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




---



##### 



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
 PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of August 1,
2009 and January 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Six Months Ended
August 1, 2009 and August 2, 2008
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for
the Six Months Ended August 1, 2009 and August 2, 2008
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATION
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    33SIGNATURE PAGE
    
    
    34Ex-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFOEX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-10.7EX-10.8EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 August 1, 2009
    
    
    January 31, 2009(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    182,350
    
    
    $
    204,574Inventories
    
    
    108,193
    
    
    
    103,691Prepaid expenses
    
    
    44,256
    
    
    
    31,837Other current assets
    
    
    26,761
    
    
    
    27,079Total current assets
    
    
    361,560
    
    
    
    367,181Property and equipment:Land and building
    
    
    22,288
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    157,624
    
    
    
    143,702Leasehold improvements
    
    
    226,644
    
    
    
    214,007406,556
    
    
    
    379,997Less accumulated depreciation and amortization
    
    
    (153,914
    )
    
    
    (113,926
    )252,642
    
    
    
    266,071Intangible assets, net of accumulated amortization of $26,566 and
$19,371, respectively
    
    
    588,325
    
    
    
    587,125Deferred financing costs, net of accumulated amortization of $23,600
    
    
    53,990
    
    
    
    59,944and $17,646, respectivelyOther assets
    
    
    56,585
    
    
    
    56,428Goodwill
    
    
    1,544,346
    
    
    
    1,544,3462,243,246
    
    
    
    2,247,843Total assets
    
    $
    2,857,448
    
    
    $
    2,881,095LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Trade accounts payable
    
    $
    55,071
    
    
    $
    53,237Current portion of long-term debt
    
    
    14,500
    
    
    
    14,500Income taxes payable
    
    
    5,338
    
    
    
    6,477Accrued interest payable
    
    
    13,050
    
    
    
    13,316Accrued expenses and other current liabilities
    
    
    102,772
    
    
    
    107,974Total current liabilities
    
    
    190,731
    
    
    
    195,504Long-term debt
    
    
    2,357,760
    
    
    
    2,373,272Revolving credit facility
    
    
    194,000
    
    
    
    194,000Deferred tax liability
    
    
    114,023
    
    
    
    112,829Deferred rent expense
    
    
    21,116
    
    
    
    18,462Unfavorable lease obligations and other long-term liabilities
    
    
    39,926
    
    
    
    42,8712,726,825
    
    
    
    2,741,434Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Common stock par value $0.001 per share; authorized 1,000
shares; issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    612,319
    
    
    
    609,427Accumulated other comprehensive income (loss), net of tax
    
    
    3,280
    
    
    
    (22,319
    )Retained deficit
    
    
    (675,707
    )
    
    
    (642,951
    )(60,108
    )
    
    
    (55,843
    )Total liabilities and stockholders deficit
    
    $
    2,857,448
    
    
    $
    2,881,095
  3




---



##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedAugust 1, 2009
    
    
    August 2, 2008
    
    
    August 1, 2009
    
    
    August 2, 2008Net sales
    
    $
    314,196
    
    
    $
    359,973
    
    
    $
    607,294
    
    
    $
    686,976Cost of sales, occupancy and buying
expenses
    
    
    158,088
    
    
    
    180,267
    
    
    
    309,267
    
    
    
    352,249Gross profit
    
    
    156,108
    
    
    
    179,706
    
    
    
    298,027
    
    
    
    334,727Other expenses (income):Selling, general and administrative
    
    
    110,813
    
    
    
    132,421
    
    
    
    219,282
    
    
    
    263,756Depreciation and amortization
    
    
    18,703
    
    
    
    22,561
    
    
    
    36,858
    
    
    
    44,662Severance and transaction-related costs
    
    
    25
    
    
    
    296
    
    
    
    374
    
    
    
    6,264Other income, net
    
    
    (722
    )
    
    
    (549
    )
    
    
    (308
    )
    
    
    (1,109
    )128,819
    
    
    
    154,729
    
    
    
    256,206
    
    
    
    313,573Operating income
    
    
    27,289
    
    
    
    24,977
    
    
    
    41,821
    
    
    
    21,154Gain on early debt extinguishment
    
    
    17,104
    
    
    
    
    
    
    
    17,104
    
    
    
    Interest expense, net
    
    
    45,329
    
    
    
    48,739
    
    
    
    90,563
    
    
    
    97,396Loss before income tax expense (benefit)
    
    
    (936
    )
    
    
    (23,762
    )
    
    
    (31,638
    )
    
    
    (76,242
    )Income tax expense (benefit)
    
    
    2,797
    
    
    
    (6,831
    )
    
    
    1,118
    
    
    
    (23,741
    )Net loss
    
    $
    (3,733
    )
    
    $
    (16,931
    )
    
    $
    (32,756
    )
    
