##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 For the fiscal year ended January 29, 2011
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 For the transition period from             to
 Commission file number 000-49885
 
 Kirklands, Inc.
 (Exact name of registrant as specified in its charter)
 Tennessee
    
    62-1287151(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2501 McGavock Pike, Suite 1000, Nashville, TN
    
    37214(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(615) 872-4800
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of Each Exchange on Which RegisteredCommon Stock, no par value per share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
 (None)
 o þ
 o þ
  þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 FORM 10-K
 PageForward-Looking Statements
    
    
    3PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    17Item 4. Reserved
    
    
    17PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    29Item 8. Financial Statements and Supplementary Data
    
    
    29Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    29Item 9A. Controls and Procedures
    
    
    29Item 9B. Other Information
    
    
    30PART IIIItem 10. Directors and Executive Officers of the Registrant and Corporate Governance
    
    
    31Item 11. Executive Compensation
    
    
    31Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    31Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    31Item 14. Principal Accountant Fees and Services
    
    
    31PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    32Reports of Independent Registered Public Accounting Firm
    
    
    33Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010
    
    
    35Consolidated Statements of Income for the 52 weeks ended January 29, 2011, January 30,
2010 and January 31, 2009
    
    
    36Consolidated Statements of Changes in Shareholders Equity for the 52 weeks ended January
29, 2011, January 30, 2010 and January 31, 2009
    
    
    37Consolidated Statements of Cash Flows for the 52 weeks ended January 29, 2011, January
30, 2010 and January 31, 2009
    
    
    38Notes to Consolidated Financial Statements
    
    
    39Exhibits
    
    
    48Signatures
    
    
    49Index of Exhibits Filed with this Annual Report on Form 10-K
    
    
    50EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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FORWARD-LOOKING STATEMENTS
    3




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PART I
 
 Item 1.
    
    Business
 General
  Business Strategy
  Item-focused merchandising.
 Ever-changing merchandise mix.
 Stimulating visual presentation.
 Strong value proposition.
 Broad market appeal. www.kirklands.com
 Opening new stores.
 4




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Merchandising
 Merchandising strategy.
     Product assortment.
  % of Net SalesMerchandise Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Wall Décor (including framed art, mirrors, metal and other wall ornaments)
    
    
    30
    %
    
    
    31
    %
    
    
    32
    %Decorative Accessories
    
    
    13
    
    
    
    14
    
    
    
    13Candles and Accessories
    
    
    9
    
    
    
    9
    
    
    
    11Accent Furniture
    
    
    9
    
    
    
    9
    
    
    
    9Holiday
    
    
    7
    
    
    
    7
    
    
    
    7Lamps
    
    
    7
    
    
    
    7
    
    
    
    8Gifts
    
    
    7
    
    
    
    6
    
    
    
    4Frames
    
    
    6
    
    
    
    6
    
    
    
    4Textiles
    
    
    5
    
    
    
    5
    
    
    
    5Floral
    
    
    4
    
    
    
    4
    
    
    
    4
 5




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% of Net SalesMerchandise Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Garden
    
    
    3
    
    
    
    2
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Value to customer.
 Buying and Inventory Management
 Merchandise sourcing and product development.
  Planning and allocation.
  Store Operations
 General.
 Formats.
 Visual merchandising.
 6




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Personnel recruitment and training.
 Compensation and incentives.
 Real Estate
 Strategy.
 Site selection.
   Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010MallStores open at beginning of period
    
    
    210
    
    
    
    168
    
    
    
    121
    
    
    
    91
    
    
    
    66Store openings
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Store closings
    
    
    (43
    )
    
    
    (47
    )
    
    
    (30
    )
    
    
    (25
    )
    
    
    (9
    )Stores open at end of period
    
    
    168
    
    
    
    121
    
    
    
    91
    
    
    
    66
    
    
    
    59Off-Mall
 7




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##### Table of Contents



Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Stores open at beginning of period
    
    
    137
    
    
    
    181
    
    
    
    214
    
    
    
    208
    
    
    
    213Store openings
    
    
    48
    
    
    
    35
    
    
    
    3
    
    
    
    18
    
    
    
    36Store closings
    
    
    (4
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    (13
    )
    
    
    (8
    )Stores open at end of period
    
    
    181
    
    
    
    214
    
    
    
    208
    
    
    
    213
    
    
    
    241TotalStores open at beginning of period
    
    
    347
    
    
    
    349
    
    
    
    335
    
    
    
    299
    
    
    
    279Store openings
    
    
    49
    
    
    
    35
    
    
    
    3
    
    
    
    18
    
    
    
    38Store closings
    
    
    (47
    )
    
    
    (49
    )
    
    
    (39
    )
    
    
    (38
    )
    
    
    (17
    )Stores open at end of period
    
    
    349
    
    
    
    335
    
    
    
    299
    
    
    
    279
    
    
    
    300
 Distribution and Logistics
    Information Systems
    8




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Marketing
    Internet and Social Media
 www.mykirklands.com
  Trademarks
  ® ® ® ® ® ® TM
 Competition
  9




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Employees
  Availability of SEC Reports
  Executive Officers of Kirklands
  Robert E. Alderson,
 W. Michael Madden,
 Michelle R. Graul,
  10




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Item 1A.
    
    Risk Factors
 Investing in our common stock involves risk. You should carefully consider the following
risks, as well as the other information contained in this 10-K, including our consolidated
financial statements and the related notes, before investing in our common stock.
 If We Do Not Generate Sufficient Cash Flow, We May Not Be Able to Implement Our Growth Strategy.
  If We Are Unable to Profitably Open and Operate New Stores, We May Not Be Able to Adequately
Execute Our Growth Strategy, Resulting in a Decrease in Net Sales and Net Income.
   
