
    131,279
    
    
    
    152,813Deferred rent expense
    
    
    26,808
    
    
    
    (26,808
    )
    
    
    Unfavorable lease obligations and other liabilities
    
    
    8,981
    
    
    
    41,117
    
    
    
    50,09857,323
    
    
    
    2,519,713
    
    
    
    2,577,036Stockholders equity
    
    
    792,071
    
    
    
    (196,396
    )
    
    
    595,675Total liabilities and stockholders equity
    
    $
    1,119,047
    
    
    $
    2,337,581
    
    
    $
    3,456,628
 7




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##### Table of Contents



Three Months
    
    Six MonthsEnded
    
    EndedAugust 4, 2007
    
    August 4, 2007Net sales
    
    $
    365,518
    
    
    $
    706,089Depreciation and amortization
    
    
    23,044
    
    
    
    45,627Transaction-related costs
    
    
    2,061
    
    
    
    2,061Operating income
    
    
    34,387
    
    
    
    67,670Interest expense, net
    
    
    54,465
    
    
    
    107,049Loss before income taxes
    
    
    (20,078
    )
    
    
    (39,379
    )Net loss
    
    
    (13,300
    )
    
    
    (21,773
    )
 3. Significant Accounting Policies
 Recent Accounting Pronouncements
     8




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##### Table of Contents



4. Segment Information
   Successor Entity
    
    
    Predecessor EntityThree Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    May 6, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    May 28, 2007
    
    
    May 28, 2007Net sales:North America
    
    $
    222,676
    
    
    $
    432,020
    
    
    $
    181,914
    
    
    $
    56,803
    
    
    $
    292,483Europe
    
    
    137,297
    
    
    
    254,956
    
    
    
    99,276
    
    
    
    27,525
    
    
    
    132,416Total net sales
    
    
    359,973
    
    
    
    686,976
    
    
    
    281,190
    
    
    
    84,328
    
    
    
    424,899Depreciation and amortization:North America
    
    
    14,776
    
    
    
    29,402
    
    
    
    9,111
    
    
    
    2,840
    
    
    
    12,823Europe
    
    
    7,785
    
    
    
    15,260
    
    
    
    4,054
    
    
    
    1,577
    
    
    
    6,829Total depreciation and amortization
    
    
    22,561
    
    
    
    44,662
    
    
    
    13,165
    
    
    
    4,417
    
    
    
    19,652Operating income (loss) for reportable segments
North America
    
    
    15,532
    
    
    
    19,229
    
    
    
    26,248
    
    
    
    6,072
    
    
    
    46,569Europe
    
    
    9,741
    
    
    
    8,189
    
    
    
    11,151
    
    
    
    (1,670
    )
    
    
    (766
    )Operating income (loss) for reportable segments
    
    
    25,273
    
    
    
    27,418
    
    
    
    37,399
    
    
    
    4,402
    
    
    
    45,803Transaction-related costs
    
    
    296
    
    
    
    6,264
    
    
    
    2,061
    
    
    
    69,186
    
    
    
    72,672Total consolidated operating income (loss)
    
    
    24,977
    
    
    
    21,154
    
    
    
    35,338
    
    
    
    (64,784
    )
    
    
    (26,869
    )Interest expense (income), net
    
    
    48,739
    
    
    
    97,396
    
    
    
    35,928
    
    
    
    (1,123
    )
    
    
    (4,876
    )Total consolidated loss before income taxes
    
    $
    (23,762
    )
    
    $
    (76,242
    )
    
    $
    (590
    )
    
    $
    (63,661
    )
    
    $
    (21,993
    )
   9




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##### Table of Contents



5. Long-Term Debt
  6. Stock Options and Stock-Based Compensation
  WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Life (Years)
    
    ValueOutstanding at beginning of period
    
    
    6,142,622
    
    
    $
    10.00
    
    
    
    6.4
    
    
    
    Options granted
    
    
    1,677,550
    
    
    $
    10.00
    
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    (1,395,240
    )
    
    $
    10.00
    
    
    
    
    
    
    
    Options expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    6,424,932
    
    
    $
    10.00
    
    
    
    6.0
    
    
    
    Exercisable at end of period
    
    
    1,359,824
    
    
    $
    10.00
    
    
    
    5.8
    
    
    
    
   7. Income Taxes
   8. Fair Value of Financial Instruments
  10




---



##### Table of Contents



Fair Value Measurements at August 2, 2008 UsingQuoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swaps
    
    $
    
    
    
    $
    (14,422
    )
    
    $
    
  9. Commitments and Contingencies
  10. Supplemental Financial Information
   11




---



##### Table of Contents



Condensed Consolidating Balance Sheet
August 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    80
    
    
    $
    (4,968
    )
    
    $
    40,124
    
    
    $
    
    
    
    $
    35,236Inventories
    
    
    
    
    
    
    82,141
    
    
    
    37,411
    
    
    
    
    
    
    
    119,552Prepaid expenses
    
    
    1,272
    
    
    
    14,684
    
    
    
    31,687
    
    
    
    
    
    
    
    47,643Other current assets
    
    
    98
    
    
    
    34,372
    
    
    
    13,121
    
    
    
    
    
    
    
    47,591Total current assets
    
    
    1,450
    
    
    
    126,229
    
    
    
    122,343
    
    
    
    
    
    
    
    250,022Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,200
    
    
    
    92,330
    
    
    
    45,916
    
    
    
    
    
    
    
    140,446Leasehold improvements
    
    
    1,630
    
    
    
    136,213
    
    
    
    89,707
    
    
    
    
    
    
    
    227,5503,830
    
    
    
    250,831
    
    
    
    135,623
    
    
    
    
    
    
    
    390,284Less accumulated depreciation and amortization
    
    
    (995
    )
    
    
    (56,866
    )
    
    
    (32,282
    )
    
    
    
    
    
    
    (90,143
    )2,835
    
    
    
    193,965
    
    
    