    $
    (52,501
    )Net loss
    
    $
    (3,733
    )
    
    $
    (16,931
    )
    
    $
    (32,756
    )
    
    $
    (52,501
    )Foreign currency translation and interest
rate swap adjustments, net of tax
    
    
    20,414
    
    
    
    2,831
    
    
    
    25,599
    
    
    
    12,145Comprehensive income (loss)
    
    $
    16,681
    
    
    $
    (14,100
    )
    
    $
    (7,157
    )
    
    $
    (40,356
    )
  4




---



##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)
 Six Months
    
    
    Six MonthsEnded
    
    
    EndedAugust 1, 2009
    
    
    August 2, 2008Cash flows from operating activities:Net loss
    
    $
    (32,756
    )
    
    $
    (52,501
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    36,858
    
    
    
    44,662Amortization of lease rights and other assets
    
    
    1,008
    
    
    
    1,013Amortization of debt issuance costs
    
    
    5,256
    
    
    
    5,291Payment in kind interest expense
    
    
    19,576
    
    
    
    6,052Net accretion of favorable (unfavorable) lease obligations
    
    
    (1,103
    )
    
    
    (543
    )Loss (gain) on sale/retirement of property and equipment, net
    
    
    8
    
    
    
    (175
    )Gain on early debt extinguishment
    
    
    (17,104
    )
    
    
    Gain on sale of intangible assets/lease rights
    
    
    (598
    )
    
    
    Stock compensation expense
    
    
    2,892
    
    
    
    3,915(Increase) decrease in:Inventories
    
    
    (763
    )
    
    
    (1,840
    )Prepaid expenses
    
    
    (8,958
    )
    
    
    (10,280
    )Other assets
    
    
    996
    
    
    
    (6,096
    )Increase (decrease) in:Trade accounts payable
    
    
    (1,280
    )
    
    
    12,304Income taxes payable
    
    
    (1,347
    )
    
    
    (16,152
    )Accrued expenses and other liabilities
    
    
    (7,021
    )
    
    
    12,575Accrued interest payable
    
    
    (266
    )
    
    
    3,029Deferred income taxes
    
    
    2,087
    
    
    
    (19,273
    )Deferred rent expense
    
    
    2,029
    
    
    
    4,676Net cash used in operating activities
    
    
    (486
    )
    
    
    (13,343
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (11,101
    )
    
    
    (31,626
    )Acquisition of intangible assets/lease rights
    
    
    (419
    )
    
    
    (775
    )Proceeds from sale of intangible assets/lease rights
    
    
    1,638
    
    
    
    Net cash used in investing activities
    
    
    (9,882
    )
    
    
    (32,401
    )Cash flows from financing activities:Credit facility payments
    
    
    (7,250
    )
    
    
    (7,250
    )Purchase of senior subordinated notes
    
    
    (10,036
    )
    
    
    Net cash used in financing activities
    
    
    (17,286
    )
    
    
    (7,250
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    5,430
    
    
    
    2,256Net decrease in cash and cash equivalents
    
    
    (22,224
    )
    
    
    (50,738
    )Cash and cash equivalents at beginning of period
    
    
    204,574
    
    
    
    85,974Cash and cash equivalents at end of period
    
    $
    182,350
    
    
    $
    35,236Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    1,981
    
    
    $
    14,668Interest paid
    
    
    66,033
    
    
    
    83,964
  5




---



##### Table of Contents



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




---



##### Table of Contents



7




---



##### Table of Contents



Debt
  Stock Options and Stock-Based Compensation
  Income Taxes
  Recent Accounting Pronouncements
 The FASB Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles.
 Fair Value Measurements.
 Determination of the Useful
Life of Intangible Assets. Goodwill and Other Intangible Assets,
 Accounting by Lessees for
Nonrefundable Maintenance Deposits.
 8




---



##### Table of Contents



Business Combinations Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51
 Subsequent Events
 3. Segment Information
  9




---



##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedAugust 1, 2009
    
    
    August 2, 2008
    
    
    August 1, 2009
    
    
    August 2, 2008Net sales:North America
    
    $
    193,165
    
    
    $
    222,676
    
    
    $
    389,609
    
    
    $
    432,020Europe
    
    
    121,031
    
    
    
    137,297
    
    
    
    217,685
    
    
    
    254,956Total net sales
    
    
    314,196
    
    
    
    359,973
    
    
    
    607,294
    
    
    
    686,976Depreciation and amortization:North America
    
    
    12,682
    
    
    
    14,776
    
    
    
    25,249
    
    
    
    29,402Europe
    
    
    6,021
    
    
    
    7,785
    
    
    
    11,609
    
    
    
    15,260Total depreciation and amortization
    
    
    18,703
    
    
    
    22,561
    
    
    
    36,858
    
    
    