    
    Maintain or obtain adequate capital resources for leasehold improvements, fixtures and inventory on acceptable terms;
    
    locate and obtain favorable store sites and negotiate acceptable lease terms;
    
    construct or refurbish store sites;
    
    obtain and distribute adequate product supplies to our stores;
    
    maintain adequate warehousing and distribution capability at acceptable costs;
    
    hire, train and retain skilled managers and personnel; and
    
    continue to upgrade our information and other operating systems to control the anticipated growth and expanded operations.
    11




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Our Success Depends Upon our Marketing, Advertising and Promotional Efforts. If We are Unable to
Implement them Successfully, or if Our Competitors are More Effective Than We are, Our Revenue May
Be Adversely Affected.
  Weather Conditions Could Adversely Affect Our Sales and/or Profitability by Affecting Consumer
Shopping Patterns.
  Our Performance May be Affected by General Economic Conditions.
     We May Not Be Able to Successfully Anticipate Consumer Trends and Our Failure to Do So May Lead to
Loss of Consumer Acceptance of Our Products Resulting in Reduced Net Sales.
  Our Freight Costs and thus Our Cost of Goods Sold are Impacted by Changes in Fuel Prices.
  12




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New Legal Requirements Could Adversely Affect Our Operating Results.
    The Market Price for Our Common Stock Might Be Volatile and Could Result in a Decline in the Value
of Your Investment.
  Our Comparable Store Net Sales Fluctuate Due to a Variety of Factors.
  Failure to Protect the Integrity and Security of Individually Identifiable Data of Our Customers
and Employees Could Expose Us to Litigation and Damage Our Reputation.
  We Face an Extremely Competitive Specialty Retail Business Market, and Such Competition Could
Result in a Reduction of Our Prices and a Loss of Our Market Share.
  We Depend on a Number of Vendors to Supply Our Merchandise, and Any Delay in Merchandise Deliveries
from Certain Vendors May Lead to a Decline in Inventory Which Could Result in a Loss of Net Sales.
 13




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We Are Dependent on Foreign Imports for a Significant Portion of Our Merchandise, and Any Changes
in the Trading Relations and Conditions Between the United States and the Relevant Foreign
Countries May Lead to a Decline in Inventory Resulting in a Decline in Net Sales, or an Increase in
the Cost of Sales Resulting in Reduced Gross Profit.
     Our Success Is Highly Dependent on Our Planning and Control Processes and Our Supply Chain, and Any
Disruption in or Failure to Continue to Improve These Processes May Result in a Loss of Net Sales
and Net Income.
   14




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Our Business Is Highly Seasonal and Our Fourth Quarter Contributes a Disproportionate Amount of Our
Net Sales, Net Income and Cash Flow, and Any Factors Negatively Impacting Us During Our Fourth
Quarter Could Reduce Our Net Sales, Net Income and Cash Flow, Leaving Us with Excess Inventory and
Making It More Difficult for Us to Finance Our Capital Requirements.
  We May Experience Significant Variations in Our Quarterly Results.
  Our Hardware and Software Systems Are Vulnerable to Damage that Could Harm Our Business.
  
    
    fire, flood and other natural disasters;
    
    power loss, computer systems failures, internet and telecommunications or data network
failure, operator negligence, improper operation by or supervision of employees, physical
and electronic loss of data or security breaches, misappropriation and similar events; and
    
    computer viruses.
  We Depend on Key Personnel, and if We Lose the Services of Any Member of Our Senior Management
Team, We May Not Be Able to Run Our Business Effectively.
  Our Charter and Bylaw Provisions and Certain Provisions of Tennessee Law May Make It Difficult in
Some Respects to Cause a Change in Control of Kirklands and Replace Incumbent Management.
  15




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Concentration of Ownership among Our Existing Directors, Executive Officers, and Their Affiliates
May Prevent New Investors from Influencing Significant Corporate Decisions.
  If We Fail to Maintain an Effective System of Internal Control, We May Not be Able to Accurately
Report Our Financial Results.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
   16




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Alabama
    
    
    16Arizona
    
    
    13Arkansas
    
    
    7California
    
    
    12Colorado
    
    
    1Delaware
    
    
    1Florida
    
    
    37Georgia
    
    
    17Illinois
    
    
    6Indiana
    
    
    5Iowa
    
    
    1Kansas
    
    
    2Kentucky
    
    
    8Louisiana
    
    
    11Maryland
    
    
    4Michigan
    
    
    3Minnesota
    
    
    4Mississippi
    
    
    10Missouri
    
    
    6Nevada
    
    
    2New York
    
    
    7North Carolina
    
    
    19Ohio
    
    
    7Oklahoma
    
    
    5Pennsylvania
    
    
    5South Carolina
    
    
    8Tennessee
    
    
    15Texas
    
    
    56Virginia
    
    
    9Wisconsin
    
    
    3Total
    
    
    300
 
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Reserved
  17




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and Issuer of
Purchases of Equity Securities
  Fiscal 2010
    
    Fiscal 2009High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    24.53
    
    
    $
    14.20
    
    
    $
    7.00
    
    
    $
    2.65Second Quarter
    
    $
    23.65
    
    
    $
    14.93
    
    
    $
    14.42
    
    
    $
    5.74Third Quarter
    
    $
    18.20
    
    
    $
    11.15
    
    
    $
    15.40
    
    
    $
    11.18Fourth Quarter
    
    $
    14.73
    
    
    $
    10.79
    
    
    $
    18.95
    
    
    $
    12.68
 Dividend Policy
  Stock Price Performance Graph
  
 18




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Item 6.
    
