##### 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 30, 2010
 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.)
 2400 West Central Road,Hoffman Estates, Illinois
    
    60192(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (847) 765-1100
 þ o
 o 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 Statements
    
    3Unaudited Condensed Consolidated Balance Sheets as of October
30, 2010 and January 30, 2010
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Nine Months Ended
October 30, 2010 and October 31, 2009
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended October 30, 2010 and October 31, 2009
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    19Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    29Item 4. Controls and Procedures
    
    30PART II. OTHER INFORMATIONItem 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
    
    37EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 October 30, 2010
    
    
    January 30, 2010(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    154,055
    
    
    $
    198,708Inventories
    
    
    160,247
    
    
    
    110,338Prepaid expenses
    
    
    32,396
    
    
    
    32,873Other current assets
    
    
    27,278
    
    
    
    28,236Total current assets
    
    
    373,976
    
    
    
    370,155Property and equipment:Land and building
    
    
    
    
    
    
    19,318Furniture, fixtures and equipment
    
    
    177,919
    
    
    
    162,602Leasehold improvements
    
    
    242,020
    
    
    
    228,503419,939
    
    
    
    410,423Less accumulated depreciation and amortization
    
    
    (221,219
    )
    
    
    (182,439
    )198,720
    
    
    
    227,984Leased property under capital leases:Land and building
    
    
    18,055
    
    
    
    Less accumulated depreciation and amortization
    
    
    (677
    )
    
    
    17,378
    
    
    
    Intangible assets, net of accumulated amortization of $40,916 and
$32,532, respectively
    
    
    573,389
    
    
    
    580,027Deferred financing costs, net of accumulated amortization of $39,160
and $29,949, respectively
    
    
    38,430
    
    
    
    47,641Other assets
    
    
    43,822
    
    
    
    58,242Goodwill
    
    
    1,550,056
    
    
    
    1,550,0562,205,697
    
    
    
    2,235,966Total assets
    
    $
    2,795,771
    
    
    $
    2,834,105LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Trade accounts payable
    
    $
    64,547
    
    
    $
    45,660Current portion of long-term debt
    
    
    14,500
    
    
    
    14,500Income taxes payable
    
    
    8,321
    
    
    
    10,272Accrued interest payable
    
    
    27,032
    
    
    
    14,644Accrued expenses and other current liabilities
    
    
    104,465
    
    
    
    96,436Total current liabilities
    
    
    218,865
    
    
    
    181,512Long-term debt
    
    
    2,235,384
    
    
    
    2,313,378Revolving credit facility
    
    
    194,000
    
    
    
    194,000Obligations under capital leases
    
    
    17,290
    
    
    
    Deferred tax liability
    
    
    122,075
    
    
    
    122,145Deferred rent expense
    
    
    25,205
    
    
    
    22,082Unfavorable lease obligations and other long-term liabilities
    
    
    30,837
    
    
    
    35,6302,624,791
    
    
    
    2,687,235Commitments and contingenciesStockholders deficit:Common stock par value $0.001 per share; authorized 1,000 shares;
issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    619,675
    
    
    
    616,086Accumulated other comprehensive income, net of tax
    
    
    2,791
    
    
    
    2,625Retained deficit
    
    
    (670,351
    )
    
    
    (653,353
    )(47,885
    )
    
    
    (34,642
    )Total liabilities and stockholders deficit
    
    $
    2,795,771
    
    
    $
    2,834,105
  3




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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 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Net sales
    
    $
    348,175
    
    
    $
    324,404
    
    
    $
    1,004,485
    
    
    $
    931,698Cost of sales, occupancy and buying
expenses
    
    
    167,573
    
    
    
    159,400
    
    
    
    485,544
    
    
    
    470,895Gross profit
    
    
    180,602
    
    
    
    165,004
    
    
    
    518,941
    
    
    
    460,803Other expenses:Selling, general and administrative
    
    
    123,432
    
    
    
    115,823
    
    
    
    366,493
    
    
    
    332,877Depreciation and amortization
    
    
    16,106
    
    
    
    17,327
    
    
    
    48,328
    
    
    
    54,185Severance and transaction-related costs
    
    
    121
    
    
    
    32
    
    
    
    435
    
    
    
    406Other expense (income), net
    
    
    (553
    )
    
    
    (874
    )
    
    
    964
    
    
    
    (1,182
    )139,106
    
    
    
    132,308
    
    
    
    416,220
    
    
    
    386,286Operating income
    
    
    41,496
    
    
    
    32,696
    
    
    
    102,721
    
    
    
    74,517Gain on early debt extinguishment
    
    
    2,652
    
    
    
    16,096
    
    
    
    13,388
    
    
    
    33,200Impairment of equity investment
    
    
    
    
    
    
    
    
    
    
    6,030
    
    
    
    Interest expense, net
    
    
    37,132
    
    
    
    43,716
    
    
    
    120,468
    
    
    
    134,279Income (loss) before income tax expense
    
    
    7,016
    
    
    
    5,076
    
    
    
    (10,389
    )
    
    
    (26,562
    )Income tax expense
    
    
    3,369
    
    
    
    2,187
    
    
    
    6,609
    
    
    
    3,305Net income (loss)
    
    $
    3,647
    
    
    $
    2,889
    
    
    $
    (16,998
    )
    
    $
    (29,867
    )Net income (loss)
    