    44,662Operating income for reportable segments:North America
    
    
    12,663
    
    
    
    15,532
    
    
    
    28,792
    
    
    
    19,229Europe
    
    
    14,651
    
    
    
    9,741
    
    
    
    13,403
    
    
    
    8,189Total operating income for reportable
segments
    
    
    27,314
    
    
    
    25,273
    
    
    
    42,195
    
    
    
    27,418Severance and transaction-related costs
    
    
    25
    
    
    
    296
    
    
    
    374
    
    
    
    6,264Net consolidated operating income
    
    
    27,289
    
    
    
    24,977
    
    
    
    41,821
    
    
    
    21,154Gain on early debt extinguishment
    
    
    17,104
    
    
    
    
    
    
    
    17,104
    
    
    
    Interest expense, net
    
    
    45,329
    
    
    
    48,739
    
    
    
    90,563
    
    
    
    97,396Net consolidated loss before income tax
expense (benefit)
    
    $
    (936
    )
    
    $
    (23,762
    )
    
    $
    (31,638
    )
    
    $
    (76,242
    )
   4. Debt
  10




---



##### Table of Contents



5. Stock Options and Stock-Based Compensation
  WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Life (Years)
    
    ValueOutstanding at January 31, 2009
    
    
    6,807,556
    
    
    $
    10.00
    
    
    
    4.8
    
    
    
    Options granted
    
    
    453,350
    
    
    $
    10.00
    
    
    
    6.7
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    (1,178,676
    )
    
    $
    10.00
    
    
    
    
    
    
    
    Options expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at August 1, 2009
    
    
    6,082,230
    
    
    $
    10.00
    
    
    
    4.9
    
    
    
    Exercisable at August 1, 2009
    
    
    1,726,763
    
    
    $
    10.00
    
    
    
    4.9
    
    
    
    
   6. Income Taxes
   7. Fair Value Measurements and Derivative Instruments
   11




---



##### Table of Contents



Fair Value Measurements at August 1, 2009 UsingQuoted Prices inActive Markets for
    
    Significant
    
    SignificantIdentical Assets
    
    Other Observable
    
    Unobservable(Liabilities)
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)Debt and Credit Facility
    
    $
    (1,502,838
    )
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    
    
    
    $
    (17,205
    )
    
    $
    
 Fair Value Measurements at January 31, 2009 UsingQuoted Prices inActive Markets for
    
    Significant
    
    SignificantIdentical Assets
    
    Other Observable
    
    Unobservable(Liabilities)
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)Debt and Credit Facility
    
    $
    (734,000
    )
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    
    
    
    $
    (19,734
    )
    
    $
    
 12




---



##### Table of Contents



Location of Gainor (Loss)
    
    Amount of Gain or (Loss)Derivatives in
    
    Amount of Gain or (Loss)
    
    Reclassified from
    
    Reclassified fromSFAS No. 133 Cash
    
    Recognized in OCI on
    
    Accumulated OCI
    
    Accumulated OCI intoFlow Hedging
    
    Derivative
    
    into Income
    
    IncomeRelationships
    
    (Effective Portion)
    
    (Effective Portion)
    
    (Effective Portion)(1)Three months ended
    
    
    
    
    
    Three months endedAugust 1, 2009
    
    August 2, 2008
    
    
    
    
    
    August 1, 2009
    
    August 2, 2008Interest Rate Swaps
    
    $
    1,163
    
    
    $
    1,912
    
    
    Interest Expense
    
    $
    (4,595
    )
    
    $
    (2,761
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive loss to earnings as interest expense is
recognized on the senior term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges. Location of Gainor (Loss)
    
    Amount of Gain or (Loss)Derivatives in
    
    Amount of Gain or (Loss)
    
    Reclassified from
    
    Reclassified fromSFAS No. 133 Cash
    
    Recognized in OCI on
    
    Accumulated OCI
    
    Accumulated OCI intoFlow Hedging
    
    Derivative
    
    into Income
    
    IncomeRelationships
    
    (Effective Portion)
    
    (Effective Portion)
    
    (Effective Portion)(1)Six months ended
    
    
    
    
    
    Six months endedAugust 1,
    
    August 2,
    
    
    
    
    
    August 1,
    
    August 2,2009
    
    2008
    
    
    
    
    
    2009
    
    2008Interest Rate Swaps
    
    $
    1,596
    
    
    $
    5,021
    
    
    Interest Expense
    
    $
    (8,645
    )
    
    $
    (3,890
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive loss to earnings as interest expense is
recognized on the senior term loan facility. No ineffectiveness is associated with these interest rate cash flow hedges.   13




---



##### Table of Contents



8. Commitments and Contingencies
  9. Subsequent Events
  10. Supplemental Financial Information
  14




---



##### Table of Contents



Condensed Consolidating Balance Sheet
August 1, 2009
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    98,212
    