    Selected Financial Data
  Fiscal Year(numbers in thousands, except per share amounts)
    
    2010
    
    2009
    
    2008
    
    2007
    
    2006 (11)Summary of OperationsTotal revenue (1)
    
    $
    415,300
    
    
    $
    406,194
    
    
    $
    391,277
    
    
    $
    396,701
    
    
    $
    446,828Gross profit
    
    
    170,536
    
    
    
    168,506
    
    
    
    133,991
    
    
    
    112,714
    
    
    
    137,321Operating expenses (2)
    
    
    115,745
    
    
    
    107,063
    
    
    
    105,581
    
    
    
    118,261
    
    
    
    119,915Depreciation and amortization
    
    
    12,817
    
    
    
    14,505
    
    
    
    18,741
    
    
    
    20,391
    
    
    
    18,084Operating income (loss)
    
    
    41,974
    
    
    
    46,938
    
    
    
    9,669
    
    
    
    (25,938
    )
    
    
    (678
    )Other (income) and expenses, net
    
    
    (194
    )
    
    
    (47
    )
    
    
    (419
    )
    
    
    328
    
    
    
    (521
    )Income (loss) before income taxes
    
    
    42,168
    
    
    
    46,985
    
    
    
    10,088
    
    
    
    (26,266
    )
    
    
    (157
    )Net income (loss) (3)
    
    $
    26,431
    
    
    $
    34,570
    
    
    $
    9,305
    
    
    $
    (25,906
    )
    
    $
    (140
    )GAAP diluted earnings (loss) per share
    
    $
    1.28
    
    
    $
    1.71
    
    
    $
    0.47
    
    
    $
    (1.33
    )
    
    $
    (0.01
    )Adjusted diluted earnings (loss) per share (4)
    
    $
    1.24
    
    
    $
    1.42
    
    
    $
    0.30
    
    
    $
    (0.91
    )
    
    $
    (0.01
    )Other Financial DataComparable store sales increase (decrease) (5)
    
    
    (0.5
    %)
    
    
    8.4
    %
    
    
    3.6
    %
    
    
    (13.3
    %)
    
    
    (6.6
    %)Number of stores at year end
    
    
    300
    
    
    
    279
    
    
    
    299
    
    
    
    335
    
    
    
    349Average total revenue per store
    
    $
    1,419
    
    
    
    1,374
    
    
    
    1,218
    
    
    
    1,126
    
    
    
    1,272Average net sales per square foot (6)
    
    $
    231
    
    
    
    224
    
    
    
    210
    
    
    
    204
    
    
    
    247Average square footage per store at fiscal
year end
    
    
    6,425
    
    
    
    6,073
    
    
    
    5,823
    
    
    
    5,755
    
    
    
    5,458Merchandise margin as a percentage of total
revenue (7)
    
    
    54.0
    %
    
    
    55.2
    %
    
    
    51.0
    %
    
    
    47.5
    %
    
    
    48.4
    %Gross profit as a percentage of total revenue
    
    
    41.1
    %
    
    
    41.5
    %
    
    
    34.2
    %
    
    
    28.4
    %
    
    
    30.7
    %Compensation and benefits as a percentage of
total revenue
    
    
    18.0
    %
    
    
    17.6
    %
    
    
    17.8
    %
    
    
    18.5
    %
    
    
    17.3
    %Other operating expenses as a percentage of
total revenue
    
    
    9.9
    %
    
    
    8.8
    %
    
    
    9.2
    %
    
    
    10.4
    %
    
    
    9.3
    %Effective tax rate
    
    
    37.3
    %
    
    
    26.4
    %
    
    
    7.8
    %
    
    
    (1.4
    %)
    
    
    (10.8
    %)Inventory yield (8)
    
    
    372.7
    %
    
    
    396.5
    %
    
    
    297.0
    %
    
    
    226.0
    %
    
    
    275.0
    %Return on assets (ROA) (9)
    
    
    14.7
    %
    
    
    23.7
    %
    
    
    7.5
    %
    
    
    (21.4
    %)
    
    
    (0.1
    %)Return on equity (ROE) (10)
    
    
    25.6
    %
    
    
    49.1
    %
    
    
    19.6
    %
    
    
    (46.9
    %)
    
    
    (1.0
    %)Balance Sheet DataCurrent assets
    
    $
    146,670
    
    
    
    123,650
    
    
    
    81,322
    
    
    
    57,934
    
    
    
    78,220Working capital
    
    $
    100,781
    
    
    
    75,572
    
    
    
    37,491
    
    
    
    16,582
    
    
    
    30,856
 19




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Fiscal Year Ended2010
    
    2009
    
    2008
    
    2007
    
    2006 (11)(numbers in thousands, except per share amounts)Total assets
    
    $
    195,077
    
    
    
    165,541
    
    
    
    126,764
    
    
    
    122,132
    
    
    
    151,466Current liabilities
    
    $
    45,889
    
    
    
    48,078
    
    
    
    43,831
    
    
    
    41,352
    
    
    
    47,364Total liabilities
    
    $
    76,788
    
    
    
    77,056
    
    
    
    74,413
    
    
    
    79,562
    
    
    
    83,484Shareholders equity
    
    $
    118,289
    
    
    
    88,485
    
    
    
    52,351
    
    
    
    42,570
    
    
    
    67,982
 
 (1)
    
    For fiscal 2006, total revenue includes $3.6 million related to the initial adoption of the Companys gift certificate and gift card breakage policy.(2)
    