    $
    3,647
    
    
    $
    2,889
    
    
    $
    (16,998
    )
    
    $
    (29,867
    )Foreign currency translation and interest
rate
swap adjustments, net of tax
    
    
    9,747
    
    
    
    4,851
    
    
    
    9,738
    
    
    
    30,450Reclassification of foreign currency
translation adjustments in net loss
    
    
    
    
    
    
    
    
    
    
    (9,572
    )
    
    
    Comprehensive income (loss)
    
    $
    13,394
    
    
    $
    7,740
    
    
    $
    (16,832
    )
    
    $
    583
  4




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CLAIRES STORES, INC. AND SUBSIDIARIES


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009Cash flows from operating activities:Net loss
    
    $
    (16,998
    )
    
    $
    (29,867
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    48,328
    
    
    
    54,185Impairment
    
    
    6,030
    
    
    
    Amortization of lease rights and other assets
    
    
    2,246
    
    
    
    1,513Amortization of debt issuance costs
    
    
    7,507
    
    
    
    7,845Payment in kind interest expense
    
    
    27,837
    
    
    
    29,415Net unfavorable accretion of lease obligations
    
    
    (1,236
    )
    
    
    (1,594
    )Loss on sale/retirement of property and equipment, net
    
    
    632
    
    
    
    39Gain on early debt extinguishment
    
    
    (13,388
    )
    
    
    (33,200
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    (598
    )Stock compensation expense
    
    
    3,589
    
    
    
    4,332(Increase) decrease in:Inventories
    
    
    (48,463
    )
    
    
    (30,915
    )Prepaid expenses
    
    
    1,698
    
    
    
    (5,193
    )Other assets
    
    
    (3,251
    )
    
    
    (5,567
    )Increase (decrease) in:Trade accounts payable
    
    
    16,505
    
    
    
    9,945Income taxes payable
    
    
    313
    
    
    
    1,749Accrued interest payable
    
    
    12,389
    
    
    
    15,121Accrued expenses and other liabilities
    
    
    12,877
    
    
    
    (954
    )Deferred income taxes
    
    
    512
    
    
    
    1,578Deferred rent expense
    
    
    2,957
    
    
    
    2,895Net cash provided by operating activities
    
    
    60,084
    
    
    
    20,729Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (29,803
    )
    
    
    (17,675
    )Acquisition of intangible assets/lease rights
    
    
    (919
    )
    
    
    (484
    )Proceeds from sale of intangible assets/lease rights
    
    
    
    
    
    
    2,154Proceeds from sale of property
    
    
    16,765
    
    
    
    Net cash used in investing activities
    
    
    (13,957
    )
    
    
    (16,005
    )Cash flows from financing activities:Credit facility payments
    
    
    (10,875
    )
    
    
    (10,875
    )Note purchases
    
    
    (79,865
    )
    
    
    (36,521
    )Principal payments on capital leases
    
    
    (765
    )
    
    
    Net cash used in financing activities
    
    
    (91,505
    )
    
    
    (47,396
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    725
    
    
    
    3,257Net decrease in cash and cash equivalents
    
    
    (44,653
    )
    
    
    (39,415
    )Cash and cash equivalents at beginning of period
    
    
    198,708
    
    
    
    204,574Cash and cash equivalents at end of period
    
    $
    154,055
    
    
    $
    165,159Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    5,095
    
    
    $
    2,719Interest paid
    
    
    72,997
    
    
    
    81,927Property acquired under capital lease
    
    
    18,055
    
    
    
    
  5




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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
  Capital Leases
  6




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3. Segment Information
   Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Net sales:North America
    
    $
    220,672
    
    
    $
    199,867
    
    
    $
    643,358
    
    
    $
    589,476Europe
    
    
    127,503
    
    
    
    124,537
    
    
    
    361,127
    
    
    
    342,222Total net sales
    
    
    348,175
    
    
    
    324,404
    
    
    
    1,004,485
    
    
    
    931,698Depreciation and amortization:North America
    
    
    10,344
    
    
    
    11,230
    
    
    
    31,253
    
    
    
    36,479Europe
    
    
    5,762
    
    
    
    6,097
    
    
    
    17,075
    
    
    
    17,706Total depreciation and amortization
    
    
    16,106
    
    
    
    17,327
    
    
    
    48,328
    
    
    
    54,185Operating income for reportable segments:North America
    
    
    28,449
    
    
    
    15,459
    
    
    
    72,220
    
    
    
    44,251Europe
    
    
    13,168
    
    
    
    17,269
    
    
    
    30,936
    
    
    
    30,672Total operating income for reportable
segments
    
    
    41,617
    
    
    
    32,728
    
    
    
    103,156
    
    
    
    74,923Severance and transaction-related costs
    
    
    121
    
    
    
    32
    
    
    
    435
    
    
    
    406Net consolidated operating income
    
    
    41,496
    
    
    
    32,696
    
    
    
    102,721
    
    
    
    74,517Gain on early debt extinguishment
    
    
    2,652
    
    
    
    16,096
    
    
    
    13,388
    
    
    
    33,200Impairment of equity investment
    
    
    
    
    
    
    
    
    
    
    6,030
    
    
    
    Interest expense, net
    
    
    37,132
    
    
    
    43,716
    
    
    
    120,468
    
    
    