    
    $
    19,112
    
    
    $
    65,026
    
    
    $
    
    
    
    $
    182,350Inventories
    
    
    
    
    
    
    76,211
    
    
    
    31,982
    
    
    
    
    
    
    
    108,193Prepaid expenses
    
    
    739
    
    
    
    15,742
    
    
    
    27,775
    
    
    
    
    
    
    
    44,256Other current assets
    
    
    87
    
    
    
    17,008
    
    
    
    9,666
    
    
    
    
    
    
    
    26,761Total current assets
    
    
    99,038
    
    
    
    128,073
    
    
    
    134,449
    
    
    
    
    
    
    
    361,560Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,163
    
    
    
    107,083
    
    
    
    48,378
    
    
    
    
    
    
    
    157,624Leasehold improvements
    
    
    1,707
    
    
    
    137,454
    
    
    
    87,483
    
    
    
    
    
    
    
    226,6443,870
    
    
    
    266,825
    
    
    
    135,861
    
    
    
    
    
    
    
    406,556Less accumulated depreciation and amortization
    
    
    (1,614
    )
    
    
    (97,797
    )
    
    
    (54,503
    )
    
    
    
    
    
    
    (153,914
    )2,256
    
    
    
    169,028
    
    
    
    81,358
    
    
    
    
    
    
    
    252,642Intercompany receivables
    
    
    
    
    
    
    49,955
    
    
    
    77,629
    
    
    
    (127,584
    )
    
    
    Investment in subsidiaries
    
    
    2,215,364
    
    
    
    1,413
    
    
    
    
    
    
    
    (2,216,777
    )
    
    
    Intangible assets, net
    
    
    286,014
    
    
    
    15,343
    
    
    
    286,968
    
    
    
    
    
    
    
    588,325Deferred financing costs, net
    
    
    53,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,990Other assets
    
    
    17,185
    
    
    
    1,983
    
    
    
    37,417
    
    
    
    
    
    
    
    56,585Goodwill
    
    
    
    
    
    
    1,229,940
    
    
    
    314,406
    
    
    
    
    
    
    
    1,544,3462,572,553
    
    
    
    1,298,634
    
    
    
    716,420
    
    
    
    (2,344,361
    )
    
    
    2,243,246Total assets
    
    $
    2,673,847
    
    
    $
    1,595,735
    
    
    $
    932,227
    
    
    $
    (2,344,361
    )
    
    $
    2,857,448LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Trade accounts payable
    
    $
    1,247
    
    
    $
    19,309
    
    
    $
    34,515
    
    
    $
    
    
    
    $
    55,071Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    
    
    
    
    
    
    
    
    5,338
    
    
    
    
    
    
    
    5,338Accrued interest payable
    
    
    13,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,050Accrued expenses and other current liabilities
    
    
    25,395
    
    
    
    35,639
    
    
    
    41,738
    
    
    
    
    
    
    
    102,772Total current liabilities
    
    
    54,192
    
    
    
    54,948
    
    
    
    81,591
    
    
    
    
    
    
    
    190,731Intercompany payables
    
    
    127,584
    
    
    
    
    
    
    
    
    
    
    
    (127,584
    )
    
    
    Long-term debt
    
    
    2,357,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,357,760Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Deferred tax liability
    
    
    
    
    
    
    99,476
    
    
    
    14,547
    
    
    
    
    
    
    
    114,023Deferred rent expense
    
    
    419
    
    
    
    14,152
    
    
    
    6,545
    
    
    
    
    
    
    
    21,116Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    36,612
    
    
    
    3,314
    
    
    
    
    
    
    
    39,9262,679,763
    
    
    
    150,240
    
    
    
    24,406
    
    
    
    (127,584
    )
    
    
    2,726,825Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    612,319
    
    
    
    1,445,796
    
    
    
    876,798
    
    
    
    (2,322,594
    )
    
    
    612,319Accumulated other comprehensive income, net of
tax
    
    
    3,280
    
    
    
    1,724
    
    
    
    5,143
    
    
    
    (6,867
    )
    
    
    3,280Retained deficit
    
    
    (675,707
    )
    
    
    (57,340
    )
    
    
    (55,713
    )
    
    
    113,053
    
    
    
    (675,707
    )(60,108
    )
    
    
    1,390,547
    
    
    
    826,230
    
    
    
    (2,216,777
    )
    
    
    (60,108
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,673,847
    
    
    $
    1,595,735
    
    
    $
    932,227
    
    
    $
    (2,344,361
    )
    
    $
    2,857,448
 15




---



##### Table of Contents



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




---



##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income  For The Three Months Ended August 1, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    335,542
    
    
    $
    133,730
    
    
    $
    (155,076
    )
    
    $
    314,196Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    248,830
    
    
    
    64,334
    
    
    