    103,341
    
    
    
    
    
    
    
    300,141Intercompany receivables
    
    
    
    
    
    
    
    
    
    
    34,360
    
    
    
    (34,360
    )
    
    
    Investment in subsidiaries
    
    
    2,476,386
    
    
    
    (562
    )
    
    
    
    
    
    
    (2,475,824
    )
    
    
    Intangible assets, net
    
    
    421,875
    
    
    
    20,986
    
    
    
    367,093
    
    
    
    
    
    
    
    809,954Deferred financing costs, net
    
    
    65,220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,220Other assets
    
    
    34,996
    
    
    
    1,595
    
    
    
    39,716
    
    
    
    
    
    
    
    76,307Goodwill
    
    
    
    
    
    
    1,409,809
    
    
    
    431,537
    
    
    
    
    
    
    
    1,841,3462,998,477
    
    
    
    1,431,828
    
    
    
    872,706
    
    
    
    (2,510,184
    )
    
    
    2,792,827Total assets
    
    $
    3,002,762
    
    
    $
    1,752,022
    
    
    $
    1,098,390
    
    
    $
    (2,510,184
    )
    
    $
    3,342,990LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    1,585
    
    
    $
    22,473
    
    
    $
    44,347
    
    
    $
    
    
    
    $
    68,405Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    
    
    
    
    6,063
    
    
    
    
    
    
    
    6,063Accrued interest payable
    
    
    22,555
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    22,565Accrued expenses and other liabilities
    
    
    23,219
    
    
    
    45,357
    
    
    
    51,630
    
    
    
    
    
    
    
    120,206Total current liabilities
    
    
    61,859
    
    
    
    67,830
    
    
    
    102,050
    
    
    
    
    
    
    
    231,739Intercompany payables
    
    
    9,115
    
    
    
    25,245
    
    
    
    
    
    
    
    (34,360
    )
    
    
    Long-term debt
    
    
    2,362,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,362,052Deferred tax liability
    
    
    
    
    
    
    96,567
    
    
    
    19,919
    
    
    
    
    
    
    
    116,486Deferred rent expense
    
    
    977
    
    
    
    9,156
    
    
    
    4,835
    
    
    
    
    
    
    
    14,968Unfavorable lease obligations and other liabilities
    
    
    
    
    
    
    42,585
    
    
    
    6,401
    
    
    
    
    
    
    
    48,9862,372,144
    
    
    
    173,553
    
    
    
    31,155
    
    
    
    (34,360
    )
    
    
    2,542,492Stockholders equity:Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    605,116
    
    
    
    1,445,651
    
    
    
    873,937
    
    
    
    (2,319,588
    )
    
    
    605,116Accumulated other comprehensive income, net of
tax
    
    
    15,503
    
    
    
    2,998
    
    
    
    26,173
    
    
    
    (29,171
    )
    
    
    15,503Retained earnings (deficit)
    
    
    (51,860
    )
    
    
    61,623
    
    
    
    65,073
    
    
    
    (126,696
    )
    
    
    (51,860
    )568,759
    
    
    
    1,510,639
    
    
    
    965,185
    
    
    
    (2,475,824
    )
    
    
    568,759Total liabilities and stockholders equity
    
    $
    3,002,762
    
    
    $
    1,752,022
    
    
    $
    1,098,390
    
    
    $
    (2,510,184
    )
    
    $
    3,342,990
 12




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##### Table of Contents



Condensed Consolidating Balance Sheet
February 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,835
    
    
    $
    1,892
    
    
    $
    58,247
    
    
    $
    
    
    
    $
    85,974Inventories
    
    
    
    
    
    
    84,952
    
    
    
    32,727
    
    
    
    
    
    
    
    117,679Prepaid expenses
    
    
    403
    
    
    
    15,264
    
    
    
    21,648
    
    
    
    
    
    
    
    37,315Other current assets
    
    
    100
    
    
    
    31,501
    
    
    
    6,057
    
    
    
    
    
    
    
    37,658Total current assets
    
    
    26,338
    
    
    
    133,609
    
    
    
    118,679
    
    
    
    
    
    
    
    278,626Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,050
    
    
    
    83,924
    
    
    
    44,156
    
    
    
    
    
    
    
    130,130Leasehold improvements
    
    
    1,628
    
    
    
    127,522
    
    
    
    82,013
    
    
    
    
    
    
    
    211,1633,678
    
    
    
    233,734
    
    
    
    126,169
    
    
    
    
    
    
    
    363,581Less accumulated depreciation and amortization
    
    
    (609
    )
    
    
    (34,615
    )
    
    
    (18,748
    )
    
    
    
    
    
    
    (53,972
    )3,069
    
    
    
    199,119
    
    
    
    107,421
    
    
    
    
    
    
    
    309,609Intercompany receivables
    
    
    20,198
    
    
    
    
    
    
    
    13
    
    
    
    (20,211
    )
    
    
    Investment in subsidiaries
    
    
    2,452,074
    
    
    
    5,764
    
    
    
    
    
    
    
    (2,457,838
    )
    
    
    Intangible assets, net
    
    
    423,000
    
    
    
    300
    
    
    
    353,830
    
    
    
    
    
    
    
    777,130Deferred financing costs, net
    
    
    70,511
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,511Other assets
    
    
    35,124
    
    
    
    1,269
    
    
    
    35,361
    
    
    
    
    
    
    
    71,754Goodwill
    
    
    
    
    
    
    1,401,959
    
    
    
    438,908
    
    
    
    
    
    
    
    1,840,8673,000,907
    
    
    
    1,409,292
    
    
    
    828,112
    
    
    
    (2,478,049
    )
    
    
    2,760,262Total assets
    
    $
    3,030,314
    
    
    $
    1,742,020
    
    
    $
    1,054,212
    
    
    $
    (2,478,049
    )
    
    $
    3,348,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    762
    
    
    $
    22,140
    
    
    $
    33,187
    
    
    $
    
    
    