    134,279Net consolidated income (loss) before
income tax expense
    
    $
    7,016
    
    
    $
    5,076
    
    
    $
    (10,389
    )
    
    $
    (26,562
    )
 7




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##### Table of Contents



4. Debt
 Capital Leases
  Note Purchases
  Three Months Ended
    
    
    Nine Months EndedOctober 30, 2010
    
    

October 30, 2010Principal
    
    
    Purchase
    
    
    Principal
    
    
    PurchaseNote Purchased
    
    Amount
    
    
    Price
    
    
    Amount
    
    
    PriceSenior Notes
    
    $
    14,000
    
    
    $
    12,268
    
    
    $
    14,000
    
    
    $
    12,268Senior Toggle Notes
    
    
    9,550
    
    
    
    8,486
    
    
    
    57,173
    
    
    
    49,798Senior Subordinated Notes
    
    
    
    
    
    
    
    
    
    
    22,625
    
    
    
    17,799$
    23,550
    
    
    $
    20,754
    
    
    $
    93,798
    
    
    $
    79,865
 Three Months Ended
    
    
    Nine Months EndedOctober 31, 2009
    
    
    October 31, 2009Principal
    
    
    Purchase
    
    
    Principal
    
    
    PurchaseNote Purchased
    
    Amount
    
    
    Price
    
    
    Amount
    
    
    PriceSenior Toggle Notes
    
    $
    27,500
    
    
    $
    17,520
    
    
    $
    27,500
    
    
    $
    17,520Senior Subordinated Notes
    
    
    15,000
    
    
    
    8,965
    
    
    
    42,838
    
    
    
    19,001$
    42,500
    
    
    $
    26,485
    
    
    $
    70,338
    
    
    $
    36,521
  8




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##### Table of Contents



5. Stock Options and Stock-Based Compensation
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueOutstanding at January 30,
2010
    
    
    6,275,110
    
    
    $
    10.00Options granted
    
    
    592,500
    
    
    $
    10.00Options exercised
    
    
    Options forfeited or expired
    
    
    (339,315
    )
    
    $
    10.00Outstanding at October 30,
2010
    
    
    6,528,295
    
    
    $
    10.00
    
    
    
    4.5
    
    
    $
    Exercisable at October 30,
2010
    
    
    2,106,711
    
    
    $
    10.00
    
    
    
    4.1
    
    
    $
    
   6. Income Taxes
   7. Fair Value Measurements and Derivative Instruments
   9




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##### Table of Contents



Fair Value Measurements at October 30, 2010 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
    
    $
    (2,443,884
    )
    
    $
    (2,173,558
    )
    
    $
    
    
    
    $
    Interest rate swap
    
    $
    (3,088
    )
    
    $
    
    
    
    $
    (3,088
    )
    
    $
    
 10




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Fair Value Measurements at January 30, 2010 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
    
    $
    (2,521,878
    )
    
    $
    (1,952,832
    )
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    (8,752
    )
    
    $
    
    
    
    $
    (8,752
    )
    
    $
    
  Derivatives in CashFlow HedgingRelationships
    
    Amount of Gain or (Loss)Recognized in OCI onDerivative 
(Effective Portion)
    
    
    Location of Gainor (Loss)Reclassified fromAccumulated OCIinto Income(Effective Portion)
    
    
    Amount of Gain or (Loss)Reclassified fromAccumulated OCI intoIncome
(Effective Portion) (1)Three months ended
    
    
    
    
    
    
    Three months endedOctober 30,
2010
    
    
    October 31,
2009
    
    
    
    
    
    
    October 30,
2010
    
    
    October 31,
2009Interest rate swaps
    
    $
    (2,086
    )
    
    $
    2,266
    
    
    Interest expense, net
    
    
    $
    (378
    )
    
    $
    (5,275
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive income (loss) to earnings as interest expense is
recognized on the senior secured term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges. Derivatives in CashFlow HedgingRelationships
    
    Amount of Gain or (Loss)Recognized in OCI onDerivative
(Effective Portion)
    
    
    Location of Gainor (Loss)Reclassified fromAccumulated OCIinto Income(Effective Portion)
    
    
    Amount of Gain or (Loss)Reclassified fromAccumulated OCI intoIncome
(Effective Portion) (1)Nine months ended
    
    
    
    
    
    
    Nine months endedOctober 30,
2010
    
    
    October 31,
2009
    
    
    
    
    
    
    October 30,
2010
    
    
    October 31,
2009Interest rate swaps
    
    $
    5,663
    
    
    $
    3,862
    
    
    Interest expense, net
    
    
    $
    (9,157
    )
    
    $
    (13,920
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive income (loss) to earnings as interest expense is
recognized on the senior secured term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges.  11




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##### Table of Contents



Investments  Equity Method and Joint Ventures
 Nonmonetary Transactions
 8. Commitments and Contingencies
  12




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9. Related Party Transactions
  10. Supplemental Financial Information
   13




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Condensed Consolidating Balance Sheet
October 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    95,976
    
    
    $
    (8,615
    )
    
    $
    66,694
    
    
    $
    
    
    
    $
    154,055Inventories
    
    
    
    
    
    
    103,330
    
    
    
    56,917
    
    
    
    
    
    
    
    160,247Prepaid expenses
    
    
    1,536
    
    
    
    15,019
    
    
    
    15,841
    
    
    
    
    
    
    