    (155,076
    )
    
    
    158,088Gross profit
    
    
    
    
    
    
    86,712
    
    
    
    69,396
    
    
    
    
    
    
    
    156,108Other expenses (income):Selling, general and administrative
    
    
    7,717
    
    
    
    56,487
    
    
    
    46,609
    
    
    
    
    
    
    
    110,813Depreciation and amortization
    
    
    369
    
    
    
    11,548
    
    
    
    6,786
    
    
    
    
    
    
    
    18,703Severance and transaction-related costs
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Other (income) expense
    
    
    (3,571
    )
    
    
    4,881
    
    
    
    (2,032
    )
    
    
    
    
    
    
    (722
    )4,540
    
    
    
    72,916
    
    
    
    51,363
    
    
    
    
    
    
    
    128,819Operating income (loss)
    
    
    (4,540
    )
    
    
    13,796
    
    
    
    18,033
    
    
    
    
    
    
    
    27,289Gain on early debt extinguishment
    
    
    17,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,104Interest expense (income), net
    
    
    45,338
    
    
    
    (13
    )
    
    
    4
    
    
    
    
    
    
    
    45,329Income (loss) before income taxes
    
    
    (32,774
    )
    
    
    13,809
    
    
    
    18,029
    
    
    
    
    
    
    
    (936
    )Income tax expense (benefit)
    
    
    (174
    )
    
    
    1,470
    
    
    
    1,501
    
    
    
    
    
    
    
    2,797Income (loss) from continuing operations
    
    
    (32,600
    )
    
    
    12,339
    
    
    
    16,528
    
    
    
    
    
    
    
    (3,733
    )Equity in earnings of subsidiaries
    
    
    28,867
    
    
    
    706
    
    
    
    
    
    
    
    (29,573
    )
    
    
    Net income (loss)
    
    
    (3,733
    )
    
    
    13,045
    
    
    
    16,528
    
    
    
    (29,573
    )
    
    
    (3,733
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    20,414
    
    
    
    2,315
    
    
    
    18,339
    
    
    
    (20,654
    )
    
    
    20,414Comprehensive income
    
    $
    16,681
    
    
    $
    15,360
    
    
    $
    34,867
    
    
    $
    (50,227
    )
    
    $
    16,681
 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
    
    
    
    
    
    
    
    22,561Severance and transaction-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, net of tax
    
    
    2,831
    
    
    
    (17
    )
    
    
    768
    
    
    
    (751
    )
    
    
    2,831Comprehensive income (loss)
    
    $
    (14,100
    )
    
    $
    8,364
    
    
    $
    13,769
    
    
    $
    (22,133
    )
    
    $
    (14,100
    )
 17




---



##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)  For The Six Months Ended August 1, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    661,525
    
    
    $
    241,197
    
    
    $
    (295,428
    )
    
    $
    607,294Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    482,870
    
    
    
    121,825
    
    
    
    (295,428
    )
    
    
    309,267Gross profit
    
    
    
    
    
    
    178,655
    
    
    
    119,372
    
    
    
    
    
    
    
    298,027Other expenses (income):Selling, general and administrative
    
    
    13,987
    
    
    
    114,959
    
    
    
    90,336
    
    
    
    
    
    
    
    219,282Depreciation and amortization
    
    
    1,113
    
    
    
    22,621
    
    
    
    13,124
    
    
    
    
    
    
    
    36,858Severance and transaction-related costs
    
    
    374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    374Other (income) expense
    
    
    (6,238
    )
    
    
    9,483
    
    
    
    (3,553
    )
    
    
    
    
    
    
    (308
    )9,236
    
    
    
    147,063
    
    
    
    99,907
    
    
    
    
    
    
    
    256,206Operating income (loss)
    
    
    (9,236
    )
    
    
    31,592
    
    
    
    19,465
    
    
    
    
    
    
    
    41,821Gain on early debt extinguishment
    
    
    17,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,104Interest expense (income), net
    
    
    90,618
    
    
    
    (13
    )
    
    
    (42
    )
    
    
    
    
    
    
    90,563Income (loss) before income taxes
    
    
    (82,750
    )
    
    
    31,605
    
    
    
    19,507
    
    
    
    
    
    
    
    (31,638
    )Income tax expense (benefit)
    
    
    (174
    )
    
    
    1,848
    
    
    
    (556
    )
    
    
    
    
    
    
    1,118Income (loss) from continuing operations
    
    
    (82,576
    )
    
    
    29,757
    
    
    
    20,063
    
    
    
    
    
    
    
    (32,756
    )Equity in earnings of subsidiaries
    
    
    49,820
    
    
    
    1,272
    
    
    
    
    
    
    
    (51,092
    )
    
    
    Net income (loss)
    
    
    (32,756
    )
    
    
    31,029
    
    
    