    During fiscal 2008, 2007 and 2006, the Company incurred non-cash charges related to impairment of long-lived assets in the pre-tax amount of approximately $352, $3,453, and
$688, respectively. These amounts are included within operating expenses.(3)
    
    The Company recorded adjustments to decrease
(increase) its valuation allowance against deferred tax assets
of $5,437, $3,376 and $(8,168) in fiscal 2009, 2008 and 2007,
respectively.(4)
    
    Adjusted earnings per share excludes certain discrete adjustments to income taxes related to prior periods. Please see the table on page 24 for more information on these
adjustments.(5)
    
    Comparable store sales are calculated by including new stores
in the comparable store sales base on the first day of the month following the 13th full fiscal month of sales.(6)
    
    Calculated using the gross square footage of all stores open at both the beginning and the end of the period. Gross square footage includes the storage, receiving and office
space that generally occupies approximately 30% of total store space.(7)
    
    Merchandise margin is calculated as net sales minus product cost of sales. Merchandise margin excludes outbound freight, store occupancy and
central distribution costs.(8)
    
    Inventory yield is defined as gross profit divided by average inventory for each of the preceding four quarters.(9)
    
    Return on assets equals net income divided by average total assets.(10)
    
    Return on equity equals net income divided by average total shareholders equity.(11)
    
    Fiscal 2006 consisted of a 53-week year. All other fiscal years presented reflect 52-week years. 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
   Introduction
  Overview of Key Financial Measures
  20




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Strategic Areas of Emphasis
   As of
    
    As ofJanuary 29, 2011
    
    January 30, 2010Number of Stores
    
    
    300
    
    
    
    279Square footage
    
    
    1,927,454
    
    
    
    1,694,364Average square footage per store
    
    
    6,425
    
    
    
    6,073
    21




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Fiscal 2010 Compared to Fiscal 2009
 Results of operations.
 Fiscal 2010
    
    
    Fiscal 2009
    
    
    Change$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Net sales
    
    $
    414,719
    
    
    
    99.9
    %
    
    $
    405,676
    
    
    
    99.9
    %
    
    $
    9,043
    
    
    
    2.2
    %Gift card breakage revenue
    
    
    581
    
    
    
    0.1
    %
    
    
    518
    
    
    
    0.1
    %
    
    
    63
    
    
    
    12.2
    %Total revenue
    
    
    415,300
    
    
    
    100.0
    %
    
    
    406,194
    
    
    
    100.0
    %
    
    
    9,106
    
    
    
    2.2
    %Cost of sales
    
    
    244,764
    
    
    
    58.9
    %
    
    
    237,688
    
    
    
    58.5
    %
    
    
    7,076
    
    
    
    3.0
    %Gross profit
    
    
    170,536
    
    
    
    41.1
    %
    
    
    168,506
    
    
    
    41.5
    %
    
    
    2,029
    
    
    
    1.2
    %Operating expenses:Compensation and benefits
    
    
    74,799
    
    
    
    18.0
    %
    
    
    71,300
    
    
    
    17.6
    %
    
    
    3,498
    
    
    
    4.9
    %Other operating expenses
    
    
    40,946
    
    
    
    9.9
    %
    
    
    35,763
    
    
    
    8.8
    %
    
    
    5,183
    
    
    
    14.5
    %Depreciation
    
    
    12,817
    
    
    
    3.1
    %
    
    
    14,505
    
    
    
    3.6
    %
    
    
    (1,688
    )
    
    
    (11.6
    %)Operating income
    
    
    41,974
    
    
    
    10.1
    %
    
    
    46,938
    
    
    
    11.6
    %
    
    
    (4,964
    )
    
    
    (10.3
    %)Interest expense, net
    
    
    137
    
    
    
    0.0
    %
    
    
    209
    
    
    
    0.1
    %
    
    
    (72
    )
    
    
    (34.6
    %)Other income, net
    
    
    (331
    )
    
    
    (0.1
    )%
    
    
    (256
    )
    
    
    (0.1
    )%
    
    
    (75
    )
    
    
    29.3
    %Income before income taxes
    
    
    42,168
    
    
    
    10.2
    %
    
    
    46,985
    
    
    
    11.6
    %
    
    
    (4,817
    )
    
    
    (10.3
    %)Income tax expense
    
    
    15,737
    
    
    
    3.8
    %
    
    
    12,415
    
    
    
    3.1
    %
    
    
    3,322
    
    
    
    26.8
    %Net income
    
    $
    26,431
    
    
    
    6.4
    %
    
    $
    34,570
    
    
    
    8.5
    %
    
    $
    (8,139
    )
    
    
    (23.5
    %)
 Net sales.
 Gross profit.
 Compensation and benefits.
 Other operating expenses.
 Depreciation.
 22




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##### Table of Contents



Income tax expense.
 Net income.
 Fiscal 2009 Compared to Fiscal 2008
 Results of operations.
 Fiscal 2009
    
    
    Fiscal 2008
    
    
    Change$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Net sales
    
    $
    405,676
    
    
    
    99.9
    %
    
    $
    390,640
    
    
    
    99.8
    %
    
    $
    15,036
    
    
    
    3.8
    %Gift card breakage revenue
    
    
    518
    
    
    
    0.1
    %
    
    
    637
    
    
    
    0.2
    %
    
    
    (119
    )
    
    
    (18.7
    )%Total revenue
    
    
    406,194
    
    
    
    100.0
    %
    
    
    391,277
    
    
    
    100.0
    %
    
    
    14,917
    
    
    
    3.8
    %Cost of sales
    
    
    237,688
    
    
    