    32,396Other current assets
    
    
    27
    
    
    
    18,307
    
    
    
    8,944
    
    
    
    
    
    
    
    27,278Total current assets
    
    
    97,539
    
    
    
    128,041
    
    
    
    148,396
    
    
    
    
    
    
    
    373,976Property and equipment:Land and building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Furniture, fixtures and equipment
    
    
    3,143
    
    
    
    114,668
    
    
    
    60,108
    
    
    
    
    
    
    
    177,919Leasehold improvements
    
    
    1,050
    
    
    
    141,161
    
    
    
    99,809
    
    
    
    
    
    
    
    242,0204,193
    
    
    
    255,829
    
    
    
    159,917
    
    
    
    
    
    
    
    419,939Less accumulated depreciation and amortization
    
    
    (2,031
    )
    
    
    (139,448
    )
    
    
    (79,740
    )
    
    
    
    
    
    
    (221,219
    )2,162
    
    
    
    116,381
    
    
    
    80,177
    
    
    
    
    
    
    
    198,720Leased property under capital leases:Land and building
    
    
    
    
    
    
    18,055
    
    
    
    
    
    
    
    
    
    
    
    18,055Less accumulated depreciation and amortization
    
    
    
    
    
    
    (677
    )
    
    
    
    
    
    
    
    
    
    
    (677
    )
    
    
    
    17,378
    
    
    
    
    
    
    
    
    
    
    
    17,378Intercompany receivables
    
    
    
    
    
    
    293,500
    
    
    
    
    
    
    
    (293,500
    )
    
    
    Investment in subsidiaries
    
    
    2,304,841
    
    
    
    (66,132
    )
    
    
    
    
    
    
    (2,238,709
    )
    
    
    Intangible assets, net
    
    
    285,999
    
    
    
    10,752
    
    
    
    276,638
    
    
    
    
    
    
    
    573,389Deferred financing costs, net
    
    
    38,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,430Other assets
    
    
    127
    
    
    
    4,131
    
    
    
    39,564
    
    
    
    
    
    
    
    43,822Goodwill
    
    
    
    
    
    
    1,235,650
    
    
    
    314,406
    
    
    
    
    
    
    
    1,550,0562,629,397
    
    
    
    1,477,901
    
    
    
    630,608
    
    
    
    (2,532,209
    )
    
    
    2,205,697Total assets
    
    $
    2,729,098
    
    
    $
    1,739,701
    
    
    $
    859,181
    
    
    $
    (2,532,209
    )
    
    
    2,795,771LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Trade accounts payable
    
    $
    2,988
    
    
    $
    29,463
    
    
    $
    32,096
    
    
    $
    
    
    
    $
    64,547Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    (330
    )
    
    
    8,651
    
    
    
    
    
    
    
    8,321Accrued interest payable
    
    
    27,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,032Accrued expenses and other current liabilities
    
    
    20,341
    
    
    
    34,991
    
    
    
    49,133
    
    
    
    
    
    
    
    104,465Total current liabilities
    
    
    64,861
    
    
    
    64,124
    
    
    
    89,880
    
    
    
    
    
    
    
    218,865Intercompany payables
    
    
    282,738
    
    
    
    
    
    
    
    10,762
    
    
    
    (293,500
    )
    
    
    Long-term debt
    
    
    2,235,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,235,384Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Obligations under capital leases
    
    
    
    
    
    
    17,290
    
    
    
    
    
    
    
    
    
    
    
    17,290Deferred tax liability
    
    
    
    
    
    
    106,613
    
    
    
    15,462
    
    
    
    
    
    
    
    122,075Deferred rent expense
    
    
    
    
    
    
    16,726
    
    
    
    8,479
    
    
    
    
    
    
    
    25,205Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    29,286
    
    
    
    1,551
    
    
    
    
    
    
    
    30,8372,712,122
    
    
    
    169,915
    
    
    
    36,254
    
    
    
    (293,500
    )
    
    
    2,624,791Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    619,675
    
    
    
    1,445,795
    
    
    
    876,798
    
    
    
    (2,322,593
    )
    
    
    619,675Accumulated other comprehensive income (loss),
net of tax
    
    
    2,791
    
    
    
    3,094
    
    
    
    (2,564
    )
    
    
    (530
    )
    
    
    2,791Retained earnings (deficit)
    
    
    (670,351
    )
    
    
    56,406
    
    
    
    (141,189
    )
    
    
    84,783
    
    
    
    (670,351
    )(47,885
    )
    
    
    1,505,662
    
    
    
    733,047
    
    
    
    (2,238,709
    )
    
    
    (47,885
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,729,098
    
    
    $
    1,739,701
    
    
    $
    859,181
    
    
    $
    (2,532,209
    )
    
    $
    2,795,771
 14




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##### Table of Contents



Condensed Consolidating Balance Sheet
January 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    109,138
    
    
    $
    (10,604
    )
    
    $
    100,174
    
    
    $
    
    
    
    $
    198,708Inventories
    
    
    
    
    
    
    73,902
    
    
    
    36,436
    
    
    
    
    
    
    
    110,338Prepaid expenses
    
    
    509
    
    
    
    14,217
    
    
    
    18,147
    
    
    
    
    
    
    
    32,873Other current assets
    
    
    1,030
    
    
    
    19,527
    
    
    
    7,679
    
    
    
    
    
    
    