    20,063
    
    
    
    (51,092
    )
    
    
    (32,756
    )Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    25,599
    
    
    
    4,049
    
    
    
    25,849
    
    
    
    (29,898
    )
    
    
    25,599Comprehensive income (loss)
    
    $
    (7,157
    )
    
    $
    35,078
    
    
    $
    45,912
    
    
    $
    (80,990
    )
    
    $
    (7,157
    )
 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
    
    
    
    
    
    
    
    44,662Severance and transaction-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, net of tax
    
    
    12,145
    
    
    
    39
    
    
    
    6,440
    
    
    
    (6,479
    )
    
    
    12,145Comprehensive income (loss)
    
    $
    (40,356
    )
    
    $
    8,404
    
    
    $
    21,480
    
    
    $
    (29,884
    )
    
    $
    (40,356
    )
 18




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows  Six Months Ended August 1, 2009  (in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (32,756
    )
    
    $
    31,029
    
    
    $
    20,063
    
    
    $
    (51,092
    )
    
    $
    (32,756
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (49,820
    )
    
    
    (1,272
    )
    
    
    
    
    
    
    51,092
    
    
    
    Depreciation and amortization
    
    
    1,113
    
    
    
    22,621
    
    
    
    13,124
    
    
    
    
    
    
    
    36,858Amortization of lease rights and other assets
    
    
    
    
    
    
    24
    
    
    
    984
    
    
    
    
    
    
    
    1,008Amortization of debt issuance costs
    
    
    5,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,256Payment in kind interest expense
    
    
    19,576
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,576Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (1,322
    )
    
    
    219
    
    
    
    
    
    
    
    (1,103
    )Loss on sale/retirement of property and equipment and
other assets, net
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Gain on early debt extinguishment
    
    
    (17,104
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,104
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (598
    )
    
    
    
    
    
    
    (598
    )Stock compensation expense
    
    
    1,882
    
    
    
    
    
    
    
    1,010
    
    
    
    
    
    
    
    2,892(Increase) decrease in:Inventories
    
    
    
    
    
    
    (2,766
    )
    
    
    2,003
    
    
    
    
    
    
    
    (763
    )Prepaid expenses
    
    
    (305
    )
    
    
    (1,101
    )
    
    
    (7,552
    )
    
    
    
    
    
    
    (8,958
    )Other assets
    
    
    1,132
    
    
    
    (529
    )
    
    
    393
    
    
    
    
    
    
    
    996Increase (decrease) in:Trade accounts payable
    
    
    (1,096
    )
    
    
    (1,392
    )
    
    
    1,208
    
    
    
    
    
    
    
    (1,280
    )Income taxes payable
    
    
    
    
    
    
    (164
    )
    
    
    (1,183
    )
    
    
    
    
    
    
    (1,347
    )Accrued expenses and other liabilities
    
    
    (7,870
    )
    
    
    (143
    )
    
    
    992
    
    
    
    
    
    
    
    (7,021
    )Accrued interest payable
    
    
    (263
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (266
    )Deferred income taxes
    
    
    
    
    
    
    1,307
    
    
    
    780
    
    
    
    
    
    
    
    2,087Deferred rent expense
    
    
    (279
    )
    
    
    1,620
    
    
    
    688
    
    
    
    
    
    
    
    2,029Net cash provided by (used in) operating activities
    
    
    (80,534
    )
    
    
    47,920
    
    
    
    32,128
    
    
    
    
    
    
    
    (486
    )Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (143
    )
    
    
    (6,666
    )
    
    
    (4,292
    )
    
    
    
    
    
    
    (11,101
    )Acquisition of intangible assets/lease rights
    
    
    (13
    )
    
    
    (58
    )
    
    
    (348
    )
    
    
    
    
    
    
    (419
    )Proceeds from sale of intangible assets/lease rigthts
    
    
    
    
    
    
    
    
    
    
    1,638
    
    
    
    
    
    
    
    1,638Net cash used in investing activities
    
    
    (156
    )
    
    
    (6,724
    )
    
    
    (3,002
    )
    
    
    
    
    
    
    (9,882
    )Cash flows from financing activities:Credit Facility payments
    
    
    (7,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,250
    )Purchase of senior subordinated notes
    
    
    (10,036
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,036
    )Intercompany activity, net
    
    
    41,774
    
    
    
    (22,145
    )
    
    
    (19,629
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    24,488
    
    
    
    (22,145
    )
    
    
    (19,629
    )
    
    
    
    
    
    
    (17,286
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (150
    )
    
    
    5,580
    
    
    
    
    
    
    
    5,430Net increase (decrease) in cash and cash equivalents
    
    
    (56,202
    )
    
    
    18,901
    
    
    
    15,077
    
    
    
    
    
    
    
    (22,224
    )Cash and cash equivalents at beginning of period
    
    
    154,414
    
    
    