    $
    56,089Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    (8,383
    )
    
    
    14,246
    
    
    
    6,328
    
    
    
    
    
    
    
    12,191Accrued interest payable
    
    
    19,534
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    19,536Accrued expenses and other liabilities
    
    
    34,194
    
    
    
    39,737
    
    
    
    43,145
    
    
    
    
    
    
    
    117,076Total current liabilities
    
    
    60,607
    
    
    
    76,123
    
    
    
    82,662
    
    
    
    
    
    
    
    219,392Intercompany payables
    
    
    
    
    
    
    20,211
    
    
    
    
    
    
    
    (20,211
    )
    
    
    Long-term debt
    
    
    2,363,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,363,250Deferred tax liability
    
    
    
    
    
    
    120,742
    
    
    
    18,764
    
    
    
    
    
    
    
    139,506Deferred rent expense
    
    
    1,257
    
    
    
    5,350
    
    
    
    3,965
    
    
    
    
    
    
    
    10,572Other liabilities
    
    
    
    
    
    
    10,577
    
    
    
    
    
    
    
    
    
    
    
    10,5772,364,507
    
    
    
    156,880
    
    
    
    22,729
    
    
    
    (20,211
    )
    
    
    2,523,905Stockholders equity:Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    601,201
    
    
    
    1,449,307
    
    
    
    878,145
    
    
    
    (2,327,452
    )
    
    
    601,201Accumulated other comprehensive income, net
of tax
    
    
    3,358
    
    
    
    2,959
    
    
    
    17,513
    
    
    
    (20,472
    )
    
    
    3,358Retained earnings
    
    
    641
    
    
    
    56,384
    
    
    
    53,161
    
    
    
    (109,545
    )
    
    
    641605,200
    
    
    
    1,509,017
    
    
    
    948,821
    
    
    
    (2,457,838
    )
    
    
    605,200Total liabilities and stockholders equity
    
    $
    3,030,314
    
    
    $
    1,742,020
    
    
    $
    1,054,212
    
    
    $
    (2,478,049
    )
    
    $
    3,348,497
 13




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##### Table of Contents



Successor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Three Months Ended August 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    383,145
    
    
    $
    153,234
    
    
    $
    (176,406
    )
    
    $
    359,973Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    283,759
    
    
    
    72,914
    
    
    
    (176,406
    )
    
    
    180,267Gross profit
    
    
    
    
    
    
    99,386
    
    
    
    80,320
    
    
    
    
    
    
    
    179,706Other expenses (income):Selling, general and administrative
    
    
    6,656
    
    
    
    67,158
    
    
    
    58,607
    
    
    
    
    
    
    
    132,421Depreciation and amortization
    
    
    751
    
    
    
    12,992
    
    
    
    8,818
    
    
    
    
    
    
    
    22,561Transaction-related costs
    
    
    6
    
    
    
    
    
    
    
    290
    
    
    
    
    
    
    
    296Other (income) expense
    
    
    (3,856
    )
    
    
    3,704
    
    
    
    (397
    )
    
    
    
    
    
    
    (549
    )3,557
    
    
    
    83,854
    
    
    
    67,318
    
    
    
    
    
    
    
    154,729Operating income (loss)
    
    
    (3,557
    )
    
    
    15,532
    
    
    
    13,002
    
    
    
    
    
    
    
    24,977Interest expense (income), net
    
    
    49,052
    
    
    
    (69
    )
    
    
    (244
    )
    
    
    
    
    
    
    48,739Income (loss) before income taxes
    
    
    (52,609
    )
    
    
    15,601
    
    
    
    13,246
    
    
    
    
    
    
    
    (23,762
    )Income tax expense (benefit)
    
    
    (16,023
    )
    
    
    8,947
    
    
    
    245
    
    
    
    
    
    
    
    (6,831
    )Income (loss) from continuing operations
    
    
    (36,586
    )
    
    
    6,654
    
    
    
    13,001
    
    
    
    
    
    
    
    (16,931
    )Equity in earnings of subsidiaries
    
    
    19,655
    
    
    
    1,727
    
    
    
    
    
    
    
    (21,382
    )
    
    
    Net income (loss)
    
    
    (16,931
    )
    
    
    8,381
    
    
    
    13,001
    
    
    
    (21,382
    )
    
    
    (16,931
    )Foreign currency translation and interest
rate swap adjustments
    
    
    2,831
    
    
    
    (17
    )
    
    
    768
    
    
    
    (751
    )
    
    
    2,831Comprehensive income (loss)
    
    $
    (14,100
    )
    
    $
    8,364
    
    
    $
    13,769
    
    
    $
    (22,133
    )
    
    $
    (14,100
    )
 Successor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Six Months Ended August 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    751,063
    
    
    $
    284,712
    
    
    $
    (348,799
    )
    
    $
    686,976Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    559,325
    
    
    
    141,723
    
    
    
    (348,799
    )
    
    
    352,249Gross profit
    
    
    
    
    
    
    191,738
    
    
    
    142,989
    
    
    
    
    
    
    
    334,727Other expenses (income):Selling, general and administrative
    
    
    16,861
    
    
    
    133,811
    
    
    
    113,084
    
    
    
    
    
    
    
    263,756Depreciation and amortization
    
    
    1,511
    
    
    
    25,913
    
    
    
    17,238
    
    
    
    
    
    
    
    44,662Transaction-related costs
    
    
    4,306
    
    
    
    
    
    
    
    1,958
    
    
    
    
    
    
    
    6,264Other (income) expense
    
    
    (9,157
    )
    
    
    8,332
    
    
    
    (284
    )
    
    
    
    
    
    
    (1,109
    )13,521
    
    
    
    168,056
    
    
    
    131,996
    
    
    
    
    
    
    
    313,573Operating income (loss)
    
    
    (13,521
    )
    
    
    23,682
    
    
    
    10,993
    
    
    
    
    
    
    
    21,154Interest expense (income), net
    
    
    98,219
    
    
    