    58.5
    %
    
    
    257,286
    
    
    
    65.8
    %
    
    
    (19,598
    )
    
    
    (7.6
    )%Gross profit
    
    
    168,506
    
    
    
    41.5
    %
    
    
    133,991
    
    
    
    34.2
    %
    
    
    34,515
    
    
    
    25.8
    %Operating expenses:Compensation and benefits
    
    
    71,300
    
    
    
    17.6
    %
    
    
    69,508
    
    
    
    17.8
    %
    
    
    1,792
    
    
    
    2.6
    %Other operating expenses
    
    
    35,763
    
    
    
    8.8
    %
    
    
    35,721
    
    
    
    9.1
    %
    
    
    43
    
    
    
    0.1
    %Impairment charge
    
    
    
    
    
    
    0.0
    %
    
    
    352
    
    
    
    0.1
    %
    
    
    (352
    )
    
    
    (100.0
    )%Depreciation
    
    
    14,505
    
    
    
    3.6
    %
    
    
    18,741
    
    
    
    4.8
    %
    
    
    (4,236
    )
    
    
    (22.6
    )%Operating income
    
    
    46,938
    
    
    
    11.6
    %
    
    
    9,669
    
    
    
    2.5
    %
    
    
    37,269
    
    
    
    385.4
    %Interest expense, net
    
    
    209
    
    
    
    0.1
    %
    
    
    50
    
    
    
    0.0
    %
    
    
    159
    
    
    
    318.0
    %Other income, net
    
    
    (256
    )
    
    
    (0.1
    )%
    
    
    (469
    )
    
    
    (0.1
    )%
    
    
    213
    
    
    
    (45.4
    )%Income before income taxes
    
    
    46,985
    
    
    
    11.6
    %
    
    
    10,088
    
    
    
    2.6
    %
    
    
    36,897
    
    
    
    365.8
    %Income tax expense
    
    
    12,415
    
    
    
    3.1
    %
    
    
    783
    
    
    
    0.2
    %
    
    
    11,632
    
    
    
    1485.6
    %Net income
    
    $
    34,570
    
    
    
    8.5
    %
    
    $
    9,305
    
    
    
    2.4
    %
    
    $
    25,265
    
    
    
    271.5
    %
 Net sales.
 Gross profit.
 23




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##### Table of Contents



Compensation and benefits.
 Other operating expenses.
 Depreciation.
 Income tax expense.
 Net income.
 Reconciliation of Non-GAAP Measures
  Reconciliation of Non-GAAP Financial Information
 52 Weeks EndedJanuary
    
    January
    
    January
    
    February(dollars in thousands, except per share amounts)
    
    29, 2011
    
    30, 2010
    
    31, 2009
    
    2, 2008Net income (loss)Net income (loss) in accordance with GAAP
    
    $
    26,431
    
    
    $
    34,570
    
    
    $
    9,305
    
    
    $
    (25,906
    )Adjustments to income tax expense (benefit)
    
    $
    (814
    )
    
    $
    (5,881
    )
    
    $
    (3,376
    )
    
    $
    8,168Adjusted net income (loss)
    
    $
    25,617
    
    
    $
    28,689
    
    
    $
    5,929
    
    
    $
    (17,738
    )Diluted earnings (loss) per shareDiluted EPS in accordance with GAAP
    
    $
    1.28
    
    
    $
    1.71
    
    
    $
    0.47
    
    
    
    ($1.33
    )Adjustments to income tax expense (benefit)
    
    $
    (0.04
    )
    
    $
    (0.29
    )
    
    $
    (0.17
    )
    
    $
    0.42
 24




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##### Table of Contents



52 Weeks EndedJanuary
    
    January
    
    January
    
    February(dollars in thousands, except per share amounts)
    
    29, 2011
    
    30, 2010
    
    31, 2009
    
    2, 2008Adjusted diluted earnings (loss) per share
    
    $
    1.24
    
    
    $
    1.42
    
    
    $
    0.30
    
    
    
    ($0.91
    )
 Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
 Revolving credit facility.
   25




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##### Table of Contents



Contractual Obligations
  Amount of Commitment per PeriodTotalContractual
    
    Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Obligations
    
    year
    
    1 to 3 years
    
    3 to 5 years
    
    yearsOperating leases(1)
    
    $
    231,152
    
    
    $
    40,160
    
    
    $
    68,760
    
    
    $
    56,666
    
    
    $
    65,566Purchase obligations(2)
    
    $
    60,990
    
    
    $
    60,990
    
    
    $
    
    
    
    $
    
    
    
    $
    Construction commitments
    
    $
    783
    
    
    $
    783
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    292,925
    
    
    $
    101,933
    
    
    $
    68,760
    
    
    $
    56,666
    
    
    $
    65,566 
 (1)
    
    These amounts represent future minimum lease payments under non-cancelable operating leases.(2)
    
    Purchase obligations consist entirely of open purchase orders
of merchandise inventory as of January 29, 2011; such orders are
generally cancelable at the discretion of the Company until the order
has been shipped.
 Related Party Transactions
  Off-Balance Sheet Arrangements
  Seasonality and Quarterly Results
    Fiscal 2010 Quarter EndedMay 1,
    
    July 31,
    
    October 30,
    
    January 29,2010
    
    2010
    
    2010
    
    2011Total revenue
    
    $
    93,465
    
    
    $
    89,504
    
    
    $
    92,725
    
    
    $
    139,606Gross profit
    
    
    40,636
    
    
    
    34,822
    
    
    
    35,993
    
    
    
    59,085Operating income
    
    
    10,953
    
    
    