    28,236Total current assets
    
    
    110,677
    
    
    
    97,042
    
    
    
    162,436
    
    
    
    
    
    
    
    370,155Property and equipment:Land and building
    
    
    
    
    
    
    19,318
    
    
    
    
    
    
    
    
    
    
    
    19,318Furniture, fixtures and equipment
    
    
    2,137
    
    
    
    109,405
    
    
    
    51,060
    
    
    
    
    
    
    
    162,602Leasehold improvements
    
    
    1,113
    
    
    
    138,706
    
    
    
    88,684
    
    
    
    
    
    
    
    228,5033,250
    
    
    
    267,429
    
    
    
    139,744
    
    
    
    
    
    
    
    410,423Less accumulated depreciation and amortization
    
    
    (1,746
    )
    
    
    (117,101
    )
    
    
    (63,592
    )
    
    
    
    
    
    
    (182,439
    )1,504
    
    
    
    150,328
    
    
    
    76,152
    
    
    
    
    
    
    
    227,984Intercompany receivables
    
    
    
    
    
    
    148,072
    
    
    
    
    
    
    
    (148,072
    )
    
    
    Investment in subsidiaries
    
    
    2,200,694
    
    
    
    (7,069
    )
    
    
    
    
    
    
    (2,193,625
    )
    
    
    Intangible assets, net
    
    
    286,000
    
    
    
    13,017
    
    
    
    281,010
    
    
    
    
    
    
    
    580,027Deferred financing costs, net
    
    
    47,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,641Other assets
    
    
    18,099
    
    
    
    3,230
    
    
    
    36,913
    
    
    
    
    
    
    
    58,242Goodwill
    
    
    
    
    
    
    1,235,651
    
    
    
    314,405
    
    
    
    
    
    
    
    1,550,0562,552,434
    
    
    
    1,392,901
    
    
    
    632,328
    
    
    
    (2,341,697
    )
    
    
    2,235,966Total assets
    
    $
    2,664,615
    
    
    $
    1,640,271
    
    
    $
    870,916
    
    
    $
    (2,341,697
    )
    
    $
    2,834,105LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Trade accounts payable
    
    $
    2,335
    
    
    $
    19,202
    
    
    $
    24,123
    
    
    $
    
    
    
    $
    45,660Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    101
    
    
    
    10,171
    
    
    
    
    
    
    
    10,272Accrued interest payable
    
    
    14,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,644Accrued expenses and other current liabilities
    
    
    22,380
    
    
    
    33,559
    
    
    
    40,497
    
    
    
    
    
    
    
    96,436Total current liabilities
    
    
    53,859
    
    
    
    52,862
    
    
    
    74,791
    
    
    
    
    
    
    
    181,512Intercompany payables
    
    
    137,913
    
    
    
    
    
    
    
    10,159
    
    
    
    (148,072
    )
    
    
    Long-term debt
    
    
    2,313,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,313,378Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Deferred tax liability
    
    
    
    
    
    
    106,386
    
    
    
    15,759
    
    
    
    
    
    
    
    122,145Deferred rent expense
    
    
    107
    
    
    
    14,957
    
    
    
    7,018
    
    
    
    
    
    
    
    22,082Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    33,347
    
    
    
    2,283
    
    
    
    
    
    
    
    35,6302,645,398
    
    
    
    154,690
    
    
    
    35,219
    
    
    
    (148,072
    )
    
    
    2,687,235Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    616,086
    
    
    
    1,445,795
    
    
    
    876,798
    
    
    
    (2,322,593
    )
    
    
    616,086Accumulated other comprehensive income (loss),
net of tax
    
    
    2,625
    
    
    
    2,101
    
    
    
    (4,134
    )
    
    
    2,033
    
    
    
    2,625Retained deficit
    
    
    (653,353
    )
    
    
    (15,544
    )
    
    
    (111,760
    )
    
    
    127,304
    
    
    
    (653,353
    )(34,642
    )
    
    
    1,432,719
    
    
    
    760,906
    
    
    
    (2,193,625
    )
    
    
    (34,642
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,664,615
    
    
    $
    1,640,271
    
    
    $
    870,916
    
    
    $
    (2,341,697
    )
    
    $
    2,834,105
 15




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##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Three Months Ended October 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    418,244
    
    
    $
    144,237
    
    
    $
    (214,306
    )
    
    $
    348,175Cost of sales, occupancy and buying expenses
    
    
    1,088
    
    
    
    313,787
    
    
    
    67,004
    
    
    
    (214,306
    )
    
    
    167,573Gross profit
    
    
    (1,088
    )
    
    
    104,457
    
    
    
    77,233
    
    
    
    
    
    
    
    180,602Other expenses:Selling, general and administrative
    
    
    8,739
    
    
    
    62,757
    
    
    
    51,936
    
    
    
    
    
    
    
    123,432Depreciation and amortization
    
    
    162
    
    
    
    9,485
    
    
    
    6,459
    
    
    
    
    
    
    
    16,106Severance and transaction-related costs
    
    
    41
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    121Other (income) expense
    
    
    (6,259
    )
    
    
    4,797
    
    
    
    909
    
    
    
    
    
    
    
    (553
    )2,683
    
    
    
    77,039
    
    
    
    59,384
    
    
    
    
    
    
    
    139,106Operating income (loss)
    
    
    (3,771
    )
    
    
    27,418
    
    
    