    211
    
    
    
    49,949
    
    
    
    
    
    
    
    204,574Cash and cash equivalents at end of period
    
    $
    98,212
    
    
    $
    19,112
    
    
    $
    65,026
    
    
    $
    
    
    
    $
    182,350
 19




---



##### Table of Contents



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
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   20




---



##### Table of Contents



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




---



##### Table of Contents



Current Market Conditions
  Consolidated Results of Operations
  Three Months
    
    Three MonthsEnded
    
    EndedAugust 1, 2009
    
    August 2, 2008Net sales
    
    $
    314,196
    
    
    $
    359,973Increase (decrease) in same store sales
    
    
    (6.9
    )%
    
    
    (5.8
    )%Gross profit percentage
    
    
    49.7
    %
    
    
    49.9
    %Selling, general and administrative expenses as a percentage of
net sales
    
    
    35.3
    %
    
    
    36.8
    %Depreciation and amortization as a percentage of net sales
    
    
    6.0
    %
    
    
    6.3
    %Severance and transaction-related costs as percentage of net sales
    
    
    0.0
    %
    
    
    0.1
    %Operating income
    
    $
    27,289
    
    
    $
    24,977Gain on early debt extinguishment
    
    $
    17,104
    
    
    $
    Net loss
    
    $
    (3,733
    )
    
    $
    (16,931
    )Number of stores at the end of the period (1)
    
    
    2,948
    
    
    
    3,053
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. Six Months
    
    Six MonthsEnded
    
    EndedAugust 1, 2009
    
    August 2, 2008Net sales
    
    $
    607,294
    
    
    $
    686,976Increase (decrease) in same store sales
    
    
    (4.7
    )%
    
    
    (7.0
    )%Gross profit percentage
    
    
    49.1
    %
    
    
    48.7
    %Selling, general and administrative expenses as a percentage of
net sales
    
    
    36.1
    %
    
    
    38.4
    %Depreciation and amortization as a percentage of net sales
    
    
    6.1
    %
    
    
    6.5
    %Severance and transaction-related costs as percentage of net sales
    
    
    0.1
    %
    
    
    0.9
    %Operating income
    
    $
    41,821
    
    
    $
    21,154Gain on early debt extinguishment
    
    $
    17,104
    
    
    $
    Net loss
    
    $
    (32,756
    )
    
    $
    (52,501
    )Number of stores at the end of the period (1)
    
    
    2,948
    
    
    
    3,053
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. 22




---



##### Table of Contents



Net sales
    Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    Ended% of Total
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Accessories
    
    
    50.5
    
    
    
    46.1
    
    
    
    49.8
    
    
    
    45.6Jewelry
    
    
    49.5
    
    
    
    53.9
    
    
    
    50.2
    
    
    
    54.4100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Gross profit
    Selling, general and administrative expenses
  23




---



##### Table of Contents



Depreciation and amortization expense
   Severance and transaction-related costs
  Gain on early debt extinguishment
  Other income, net
   Interest expense, net
   24




---



##### Table of Contents



Income taxes
  Segment Operations
  North America
  Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedAugust 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Net sales
    
    $
    193,165
    
    
    $
    222,676
    
    
    $
    389,609
    
    
    $
    432,020Increase (decrease) in same store sales
    
    
    (9.9
    )%
    
    
    (8.1
    )%
    
    
    (6.5
    )%
    
    
    (10.2
    )%Gross profit percentage
    
    
    48.7
    %
    
    
    48.9
    %
    
    
    49.4
    %
    
    
    48.3
    %Number of stores at the end of the period (1)
    
    
    2,001
    
    
    
    2,142
    
    
    
    2,001
    
    
    
    2,142
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores.     25




---



##### Table of Contents



Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    Ended% of Total
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Accessories
    
    
    45.2
    
    
    
    40.5
    
    
    
    44.5
    
    
    
    40.1Jewelry
    
    
    54.8
    
    
    
    59.5
    
    
    
    55.5
    
    
    
    59.9100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Europe
  Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedAugust 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Net sales
    
    $
    121,031
    
    
    $
    137,297
    
    
    $
    217,685
    
    
    $
    254,956Increase (decrease) in same store sales
    
    
    (1.6
    )%
    
    
    (1.7
    )%
    
    
    (1.3
    )%
    
    
    (1.0
    )%Gross profit percentage
    
    
    51.2
    %
    
    
    51.6
    %
    
    
    48.5
    %
    
    
    49.5
    %Number of stores at the end of the period (1)
    
    
    947
    
    
    
    911
    
    
    
    947
    
    
    
    911
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores.      Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    Ended% of Total
    
    August 1, 2009
    
    August 2, 2008
    
    August 1, 2009
    
    August 2, 2008Accessories
    
    
    59.3
    
    
    