    5,064
    
    
    
    3,766
    
    
    
    22,191Net income
    
    
    6,518
    
    
    
    3,252
    
    
    
    2,279
    
    
    
    14,382Earnings per share:Basic
    
    
    0.33
    
    
    
    0.16
    
    
    
    0.11
    
    
    
    0.72Diluted
    
    
    0.32
    
    
    
    0.16
    
    
    
    0.11
    
    
    
    0.70Stores open at end of period
    
    
    281
    
    
    
    286
    
    
    
    296
    
    
    
    300Comparable store net sales increase (decrease)
    
    
    12.6
    %
    
    
    1.0
    %
    
    
    (2.4
    )%
    
    
    (7.9
    )%
 Fiscal 2009 Quarter EndedMay 2,
    
    August 1,
    
    October 31,
    
    January 30,2009
    
    2009
    
    2009
    
    2010Total revenue
    
    $
    83,320
    
    
    $
    87,688
    
    
    $
    92,389
    
    
    $
    142,797Gross profit
    
    
    32,108
    
    
    
    33,473
    
    
    
    37,930
    
    
    
    64,995Operating income
    
    
    4,028
    
    
    
    4,776
    
    
    
    7,643
    
    
    
    30,491Net income (1)
    
    
    3,478
    
    
    
    3,444
    
    
    
    5,570
    
    
    
    22,078Earnings per share:Basic
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.28
    
    
    
    1.12Diluted
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.27
    
    
    
    1.08Stores open at end of period
    
    
    292
    
    
    
    291
    
    
    
    296
    
    
    
    279Comparable store net sales increase
    
    
    5.2
    %
    
    
    6.1
    %
    
    
    11.3
    %
    
    
    10.2
    %
 26




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##### Table of Contents



(1)
    
    As a result of positive operating performance throughout fiscal 2009, we were able to reverse
the remaining $5.4 million of valuation allowance against our deferred tax assets. Inflation
  Critical Accounting Policies and Estimates
  Inventory valuation 
   Impairments  
  Depreciation
 
    
    We utilize the straight-line method of depreciation and a variety of depreciable lives.
Furniture, fixtures and equipment are generally depreciated over 5 years. Computer software
and equipment is depreciated over 3-7 years. Leasehold improvements
 27




---



##### Table of Contents



are amortized over the
shorter of the useful lives of the assets or the original non-cancelable lease term. Our
lease terms typically range from 5 to 10 years.
    
    To the extent we replace or dispose of fixtures or equipment prior to the end of its
assigned depreciable life, we could realize a loss or gain on the disposition. To the extent
our assets are used beyond their assigned depreciable life, no depreciation expense is being
realized. We reassess the depreciable lives in an effort to reduce the risk of significant
losses or gains arising from either the disposition of our assets or the utilization of
assets with no depreciation charges.
 Insurance reserves
  Income taxes
  Stock-based compensation
 28




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
   
 Item 8.
    
    Financial Statements and Supplementary Data
   
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated
Framework
 29




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B.
    
    Other Information
  30




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers, and Corporate Governance
   
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Equity Compensation Plan Information
 (c)Number of securities(a)

    

    (b)
    
    remaining available forNumber of securities to
    
    Weighted-average
    
    future issuance under equitybe issued upon exercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    Outstanding options,
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))Equity compensation plans approved by
security holders
    
    
    1,807,818
    
    
    $
    9.78
    
    
    
    1,094,430Equity compensation plans not approved by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,807,818
    
    
    $
    9.78
    
    
    
    1,094,430
 
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
   
 Item 14.
    
    Principal Accountant Fees and Services
  31




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
 Financial Statements
  Reports of Independent Registered Public Accounting Firm
    
    
    33Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010
    
    
    35Consolidated Statements of Income for the 52 Weeks Ended January 29, 2011, January 30, 2010 and January 31, 2009
    
    
    36Consolidated Statements of Shareholders Equity for the 52 Weeks Ended January 29, 2011, January 30, 2010 and
January 31, 2009
    
    
    37Consolidated Statements of Cash Flows for the 52 Weeks Ended January 29, 2011, January 30, 2010 and January 31, 2009
    
    
    38Notes to Consolidated Financial Statements
    
    
    39
 32




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
         
 33




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
       
 34




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##### Table of Contents



KIRKLANDS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 January 29, 2011
    
    
    January 30, 2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    91,222
    
    
    $
    76,412Inventories, net
    
    
    44,452
    
    
    
    39,355Deferred income taxes
    
    
    3,528
    
    
    
    3,552Prepaid expenses and other current assets
    
    
    7,468
    
    
    
    4,331Total current assets
    
    
    146,670
    
    
    
    123,650Property and equipment, net
    
    
    46,231
    
    
    
    36,856Non-current deferred income taxes
    
    
    1,440
    
    
    
    4,395Other assets
    
    
    736
    
    
    
    640Total assets
    
    $
    195,077
    
    
    $
    165,541LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    20,236
    
    
    $
    15,589Income taxes payable
    
    
    1,289
    
    
    
    7,087Accrued expenses
    
    
    24,364
    
    
    
    25,402Total current liabilities
    
    
    45,889
    
    
    
    48,078Deferred rent
    
    
    27,259
    
    
    
    25,399Other liabilities
    
    
    3,640
    
    
    
    3,579Total liabilities
    
    
    76,788
    
    
    
    77,056Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Shareholders equity:Preferred stock, no par value, 10,000,000 shares authorized; no shares issued
or outstanding at January 29, 2011, and January 30, 2010
    
    
    
    
    