    17,849
    
    
    
    
    
    
    
    41,496Gain on early debt extinguishment
    
    
    2,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,652Interest expense, net
    
    
    36,667
    
    
    
    473
    
    
    
    (8
    )
    
    
    
    
    
    
    37,132Income (loss) before income taxes
    
    
    (37,786
    )
    
    
    26,945
    
    
    
    17,857
    
    
    
    
    
    
    
    7,016Income tax expense (benefit)
    
    
    
    
    
    
    822
    
    
    
    2,547
    
    
    
    
    
    
    
    3,369Income (loss) from continuing operations
    
    
    (37,786
    )
    
    
    26,123
    
    
    
    15,310
    
    
    
    
    
    
    
    3,647Equity in earnings of subsidiaries
    
    
    41,433
    
    
    
    1,365
    
    
    
    
    
    
    
    (42,798
    )
    
    
    Net income
    
    
    3,647
    
    
    
    27,488
    
    
    
    15,310
    
    
    
    (42,798
    )
    
    
    3,647Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    9,747
    
    
    
    83
    
    
    
    11,465
    
    
    
    (11,548
    )
    
    
    9,747Comprehensive income
    
    $
    13,394
    
    
    $
    27,571
    
    
    $
    26,775
    
    
    $
    (54,346
    )
    
    $
    13,394
 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
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
    
    
    
    
    
    
    290,248
    
    
    
    65,918
    
    
    
    (196,766
    )
    
    
    159,400Gross profit
    
    
    
    
    
    
    91,385
    
    
    
    73,619
    
    
    
    
    
    
    
    165,004Other expenses:Selling, general and administrative
    
    
    6,970
    
    
    
    63,829
    
    
    
    45,024
    
    
    
    
    
    
    
    115,823Depreciation 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
    
    
    
    78,531
    
    
    
    50,922
    
    
    
    
    
    
    
    132,308Operating 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
 16




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##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Nine Months Ended October 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,144,850
    
    
    $
    407,123
    
    
    $
    (547,488
    )
    
    $
    1,004,485Cost of sales, occupancy and buying expenses
    
    
    3,745
    
    
    
    836,903
    
    
    
    192,384
    
    
    
    (547,488
    )
    
    
    485,544Gross profit
    
    
    (3,745
    )
    
    
    307,947
    
    
    
    214,739
    
    
    
    
    
    
    
    518,941Other expenses:Selling, general and administrative
    
    
    26,225
    
    
    
    188,544
    
    
    
    151,724
    
    
    
    
    
    
    
    366,493Depreciation and amortization
    
    
    449
    
    
    
    28,699
    
    
    
    19,180
    
    
    
    
    
    
    
    48,328Severance and transaction-related costs
    
    
    355
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    435Other (income) expense
    
    
    (19,456
    )
    
    
    13,163
    
    
    
    7,257
    
    
    
    
    
    
    
    9647,573
    
    
    
    230,406
    
    
    
    178,241
    
    
    
    
    
    
    
    416,220Operating income (loss)
    
    
    (11,318
    )
    
    
    77,541
    
    
    
    36,498
    
    
    
    
    
    
    
    102,721Gain on early debt extinguishment
    
    
    13,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,388Impairment of equity investment
    
    
    
    
    
    
    6,030
    
    
    
    
    
    
    
    
    
    
    
    6,030Interest expense, net
    
    
    119,830
    
    
    
    655
    
    
    
    (17
    )
    
    
    
    
    
    
    120,468Income (loss) before income taxes
    
    
    (117,760
    )
    
    
    70,856
    
    
    
    36,515
    
    
    
    
    
    
    
    (10,389
    )Income tax expense
    
    
    23
    
    
    
    506
    
    
    
    6,080
    
    
    
    
    
    
    
    6,609Income (loss) from continuing operations
    
    
    (117,783
    )
    
    
    70,350
    
    
    
    30,435
    
    
    
    
    
    
    
    (16,998
    )Equity in earnings of subsidiaries
    
    
    100,785
    
    
    
    1,600
    
    
    
    
    
    
    
    (102,385
    )
    
    
    Net income (loss)
    
    
    (16,998
    )
    
    
    71,950
    
    
    
    30,435
    
    
    
    (102,385
    )
    
    
    (16,998
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    9,738
    
    
    
    994
    
    
    
    1,570
    
    
    
    (2,564
    )
    
    
    9,738Reclassification of foreign currency translation
adjustments in net income (loss)
    
    
    (9,572
    )
    
    
    (9,572
    )
    
    
    
    
    
    
    9,572
    
    
    
    (9,572
    )Comprehensive income (loss)
    
    $
    (16,832
    )
    
    $
    63,372
    
    
    $
    32,005
    
    
    $
    (95,377
    )
    
    $
    (16,832
    )
 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
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
    
    
    
    
    
    
    775,328
    
    
    
    187,761
    
    
    
    (492,194
    )
    
    
    470,895Gross profit
    
    
    
    
    
    
    267,830
    
    
    
    192,973
    
    
    
    
    
    
    
    460,803Other expenses:Selling, general and administrative
    
    
    20,957
    
    
    
    176,578
    
    
    
    135,342
    
    
    
    
    
    
    
    332,877Depreciation 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
    
    
    
    223,384
    
    
    
    150,811
    
    
    
    
    
    
    