    (254
    )
    
    
    (569
    )
    
    
    
    
    
    
    97,396Income (loss) before income taxes
    
    
    (111,740
    )
    
    
    23,936
    
    
    
    11,562
    
    
    
    
    
    
    
    (76,242
    )Income tax expense (benefit)
    
    
    (38,066
    )
    
    
    17,803
    
    
    
    (3,478
    )
    
    
    
    
    
    
    (23,741
    )Income (loss) from continuing operations
    
    
    (73,674
    )
    
    
    6,133
    
    
    
    15,040
    
    
    
    
    
    
    
    (52,501
    )Equity in earnings of subsidiaries
    
    
    21,173
    
    
    
    2,232
    
    
    
    
    
    
    
    (23,405
    )
    
    
    Net income (loss)
    
    
    (52,501
    )
    
    
    8,365
    
    
    
    15,040
    
    
    
    (23,405
    )
    
    
    (52,501
    )Foreign currency translation and interest
rate swap adjustments
    
    
    12,145
    
    
    
    39
    
    
    
    6,440
    
    
    
    (6,479
    )
    
    
    12,145Comprehensive income (loss)
    
    $
    (40,356
    )
    
    $
    8,404
    
    
    $
    21,480
    
    
    $
    (29,884
    )
    
    $
    (40,356
    )
 14




---



##### Table of Contents



Successor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income
For The Period May 29, 2007 Through August 4, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    309,471
    
    
    $
    112,334
    
    
    $
    (140,615
    )
    
    $
    281,190Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    225,448
    
    
    
    53,443
    
    
    
    (140,615
    )
    
    
    138,276Gross profit
    
    
    
    
    
    
    84,023
    
    
    
    58,891
    
    
    
    
    
    
    
    142,914Other expenses (income):Selling, general and administrative
    
    
    4,489
    
    
    
    49,347
    
    
    
    38,910
    
    
    
    
    
    
    
    92,746Depreciation and amortization
    
    
    1,052
    
    
    
    7,440
    
    
    
    4,673
    
    
    
    
    
    
    
    13,165Transaction-related costs
    
    
    1,042
    
    
    
    
    
    
    
    1,019
    
    
    
    
    
    
    
    2,061Other (income) expense
    
    
    (801
    )
    
    
    1,142
    
    
    
    (737
    )
    
    
    
    
    
    
    (396
    )5,782
    
    
    
    57,929
    
    
    
    43,865
    
    
    
    
    
    
    
    107,576Operating income (loss)
    
    
    (5,782
    )
    
    
    26,094
    
    
    
    15,026
    
    
    
    
    
    
    
    35,338Interest expense (income), net
    
    
    36,585
    
    
    
    (502
    )
    
    
    (155
    )
    
    
    
    
    
    
    35,928Income (loss) before income taxes
    
    
    (42,367
    )
    
    
    26,596
    
    
    
    15,181
    
    
    
    
    
    
    
    (590
    )Income tax expense (benefit)
    
    
    (11,358
    )
    
    
    9,857
    
    
    
    1,718
    
    
    
    
    
    
    
    217Income (loss) from continuing operations
    
    
    (31,009
    )
    
    
    16,739
    
    
    
    13,463
    
    
    
    
    
    
    
    (807
    )Equity in earnings of subsidiaries
    
    
    30,202
    
    
    
    2,243
    
    
    
    
    
    
    
    (32,445
    )
    
    
    Net income (loss)
    
    
    (807
    )
    
    
    18,982
    
    
    
    13,463
    
    
    
    (32,445
    )
    
    
    (807
    )Foreign currency translation adjustments
    
    
    3,745
    
    
    
    273
    
    
    
    5,157
    
    
    
    (5,430
    )
    
    
    3,745Comprehensive income
    
    $
    2,938
    
    
    $
    19,255
    
    
    $
    18,620
    
    
    $
    (37,875
    )
    
    $
    2,938
 Predecessor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Period May 6, 2007 Through May 28, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    98,740
    
    
    $
    31,096
    
    
    $
    (45,508
    )
    
    $
    84,328Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    74,509
    
    
    
    15,845
    
    
    
    (45,508
    )
    
    
    44,846Gross profit
    
    
    
    
    
    
    24,231
    
    
    
    15,251
    
    
    
    
    
    
    
    39,482Other expenses (income):Selling, general and administrative
    
    
    (1,011
    )
    
    
    18,054
    
    
    
    13,755
    
    
    
    
    
    
    
    30,798Depreciation and amortization
    
    
    68
    
    
    
    2,565
    
    
    
    1,784
    
    
    
    
    
    
    
    4,417Transaction-related costs
    
    
    69,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,186Other (income) expense
    
    
    (1,864
    )
    
    
    1,288
    
    
    
    441
    
    
    
    
    
    
    
    (135
    )66,379
    
    
    
    21,907
    
    
    
    15,980
    
    
    
    
    
    
    
    104,266Operating income (loss)
    
    
    (66,379
    )
    
    
    2,324
    
    
    
    (729
    )
    
    
    
    
    
    
    (64,784
    )Interest expense (income), net
    
    
    (599
    )
    
    
    (284
    )
    
    
    (240
    )
    
    
    
    
    
    
    (1,123
    )Income (loss) before income taxes
    
    
    (65,780
    )
    
    
    2,608
    
    
    
    (489
    )
    
    
    
    
    
    
    (63,661
    )Income tax expense (benefit)
    
    
    7,456
    
    
    
    980
    
    
    
    454
    
    
    
    
    
    
    
    8,890Income (loss) from continuing operations
    
    
    (73,236
    )
    
    
    1,628
    
    
    
    (943
    )
    
    
    
    
    
    
    (72,551
    )Equity in earnings of subsidiaries
    
    
    685
    
    
    
    735
    
    
    
    
    
    
    
    (1,420
    )
    
    
    Net income (loss)
    
    
    (72,551
    )
    