    
    Common stock, no par value, 100,000,000 shares authorized; 19,910,963 and
19,749,148 shares issued and outstanding at January 29, 2011, and January 30,
2010, respectively
    
    
    146,747
    
    
    
    143,374Accumulated deficit
    
    
    (28,458
    )
    
    
    (54,889
    )Total shareholders equity
    
    
    118,289
    
    
    
    88,485Total liabilities and shareholders equity
    
    $
    195,077
    
    
    $
    165,541
  35




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##### Table of Contents



KIRKLANDS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share data)
 52 Weeks EndedJanuary 29, 2011
    
    
    January 30, 2010
    
    
    January 31, 2009Net sales
    
    $
    414,719
    
    
    $
    405,676
    
    
    $
    390,640Gift card breakage revenue
    
    
    581
    
    
    
    518
    
    
    
    637Total revenue
    
    
    415,300
    
    
    
    406,194
    
    
    
    391,277Cost of sales (exclusive of depreciation as shown below)
    
    
    244,764
    
    
    
    237,688
    
    
    
    257,286Gross profit
    
    
    170,536
    
    
    
    168,506
    
    
    
    133,991Operating expenses:Compensation and benefits
    
    
    74,799
    
    
    
    71,300
    
    
    
    69,508Other operating expenses
    
    
    40,946
    
    
    
    35,763
    
    
    
    35,721Impairment charges
    
    
    
    
    
    
    
    
    
    
    352Depreciation
    
    
    12,817
    
    
    
    14,505
    
    
    
    18,741Total operating expenses
    
    
    128,562
    
    
    
    121,568
    
    
    
    124,322Operating income
    
    
    41,974
    
    
    
    46,938
    
    
    
    9,669Interest expense
    
    
    137
    
    
    
    209
    
    
    
    123Interest income
    
    
    (80
    )
    
    
    
    
    
    
    (73
    )Other income, net
    
    
    (251
    )
    
    
    (256
    )
    
    
    (469
    )Income before income taxes
    
    
    42,168
    
    
    
    46,985
    
    
    
    10,088Income tax expense
    
    
    15,737
    
    
    
    12,415
    
    
    
    783Net income
    
    $
    26,431
    
    
    $
    34,570
    
    
    $
    9,305Earnings per share:Basic
    
    $
    1.33
    
    
    $
    1.76
    
    
    $
    0.47Diluted
    
    $
    1.28
    
    
    $
    1.71
    
    
    $
    0.47Weighted average shares for basic earnings per share
    
    
    19,855
    
    
    
    19,696
    
    
    
    19,628Effect of dilutive stock equivalents
    
    
    723
    
    
    
    553
    
    
    
    63Adjusted weighted average shares for diluted earnings per share
    
    
    20,578
    
    
    
    20,249
    
    
    
    19,691
  36




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##### Table of Contents



KIRKLANDS, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 TotalCommon Stock
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Deficit
    
    
    Equity(In thousands, except share data)Balance at February 2, 2008
    
    
    19,585,093
    
    
    $
    141,334
    
    
    $
    (98,764
    )
    
    $
    42,570Exercise of stock options and employee stock purchases
    
    
    68,177
    
    
    
    103
    
    
    
    
    
    
    
    103Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    373Net income
    
    
    
    
    
    
    
    
    
    
    9,305
    
    
    
    9,305Balance at January 31, 2009
    
    
    19,653,270
    
    
    
    141,810
    
    
    
    (89,459
    )
    
    
    52,351Exercise of stock options and employee stock purchases
    
    
    95,878
    
    
    
    241
    
    
    
    
    
    
    
    241Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,323
    
    
    
    1,323Net income
    
    
    
    
    
    
    
    
    
    
    34,570
    
    
    
    34,570Balance at January 30, 2010
    
    
    19,749,148
    
    
    
    143,374
    
    
    
    (54,889
    )
    
    
    88,485Exercise of stock options and employee stock purchases
    
    
    161,815
    
    
    
    706
    
    
    
    
    
    
    
    706Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    2,667
    
    
    
    2,667Net income
    
    
    
    
    
    
    
    
    
    
    26,431
    
    
    
    26,431Balance at January 29, 2011
    
    
    19,910,963
    
    
    $
    146,747
    
    
    $
    (28,458
    )
    
    $
    118,289
  37




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##### Table of Contents



KIRKLANDS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 52 Weeks EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,2011
    
    
    2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    26,431
    
    
    $
    34,570
    
    
    $
    9,305Adjustments to reconcile net income to net cash provided by operating activities:Depreciation of property and equipment
    
    
    12,817
    
    
    
    14,505
    
    
    
    18,741Amortization of tenant allowance
    
    
    (6,595
    )
    
    
    (7,991
    )
    
    
    (9,016
    )Amortization of debt issue costs
    
    
    27
    
    
    
    27
    
    
    
    27Impairment charge
    
    
    
    
    
    
    
    
    
    
    352Stock-based compensation expense
    
    
    2,667
    
    
    
    1,323
    
    
    
    373Loss on disposal of property and equipment
    
    
    404
    
    
    
    711
    
    
    
    1,123Deferred income taxes
    
    
    2,979
    
    
    
    (3,118
    )
    
    
    (4,510
    )Changes in assets and liabilities:Inventories, net
    
    
    (5,097
    )
    
    
    (669
    )
    
    
    2,560Prepaid expenses and other current assets
    
    
    (3,137
    )
    
    
    29
    
    
    
    3,608Other noncurrent assets
    
    
    (123
    )
    
    
    (49
    )
    
    
    161Accounts payable
    
    
    4,647
    
    
    
    2,088
    
    
    