    386,286Operating 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
    
    
    
    
    
    
    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
 17




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
Nine Months Ended October 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (16,998
    )
    
    $
    71,950
    
    
    $
    30,435
    
    
    $
    (102,385
    )
    
    $
    (16,998
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (100,785
    )
    
    
    (1,600
    )
    
    
    
    
    
    
    102,385
    
    
    
    Depreciation and amortization
    
    
    449
    
    
    
    28,699
    
    
    
    19,180
    
    
    
    
    
    
    
    48,328Impairment
    
    
    
    
    
    
    6,030
    
    
    
    
    
    
    
    
    
    
    
    6,030Amortization of lease rights and other assets
    
    
    
    
    
    
    29
    
    
    
    2,217
    
    
    
    
    
    
    
    2,246Amortization of debt issuance costs
    
    
    7,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,507Payment in kind interest expense
    
    
    27,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,837Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (1,624
    )
    
    
    388
    
    
    
    
    
    
    
    (1,236
    )Loss on sale/retirement of property and equipment, net
    
    
    
    
    
    
    632
    
    
    
    
    
    
    
    
    
    
    
    632Gain on early debt extinguishment
    
    
    (13,388
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,388
    )Stock compensation expense
    
    
    2,757
    
    
    
    
    
    
    
    832
    
    
    
    
    
    
    
    3,589(Increase) decrease in:Inventories
    
    
    
    
    
    
    (29,428
    )
    
    
    (19,035
    )
    
    
    
    
    
    
    (48,463
    )Prepaid expenses
    
    
    (1,026
    )
    
    
    (803
    )
    
    
    3,527
    
    
    
    
    
    
    
    1,698Other assets
    
    
    1,216
    
    
    
    1,299
    
    
    
    (5,766
    )
    
    
    
    
    
    
    (3,251
    )Increase (decrease) in:Trade accounts payable
    
    
    653
    
    
    
    9,072
    
    
    
    6,780
    
    
    
    
    
    
    
    16,505Income taxes payable
    
    
    
    
    
    
    1,346
    
    
    
    (1,033
    )
    
    
    
    
    
    
    313Accrued interest payable
    
    
    12,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,389Accrued expenses and other liabilities
    
    
    3,625
    
    
    
    1,334
    
    
    
    7,918
    
    
    
    
    
    
    
    12,877Deferred income taxes
    
    
    
    
    
    
    424
    
    
    
    88
    
    
    
    
    
    
    
    512Deferred rent expense
    
    
    (107
    )
    
    
    1,770
    
    
    
    1,294
    
    
    
    
    
    
    
    2,957Net cash provided by (used in) operating activities
    
    
    (75,871
    )
    
    
    89,130
    
    
    
    46,825
    
    
    
    
    
    
    
    60,084Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (1,104
    )
    
    
    (10,386
    )
    
    
    (18,313
    )
    
    
    
    
    
    
    (29,803
    )Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (89
    )
    
    
    (830
    )
    
    
    
    
    
    
    (919
    )Proceeds from sale of property
    
    
    
    
    
    
    16,765
    
    
    
    
    
    
    
    
    
    
    
    16,765Net cash provided by (used in) investing activities
    
    
    (1,104
    )
    
    
    6,290
    
    
    
    (19,143
    )
    
    
    
    
    
    
    (13,957
    )Cash flows from financing activities:Credit facility payments
    
    
    (10,875
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,875
    )Note purchases
    
    
    (79,865
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,865
    )Principal payments on capital leases
    
    
    
    
    
    
    (765
    )
    
    
    
    
    
    
    
    
    
    
    (765
    )Intercompany activity, net
    
    
    154,553
    
    
    
    (94,473
    )
    
    
    (60,080
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    63,813
    
    
    
    (95,238
    )
    
    
    (60,080
    )
    
    
    
    
    
    
    (91,505
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    1,807
    
    
    
    (1,082
    )
    
    
    
    
    
    
    725Net increase (decrease) in cash and cash equivalents
    
    
    (13,162
    )
    
    
    1,989
    
    
    
    (33,480
    )
    
    
    
    
    
    
    (44,653
    )Cash and cash equivalents at beginning of period
    
    
    109,138
    
    
    
    (10,604
    )
    
    
    100,174
    
    
    
    
    
    
    
    198,708Cash and cash equivalents at end of period
    
    $
    95,976
    
    
    $
    (8,615
    )
    
    $
    66,694
    
    
    $
    
    
    
    $
    154,055
 18




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##### 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, 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 interest payable
    
    
    15,124
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    15,121Accrued expenses and other liabilities
    
    
    (4,585
    )
    
    
    302
    
    
    
    3,329
    
    
    
    
    
    
    
    (954
    )Deferred 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
 
 Item2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   19




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##### Table of Contents



Business Overview
        
    
    Accessories  includes fashion accessories for year-round use, including legwear,
headwear, attitude glasses, armwear, scarves and belts, and seasonal use, including
sunglasses, sandals, hats, boots, scarves, gloves, earmuffs and slippers; and other
accessories, including hairgoods, handbags, and small leather goods, as well as cosmetics
    
    Jewelry  includes earrings, necklaces, bracelets, body jewelry and rings, as well as
ear piercing
  20




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##### Table of Contents



Current Market Conditions
  Consolidated Results of Operations
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009Net sales
    