    
    2,363
    
    
    
    (943
    )
    
    
    (1,420
    )
    
    
    (72,551
    )Foreign currency translation adjustments
    
    
    (883
    )
    
    
    1,075
    
    
    
    (876
    )
    
    
    (199
    )
    
    
    (883
    )Comprehensive income (loss)
    
    $
    (73,434
    )
    
    $
    3,438
    
    
    $
    (1,819
    )
    
    $
    (1,619
    )
    
    $
    (73,434
    )
 15




---



##### Table of Contents



Predecessor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Period February 4, 2007 Through May 28, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    540,394
    
    
    $
    149,666
    
    
    $
    (265,161
    )
    
    $
    424,899Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    397,435
    
    
    
    74,164
    
    
    
    (265,161
    )
    
    
    206,438Gross profit
    
    
    
    
    
    
    142,959
    
    
    
    75,502
    
    
    
    
    
    
    
    218,461Other expenses (income):Selling, general and administrative
    
    
    7,021
    
    
    
    84,633
    
    
    
    62,828
    
    
    
    
    
    
    
    154,482Depreciation and amortization
    
    
    367
    
    
    
    11,504
    
    
    
    7,781
    
    
    
    
    
    
    
    19,652Transaction-related costs
    
    
    72,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,672Other income
    
    
    (8,054
    )
    
    
    5,926
    
    
    
    652
    
    
    
    
    
    
    
    (1,476
    )72,006
    
    
    
    102,063
    
    
    
    71,261
    
    
    
    
    
    
    
    245,330Operating income (loss)
    
    
    (72,006
    )
    
    
    40,896
    
    
    
    4,241
    
    
    
    
    
    
    
    (26,869
    )Interest expense (income), net
    
    
    (3,235
    )
    
    
    (376
    )
    
    
    (1,265
    )
    
    
    
    
    
    
    (4,876
    )Income (loss) before income taxes
    
    
    (68,771
    )
    
    
    41,272
    
    
    
    5,506
    
    
    
    
    
    
    
    (21,993
    )Income taxes
    
    
    8,369
    
    
    
    15,361
    
    
    
    (1,951
    )
    
    
    
    
    
    
    21,779Income (loss) from continuing operations
    
    
    (77,140
    )
    
    
    25,911
    
    
    
    7,457
    
    
    
    
    
    
    
    (43,772
    )Equity in earnings of subsidiaries
    
    
    33,368
    
    
    
    2,775
    
    
    
    
    
    
    
    (36,143
    )
    
    
    Net income (loss)
    
    
    (43,772
    )
    
    
    28,686
    
    
    
    7,457
    
    
    
    (36,143
    )
    
    
    (43,772
    )Foreign currency translation adjustments
    
    
    8,440
    
    
    
    2,861
    
    
    
    8,478
    
    
    
    (11,339
    )
    
    
    8,440Comprehensive income (loss)
    
    $
    (35,332
    )
    
    $
    31,547
    
    
    $
    15,935
    
    
    $
    (47,482
    )
    
    $
    (35,332
    )
 Successor Entity
Condensed Consolidating Statement of Cash Flows
For The Six Months Ended August 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (52,501
    )
    
    $
    8,365
    
    
    $
    15,040
    
    
    $
    (23,405
    )
    
    $
    (52,501
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (21,173
    )
    
    
    (2,232
    )
    
    
    
    
    
    
    23,405
    
    
    
    Depreciation and amortization
    
    
    1,511
    
    
    
    25,913
    
    
    
    17,238
    
    
    
    
    
    
    
    44,662Amortization of lease rights and other assets
    
    
    
    
    
    
    29
    
    
    
    984
    
    
    
    
    
    
    
    1,013Amortization of debt issuance costs
    
    
    5,291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,291Payment in kind interest expense
    
    
    6,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,052Net accretion of favorable (unfavorable) lease obligations
    
    
    
    
    
    
    (760
    )
    
    
    217
    
    
    
    
    
    
    
    (543
    )(Gain) loss on sale / retirement of property and
equipment and other assets, net
    
    
    
    
    
    
    4
    
    
    
    (179
    )
    
    
    
    
    
    
    (175
    )Stock compensation expense
    
    
    2,860
    
    
    
    
    
    
    
    1,055
    
    
    
    
    
    
    
    3,915(Increase) decrease in:Inventories
    
    
    
    
    
    
    2,811
    
    
    
    (4,651
    )
    
    
    
    
    
    
    (1,840
    )Prepaid expenses
    
    
    (868
    )
    
    
    580
    
    
    
    (9,992
    )
    
    
    
    
    
    
    (10,280
    )Other assets
    
    
    101
    
    
    
    (2,584
    )
    
    
    (3,613
    )
    
    
    
    
    
    
    (6,096
    )Increase (decrease) in:Trade accounts payable
    
    
    823
    
    
    
    333
    
    
    
    11,148
    
    
    
    
    
    
    
    12,304Income taxes payable
    
    
    8,383
    
    
    
    (18,054
    )
    
    
    (6,481
    )
    
    
    
    
    
    
    (16,152
    )Accrued expenses and other liabilities
    
    
    (2,081
    )
    
    
    6,094
    
    
    
    8,562
    
    
    
    
    
    
    
    12,575Accrued interest payable
    
    
    3,021
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    3,029Deferred income taxes
    
    
    
    
    
    
    (18,490
    )
    
    
    (783
    )
    
    
    
    
    
    
    (19,273
    )Deferred rent expense
    
    
    17
    
    
    
    3,806
    
    
    
    853
    
    
    
    
    
    
    
    4,676Net cash provided by (used in) operating activities
    
    
    (48,564
    )
    
    
    5,815
    
    
    
    29,406
    
    
    
    
    
    
    
    (13,343
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (152
    )
    
    
    (20,699
    )
    
    
    (10,775
    )
    
    
    
    
    
    
    (31,626
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (82
    )
    
    
    (693
    )
    
    
    