    55.1
    
    
    
    59.3
    
    
    
    55.1Jewelry
    
    
    40.7
    
    
    
    44.9
    
    
    
    40.7
    
    
    
    44.9100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 26




---



##### Table of Contents



Financial Resources and Liquidity
  Six Months
    
    Six MonthsEnded
    
    EndedAugust 1, 2009
    
    August 2, 2008Operating activities
    
    $
    (486
    )
    
    $
    (13,343
    )Investing activities
    
    
    (9,882
    )
    
    
    (32,401
    )Financing activities
    
    
    (17,286
    )
    
    
    (7,250
    )
 Cash flows from operating activities
  Cash flows from investing activities
  Cash flows from financing activities
    Cash position
   27




---



##### Table of Contents



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.
  28




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
 The FASB Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles.
 Fair Value Measurements.
 Determination of the Useful
Life of Intangible Assets. Goodwill and Other Intangible Assets,
 Accounting by Lessees for
Nonrefundable Maintenance Deposits.
 Business Combinations Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51
 29




---



##### Table of Contents



Subsequent Events
 Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  30




---



##### Table of Contents



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




---



##### Table of Contents



Item 4. Controls and Procedures
     
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  32




---



##### Table of Contents



Item 6. Exhibits
 Exhibit 10.1
    
    Disclosure Schedules to Credit Agreement, dated as of May 29, 2007 (Credit Agreement), among Bauble Holdings
Corp., Bauble Acquisition Sub, Inc. (to be merged with and into Claires Stores, Inc.), as Borrower, the Lenders
party thereto, Credit Suisse, as Administrative Agent, Bear Stearns Corporate Lending Inc. and Mizuho Corporate
Bank, Ltd., as Co-Syndication Agents, Lehman Commercial Paper Inc. and LaSalle Bank National Association, as
Co-Documentation Agents, and Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC, and Lehman Brothers
Inc., as Joint Bookrunners and Joint Lead ArrangersExhibit 10.2
    
    Exhibits A through D to the Credit Agreement, dated as of May 29, 2007Exhibit 10.3
    
    Guarantee and Collateral Agreement, dated and effective as of May 29, 2007, among
Bauble Holdings Corp., Bauble Acquisition Sub, Inc., and Credit Suisse, dated as of May 29, 2007Exhibit 10.4
    
    Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of May 29, 2007Exhibit 10.5
    
    Exhibits A through E to Eugene Kahn Employment Agreement, dated as of May 29, 2007Exhibit 10.6
    
    Exhibits A through D to James Conroy Employment Agreement, dated as of December 13,
2007Exhibit 10.7
    
    Exhibits A and B to Amendment No. 1 to James Conroy Employment Agreement, dated as of
April 16, 2009Exhibit 10.8
    
    Exhibits A through D to Joan
Munnelly Employment Agreement, dated as of May 29, 2008Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 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 2002Exhibit 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
 Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
 33




---



##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.September 11, 2009
    By:

/s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer)September 11, 2009
    By:

/s/ J. Per BrodinJ. Per Brodin, Senior Vice President and Chief Financial Officer (principal financial and accounting officer) 34




---



##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTIONExhibit 10.1
    
    Disclosure Schedules to Credit Agreement, dated as of May 29, 2007 (Credit
Agreement), among Bauble Holdings Corp., Bauble Acquisition Sub, Inc. (to be merged with and into
Claires Stores, Inc.), as Borrower, the Lenders party thereto, Credit Suisse, as Administrative
Agent, Bear Stearns Corporate Lending Inc. and Mizuho Corporate Bank, Ltd., as Co-Syndication
Agents, Lehman Commercial Paper Inc. and LaSalle Bank National Association, as Co-Documentation
Agents, and Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC, and Lehman Brothers Inc.,
as Joint Bookrunners and Joint Lead ArrangersExhibit 10.2
    
    Exhibits A through D to the Credit Agreement, dated as of May 29, 2007Exhibit 10.3
    
    Guarantee and Collateral Agreement, dated and effective as of May 29, 2007, among
Bauble Holdings Corp., Bauble Acquisition Sub, Inc., and Credit Suisse, dated as of May 29, 2007Exhibit 10.4
    
    Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of May 29, 2007Exhibit 10.5
    
    Exhibits A through E to Eugene Kahn Employment Agreement, dated as of May 29, 2007Exhibit 10.6
    
    Exhibits A through D to James Conroy Employment Agreement, dated as of December 13,
2007Exhibit 10.7
    
    Exhibits A and B to Amendment No. 1 to James Conroy Employment Agreement, dated as of
April 16, 2009Exhibit 10.8
    
    Exhibits A through D to Joan
Munnelly Employment Agreement, dated as of May 29, 2008Exhibit 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 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 2002Exhibit 32.2
    
    Certification of Chief Financial
Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 35