    $
    348,175
    
    
    $
    324,404Increase (decrease) in same store sales
    
    
    7.5
    %
    
    
    (0.3
    )%Gross profit percentage
    
    
    51.9
    %
    
    
    50.9
    %Selling, general and administrative expenses as a percentage of net sales
    
    
    35.5
    %
    
    
    35.7
    %Depreciation and amortization as a percentage of net sales
    
    
    4.6
    %
    
    
    5.3
    %Operating income
    
    $
    41,496
    
    
    $
    32,696Gain on early debt extinguishment
    
    $
    2,652
    
    
    $
    16,096Net income
    
    $
    3,647
    
    
    $
    2,889Number of stores at the end of the period (1)
    
    
    2,971
    
    
    
    2,954
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009Net sales
    
    $
    1,004,485
    
    
    $
    931,698Increase (decrease) in same store sales
    
    
    8.0
    %
    
    
    (3.2
    )%Gross profit percentage
    
    
    51.7
    %
    
    
    49.5
    %Selling, general and administrative expenses as a percentage of net sales
    
    
    36.5
    %
    
    
    35.7
    %Depreciation and amortization as a percentage of net sales
    
    
    4.8
    %
    
    
    5.8
    %Operating income
    
    $
    102,721
    
    
    $
    74,517Gain on early debt extinguishment
    
    $
    13,388
    
    
    $
    33,200Impairment of equity investment
    
    $
    6,030
    
    
    $
    Net loss
    
    $
    (16,988
    )
    
    $
    (29,867
    )Number of stores at the end of the period (1)
    
    
    2,971
    
    
    
    2,954
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. Net sales
  21




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended% of Total
    
    October 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Accessories
    
    
    54.3
    
    
    
    54.3
    
    
    
    52.7
    
    
    
    51.2Jewelry
    
    
    45.7
    
    
    
    45.7
    
    
    
    47.3
    
    
    
    48.8100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Gross profit
    Selling, general and administrative expenses
   22




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##### Table of Contents



Depreciation and amortization expense
   Other
expense (income), net
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Equity (income) loss
    
    $
    
    
    
    $
    (411
    )
    
    $
    2,529
    
    
    $
    777Royalty income
    
    
    (553
    )
    
    
    (334
    )
    
    
    (1,085
    )
    
    
    (1,141
    )Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (598
    )Other income
    
    
    
    
    
    
    (129
    )
    
    
    (480
    )
    
    
    (220
    )$
    (553
    )
    
    $
    (874
    )
    
    $
    964
    
    
    $
    (1,182
    )
 Impairment of equity investment
  Interest expense, net
   23




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##### Table of Contents



Income taxes
  Segment Operations
  North America
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Net sales
    
    $
    220,672
    
    
    $
    199,867
    
    
    $
    643,358
    
    
    $
    589,476Increase (decrease) in same store sales
    
    
    9.6
    %
    
    
    (1.9
    )%
    
    
    9.1
    %
    
    
    (5.0
    )%Gross profit percentage
    
    
    52.1
    %
    
    
    50.6
    %
    
    
    51.9
    %
    
    
    49.4
    %Number of stores at the end of the period (1)
    
    
    1,983
    
    
    
    2,001
    
    
    
    1,983
    
    
    
    2,001
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements.      24




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended% of Total
    
    October 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Accessories
    
    
    49.4
    
    
    
    48.8
    
    
    
    47.7
    
    
    
    45.5Jewelry
    
    
    50.6
    
    
    
    51.2
    
    
    
    52.3
    
    
    
    54.5100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Europe
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Net sales
    
    $
    127,503
    
    
    $
    124,537
    
    
    $
    361,127
    
    
    $
    342,222Increase in same store sales
    
    
    3.9
    %
    
    
    2.3
    %
    
    
    5.9
    %
    
    
    0.0
    %Gross profit percentage
    
    
    51.5
    %
    
    
    51.3
    %
    
    
    51.2
    %
    
    
    49.6
    %Number of stores at the end
of the period (1)
    
    
    988
    
    
    
    953
    
    
    
    988
    
    
    
    953
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements.      25




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended% of Total
    
    October 30, 2010
    
    
    October 31, 2009
    
    
    October 30, 2010
    
    
    October 31, 2009Accessories
    
    
    62.6
    
    
    
    62.9
    
    
    
    61.6
    
    
    
    60.6Jewelry
    
    
    37.4
    
    
    
    37.1
    
    
    
    38.4
    
    
    
    39.4100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Financial Resources and Liquidity
  Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 30, 2010
    
    
    October 31, 2009Operating activities
    
    $
    60,084
    
    
    $
    20,729Investing activities
    
    
    (13,957
    )
    
    
    (16,005
    )Financing activities
    
    
    (91,505
    )
    
    
    (47,396
    )
 Cash flows from operating activities
  Cash flows from investing activities
  Cash flows from financing activities
   26




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##### 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;
    
    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.
  27




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##### Table of Contents



Critical Accounting Policies and Estimates
  Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  28




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##### Table of Contents



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




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##### Table of Contents



Interest Rates
    General Market Risk
  
 Item 4. Controls and Procedures
     30




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##### 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




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##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.December 6, 2010
    By:
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer)December 6, 2010
    By:
    /s/ J. Per BrodinJ. Per Brodin, Executive Vice President andChief Financial Officer
(principal financial and accounting officer) 32




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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