    
    
    
    (775
    )Net cash used in investing activities
    
    
    (152
    )
    
    
    (20,781
    )
    
    
    (11,468
    )
    
    
    
    
    
    
    (32,401
    )Cash flows from financing activities:Credit facility payments
    
    
    (7,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,250
    )Intercompany activity, net
    
    
    29,233
    
    
    
    8,231
    
    
    
    (37,464
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    21,983
    
    
    
    8,231
    
    
    
    (37,464
    )
    
    
    
    
    
    
    (7,250
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    978
    
    
    
    (125
    )
    
    
    1,403
    
    
    
    
    
    
    
    2,256Net decrease in cash and cash equivalents
    
    
    (25,755
    )
    
    
    (6,860
    )
    
    
    (18,123
    )
    
    
    
    
    
    
    (50,738
    )Cash and cash equivalents at beginning of period
    
    
    25,835
    
    
    
    1,892
    
    
    
    58,247
    
    
    
    
    
    
    
    85,974Cash and cash equivalents at end of period
    
    $
    80
    
    
    $
    (4,968
    )
    
    $
    40,124
    
    
    $
    
    
    
    $
    35,236




---



##### Table of Contents



Successor Entity
Condensed Consolidating Statement of Cash Flows
For The Period May 29, 2007 Through August 4, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (807
    )
    
    $
    18,982
    
    
    $
    13,463
    
    
    $
    (32,445
    )
    
    $
    (807
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (30,202
    )
    
    
    (2,243
    )
    
    
    
    
    
    
    32,445
    
    
    
    Depreciation and amortization
    
    
    1,052
    
    
    
    7,440
    
    
    
    4,673
    
    
    
    
    
    
    
    13,165Amortization of lease rights and other assets
    
    
    
    
    
    
    10
    
    
    
    238
    
    
    
    
    
    
    
    248Amortization of debt issuance costs
    
    
    1,730
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,730Loss on retirement of property and equipment, net
    
    
    
    
    
    
    271
    
    
    
    190
    
    
    
    
    
    
    
    461Stock compensation expense
    
    
    888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888(Increase) decrease in:Inventories
    
    
    
    
    
    
    6,506
    
    
    
    4,305
    
    
    
    
    
    
    
    10,811Prepaid expenses
    
    
    (49
    )
    
    
    (12,455
    )
    
    
    (3,135
    )
    
    
    
    
    
    
    (15,639
    )Other assets
    
    
    11,149
    
    
    
    (1,081
    )
    
    
    (40,322
    )
    
    
    
    
    
    
    (30,254
    )Increase (decrease) in:Trade accounts payable
    
    
    (752
    )
    
    
    (6,305
    )
    
    
    (5,084
    )
    
    
    
    
    
    
    (12,141
    )Income taxes payable
    
    
    4,218
    
    
    
    (4,718
    )
    
    
    (2,661
    )
    
    
    
    
    
    
    (3,161
    )Accrued expenses and other liabilities
    
    
    (86,418
    )
    
    
    5,492
    
    
    
    8,246
    
    
    
    
    
    
    
    (72,680
    )Accrued interest payable
    
    
    24,854
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    24,866Deferred income taxes
    
    
    
    
    
    
    (1,816
    )
    
    
    1,431
    
    
    
    
    
    
    
    (385
    )Deferred rent expense
    
    
    
    
    
    
    896
    
    
    
    143
    
    
    
    
    
    
    
    1,039Net cash
provided by (used in) operating activities
    
    
    (74,337
    )
    
    
    10,979
    
    
    
    (18,501
    )
    
    
    
    
    
    
    (81,859
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (32
    )
    
    
    (12,537
    )
    
    
    (6,341
    )
    
    
    
    
    
    
    (18,910
    )Acquisition of predecessor entity
    
    
    (2,435,516
    )
    
    
    (458,003
    )
    
    
    (146,850
    )
    
    
    
    
    
    
    (3,040,369
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (32
    )
    
    
    (3,508
    )
    
    
    
    
    
    
    (3,540
    )Net cash used in investing activities
    
    
    (2,435,548
    )
    
    
    (470,572
    )
    
    
    (156,699
    )
    
    
    
    
    
    
    (3,062,819
    )Cash flows from financing activities:Credit facility proceeds
    
    
    1,450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,450,000Note offerings proceeds
    
    
    935,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935,000Capital contribution
    
    
    595,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,675Option conversion payment
    
    
    (7,924
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,924
    )Financing fees paid
    
    
    (77,411
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,411
    )Dividends paid
    
    
    (7,252
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,252
    )Intercompany activity, net
    
    
    (538,453
    )
    
    
    332,783
    
    
    
    205,670
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    2,349,635
    
    
    
    332,783
    
    
    
    205,670
    
    
    
    
    
    
    
    2,888,088Effect of foreign currency exchange rate changes on
cash and cash equivalents
    
    
    (1,411
    )
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    (1,344
    )Net increase (decrease) in cash and cash equivalents
    
    
    (161,661
    )
    
    
    (126,810
    )
    
    
    30,537
    
    
    
    
    
    
    
    (257,934
    )Cash and cash equivalents at beginning of period
    
    
    188,407
    
    
    
    131,210
    
    
    
    30,859
    
    
    
    
    
    
    
    350,476Cash and cash equivalents at end of period
    
    $
    26,746
    
    
    $
    4,400
    
    
    $
    61,396
    
    
    
    
    
    
    $
    92,542
 17




---



##### Table of Contents



Predecessor Entity
Condensed Consolidating Statement of Cash Flows
For The Period February 4, 2007 Through May 28, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (43,772
    )
    
    $
    28,686
    
    
    $
    7,457
    
    
    $
    (36,143
    )
    
    $
    (43,772
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (33,368
    )
    
    
    (2,775
    )
    
    
    
    
    
    
    36,143
    
    
    
    Depreciation and amortization
    
    
    367
    
    
    
    11,504
    
    
    
    7,781
    
    
    
    
    
    
    
    19,652Amortization of lease rights and other assets
    
    
    
    
    
    
    39
    
    
    
    583
    
    
    
    
    
    
    
    622Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    73Loss on retirement of property and equipment, net
    
    
    
    
    
    
    873
    
    
    
    328
    
    
    
    
    
    
    
    1,201Excess tax benefit from stock compensation
    
    
    (2,885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,885
    )Stock compensation expense
    
    
    8,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,946(Increase) decrease in:Inventories
    
    
    
    
    
    
    (9,551
    )
    
    
    (1,381
    )
    
    
    
    
    
    
    (10,932
    )Prepaid expenses
    
    
    465
    
    
    
    11,266
    
    
    
    (5,342
    )
    
    
    
    
    
    
    6,389Other assets
    
    
    (941
    )
    
    
    1,164
    
    
    
    (3,164
    )
    
    
    
    
    
    
    (2,941
    )Increase (decrease) in:Trade accounts payable
    
    
    (90
    )
    
    
    7,490
    
    
    
    23,802
    
    
    
    
    
    
    
    31,202Income taxes payable
    
    
    3,754
    
    
    
    (9,903
    )
    
    
    (5,583
    )
    
    
    
    
    
    
    (11,732
    )Accrued expenses and other liabilities
    
    
    54,909
    
    
    
    (8,666
    )
    
    
    (6,516
    )
    
    
    
    
    
    
    39,727Deferred income taxes
    
    
    
    
    
    
    7,015
    
    
    
    (292
    )
    
    
    
    
    
    
    6,723Deferred rent expense
    
    
    
    
    
    
    634
    
    
    
    (261
    )
    
    
    
    
    
    
    373Net cash provided by (used in) operating activities
    
    
    (12,615
    )
    
    
    37,776
    
    
    
    17,485
    
    
    
    
    
    
    
    42,646Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (171
    )
    
    
    (18,822
    )
    
    
    (8,995
    )
    
    
    
    
    
    
    (27,988
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (20
    )
    
    
    (61
    )
    
    
    
    
    
    
    (81
    )Net cash used in investing activities
    
    
    (171
    )
    
    
    (18,842
    )
    
    
    (9,056
    )
    
    
    
    
    
    
    (28,069
    )Cash flows from financing activities:Stock option proceeds
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Excess tax benefit from stock compensation
    
    
    2,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,885Dividends paid
    
    
    (9,065
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,065
    )Intercompany activity, net
    
    
    13,118
    
    
    
    96,485
    
    
    
    (109,603
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    7,115
    
    
    
    96,485
    
    
    
    (109,603
    )
    
    
    
    
    
    
    (6,003
    )Effect of foreign currency exchange rate changes on
cash and cash equivalents
    
    
    (20
    )
    
    
    (16
    )
    
    
    1,061
    
    
    
    
    
    
    
    1,025Net increase (decrease) in cash and cash equivalents
    
    
    (5,691
    )
    
    
    115,403
    
    
    
    (100,113
    )
    
    
    
    
    
    
    9,599Cash and cash equivalents at beginning of period
    
    
    194,098
    
    
    
    15,807
    
    
    
    130,972
    
    
    
    
    
    
    
    340,877Cash and cash equivalents at end of period
    
    $
    188,407
    
    
    $
    131,210
    
    
    $
    30,859
    
    
    $
    
    
    
    $
    350,476
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   18




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##### Table of Contents



Business Overview
      
    
    Jewelry (53.6% of Fiscal 2007 net sales)  Which includes earrings, including ear
piercing studs, necklaces, bracelets and rings; and
    
    Accessories (46.4% of Fiscal 2007 net sales)  Which includes hairgoods, handbags,
small leather goods, and other fashion accessory classifications, as well as cosmetics.
    19




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##### Table of Contents



Consolidated Results of Operations
   Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    359,973
    
    
    $
    365,518
    
    
    $
    281,190
    
    
    $
    84,328Increase (decrease) in same store sales
    
    
    (5.8
    %)
    
    
    (1.7
    %)
    
    
    (1.7
    %)
    
    
    (1.8
    %)Gross profit percentage
    
    
    49.9
    %
    
    
    49.9
    %
    
    
    50.8
    %
    
    
    46.8
    %Selling, general and administrative expenses as a
percentage of net sales
    
    
    36.8
    %
    
    
    33.8
    %
    
    
    33.0
    %
    
    
    36.5
    %Depreciation and amortization as a percentage of net
sales
    
    
    6.3
    %
    
    
    4.8
    %
    
    
    4.7
    %
    
    
    5.2
    %Transaction-related costs as a percentage of net sales
    
    
    0.1
    %
    
    
    19.5
    %
    
    
    0.7
    %
    
    
    82.0
    %Operating income (loss)
    
    $
    24,977
    
    
    $
    (29,446
    )
    
    $
    35,338
    
    
    $
    (64,784
    )Net loss
    
    $
    (16,931
    )
    
    $
    (73,358
    )
    
    $
    (807
    )
    
    $
    (72,551
    )Number of stores at the end of the period (1)
    
    
    3,053
    
    
    
    3,016
    
    
    
    3,016
    
    
    
    3,003
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    686,976
    
    
    $
    706,089
    
    
    $
    281,190
    
    
    $
    424,899Increase (decrease) in same store sales
    
    
    (7.0
    %)
    
    
    (0.3
    %)
    
    
    (1.7
    %)
    
    
    0.5
    %Gross profit percentage
    
    
    48.7
    %
    
    
    51.2
    %
    
    
    50.8
    %
    
    
    51.4
    %Selling, general and administrative expenses as a
percentage of net sales
    
    
    38.4
    %
    
    
    35.0
    %
    
    
    33.0
    %
    
    
    36.4
    %Depreciation and amortization as a percentage of net
sales
    
    
    6.5
    %
    
    
    4.6
    %
    
    
    4.7
    %
    
    
    4.6
    %Transaction-related costs as a percentage of net sales
    
    
    0.9
    %
    
    
    10.6
    %
    
    
    0.7
    %
    
    
    17.1
    %Operating income (loss)
    
    $
    21,154
    
    
    $
    8,469
    
    
    $
    35,338
    
    
    $
    (26,869
    )Net loss
    
    $
    (52,501
    )
    
    $
    (44,579
    )
    
    $
    (807
    )
    
    $
    (43,772
    )Number of stores at the end of the period (1)
    
    
    3,053
    
    
    
    3,016
    
    
    
    3,016
    
    
    
    3,003
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. 20




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##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    53.9
    
    
    
    56.0
    
    
    
    55.7
    
    
    
    56.8Accessories
    
    
    46.1
    
    
    
    44.0
    
    
    
    44.3
    
    
    
    43.2100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    54.4
    
    
    
    55.8
    
    
    
    55.7
    
    
    
    55.8Accessories
    
    
    45.6
    
    
    
    44.2
    
    
    
    44.3
    
    
    
    44.2100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
   21




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##### Table of Contents



22




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##### Table of Contents



Segment Operations
  North America
  Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    222,676
    
    
    $
    238,717
    
    
    $
    181,914
    
    
    $
    56,803Increase (decrease) in same store sales
    
    
    (8.1
    %)
    
    
    (1.4
    %)
    
    
    (1.5
    %)
    
    
    (1.4
    %)Gross profit percentage
    
    
    48.9
    %
    
    
    50.1
    %
    
    
    50.9
    %
    
    
    47.5
    %Number of stores at the end of the period (1)
    
    
    2,142
    
    
    
    2,133
    
    
    
    2,133
    
    
    
    2,124
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    432,020
    
    
    $
    474,397
    
    
    $
    181,914
    
    
    $
    292,483Increase (decrease) in same store sales
    
    
    (10.2
    %)
    
    
    0.3
    %
    
    
    (1.5
    %)
    
    
    1.3
    %Gross profit percentage
    
    
    48.3
    %
    
    
    52.2
    %
    
    
    50.9
    %
    
    
    53.1
    %Number of stores at the end of the period (1)
    
    
    2,142
    
    
    
    2,133
    
    
    
    2,133
    
    
    
    2,124
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. 23




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##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    59.5
    
    
    
    59.7
    
    
    
    59.4
    
    
    
    60.6Accessories
    
    
    40.5
    
    
    
    40.3
    
    
    
    40.6
    
    
    
    39.4100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    59.9
    
    
    
    59.4
    
    
    
    59.4
    
    
    
    59.4Accessories
    
    
    40.1
    
    
    
    40.6
    
    
    
    40.6
    
    
    
    40.6100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 24




---



##### Table of Contents



Europe
  Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    137,297
    
    
    $
    126,801
    
    
    $
    99,276
    
    
    $
    27,525Increase (decrease) in same store sales
    
    
    (1.7
    %)
    
    
    (2.2
    %)
    
    
    (2.1
    %)
    
    
    (2.6
    %)Gross profit percentage
    
    
    51.6
    %
    
    
    49.6
    %
    
    
    50.7
    %
    
    
    45.5
    %Number of stores at the end of the period (1)
    
    
    911
    
    
    
    883
    
    
    
    883
    
    
    
    879
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Net sales
    
    $
    254,956
    
    
    $
    231,692
    
    
    $
    99,276
    
    
    $
    132,416Increase (decrease) in same store sales
    
    
    (1.0
    %)
    
    
    (1.5
    %)
    
    
    (2.1
    %)
    
    
    (1.2
    %)Gross profit percentage
    
    
    49.5
    %
    
    
    49.1
    %
    
    
    50.7
    %
    
    
    47.8
    %Number of stores at the end of the period (1)
    
    
    911
    
    
    
    883
    
    
    
    883
    
    
    
    879
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores.     25




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##### Table of Contents



Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntityThree Months
    
    
    Three Months
    
    
    May 29, 2007
    
    
    May 6, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    44.9
    
    
    
    49.1
    
    
    
    48.9
    
    
    
    49.5Accessories
    
    
    55.1
    
    
    
    50.9
    
    
    
    51.1
    
    
    
    50.5100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    Through% of Total
    
    August 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Jewelry
    
    
    44.9
    
    
    
    48.3
    
    
    
    48.9
    
    
    
    47.9Accessories
    
    
    55.1
    
    
    
    51.7
    
    
    
    51.1
    
    
    
    52.1100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Analysis of Consolidated Financial Condition
  Successor
    
    
    
    
    
    
    Successor
    
    
    PredecessorEntity
    
    
    Combined
    
    
    Entity
    
    
    EntitySix Months
    
    
    Six Months
    
    
    May 29, 2007
    
    
    February 4, 2007Ended
    
    
    Ended
    
    
    Through
    
    
    ThroughAugust 2, 2008
    
    
    August 4, 2007
    
    
    August 4, 2007
    
    
    May 28, 2007Operating activities
    
    $
    (13,343
    )
    
    $
    (39,213
    )
    
    $
    (81,859
    )
    
    $
    42,646Investing activities
    
    
    (32,401
    )
    
    
    (3,090,888
    )
    
    
    (3,062,819
    )
    
    
    (28,069
    )Financing activities
    
    
    (7,250
    )
    
    
    2,882,085
    
    
    
    2,888,088
    
    
    
    (6,003
    )
   26




---



##### Table of Contents



Critical Accounting Policies and Estimates
  27




---



##### Table of Contents



Recent Accounting Pronouncements
      Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  28




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency
    29




---



##### Table of Contents



Interest Rates
   
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
     30




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 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.
 31




---



##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.September 12, 2008
    By:
    /s/Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer)September 12, 2008
    By:
    /s/J. Per BrodinJ. Per Brodin, Senior Vice President and ChiefFinancial Officer (principal financial and
accounting officer) 32




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    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.
 33