    (2,285
    )Income taxes payable
    
    
    (5,798
    )
    
    
    1,738
    
    
    
    8,249Accrued expenses and other current and noncurrent liabilities
    
    
    7,478
    
    
    
    6,808
    
    
    
    874Net cash provided by operating activities
    
    
    36,700
    
    
    
    49,972
    
    
    
    29,562Cash flows from investing activities:Proceeds from sale of property and equipment
    
    
    37
    
    
    
    67
    
    
    
    3,700Capital expenditures
    
    
    (22,633
    )
    
    
    (10,313
    )
    
    
    (2,740
    )Net cash provided by (used in) investing activities
    
    
    (22,596
    )
    
    
    (10,246
    )
    
    
    960Cash flows from financing activities:Exercise of stock options and employee stock purchases
    
    
    706
    
    
    
    241
    
    
    
    103Net cash provided by financing activities
    
    
    706
    
    
    
    241
    
    
    
    103Cash and cash equivalents:Net increase
    
    
    14,810
    
    
    
    39,967
    
    
    
    30,625Beginning of the year
    
    
    76,412
    
    
    
    36,445
    
    
    
    5,820End of the year
    
    
    91,222
    
    
    $
    76,412
    
    
    $
    36,445Supplemental cash flow information:Interest paid
    
    $
    91
    
    
    $
    91
    
    
    $
    92Income taxes paid (refunded)
    
    $
    17,938
    
    
    $
    13,610
    
    
    $
    (2,879
    )
  38




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##### Table of Contents



KIRKLANDS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Description of Business and Significant Accounting Policies
    Fiscal year
 Cash equivalents
 Cost of sales and inventory valuation
 Vendor allowances
 Property and equipment
 Cost of internal use software
 Asset retirement obligations
 39




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##### Table of Contents



Impairment of long-lived assets
 Insurance reserves
 Customer loyalty program
 Deferred rent
  Revenue recognition
  40




---



##### Table of Contents



Compensation and benefits
 Stock-based compensation
 Other operating expenses
 Preopening expenses
 Advertising expenses
 Income taxes
   Sales and use taxes
 Use of estimates
 Concentrations
of risk
 41




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##### Table of Contents



Fair value of financial instruments
 Earnings per share
 Comprehensive income
 Operating segments
 Note 2  Property and Equipment
  January 29,
    
    
    January 30,2011
    
    
    2010Equipment
    
    $
    29,302
    
    
    $
    27,041Furniture and fixtures
    
    
    43,216
    
    
    
    39,484Leasehold improvements
    
    
    61,413
    
    
    
    55,277Projects in progress
    
    
    6,739
    
    
    
    1,856140,670
    
    
    
    123,658Less: Accumulated depreciation
    
    
    94,439
    
    
    
    86,802$
    46,231
    
    
    $
    36,856
 Note 3  Accrued Expenses
  January 29,
    
    
    January 30,2011
    
    
    2010Salaries and wages
    
    $
    5,528
    
    
    $
    6,911Gift cards and store credits
    
    
    5,773
    
    
    
    5,413Sales taxes
    
    
    2,306
    
    
    
    2,325Deferred rent
    
    
    7,045
    
    
    
    6,557Other
    
    
    3,712
    
    
    
    4,196$
    24,364
    
    
    $
    25,402
 Note 4  Income Taxes
  42




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##### Table of Contents



52 Weeks EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,2011
    
    
    2010
    
    
    2009CurrentFederal
    
    $
    10,413
    
    
    $
    13,203
    
    
    $
    5,172State
    
    
    2,345
    
    
    
    2,330
    
    
    
    121DeferredFederal
    
    
    2,547
    
    
    
    2,227
    
    
    
    (648
    )State
    
    
    432
    
    
    
    92
    
    
    
    (486
    )Change in valuation allowance
    
    
    
    
    
    
    (5,437
    )
    
    
    (3,376
    )$
    15,737
    
    
    $
    12,415
    
    
    $
    783
  52 Weeks EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,2011
    
    
    2010
    
    
    2009Tax at federal statutory rate
    
    $
    14,760
    
    
    $
    16,445
    
    
    $
    3,531State income taxes (net of federal benefit)
    
    
    2,042
    
    
    
    1,782
    
    
    
    565Change in valuation allowance
    
    
    
    
    
    
    (5,437
    )
    
    
    (3,376
    )Adjustment to prior year income tax provision
    
    
    (1,025
    )
    
    
    
    
    
    
    Other
    
    
    (40
    )
    
    
    (375
    )
    
    
    63Income tax expense
    
    $
    15,737
    
    
    $
    12,415
    
    
    $
    783
   January 29,
    
    
    January 30,2011
    
    
    2010Deferred tax assets:Accruals
    
    $
    4,068
    
    
    $
    3,964Inventory valuation
    
    
    241
    
    
    
    220Deferred rent and other
    
    
    5,666
    
    
    
    5,115Total deferred tax assets
    
    
    9,975
    
    
    
    9,299Deferred tax liabilities:Depreciation
    
    
    (4,636
    )
    
    
    (1,109
    )Prepaid assets
    
    
    (371
    )
    
    
    (243
    )Total deferred tax liabilities
    
    
    (5,007
    )
    
    
    (1,352
    )Net deferred tax assets
    
    $
    4,968
    
    
    $
    7,947
    43




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##### Table of Contents



52 Weeks EndedJanuary 29,
    
    
    January 30,(in thousands)
    
    2011
    
    
    2010Balance at the beginning of the year
    
    $
    853
    
    
    $
    667Additions based on tax positions related to the current year
    
    
    144
    
    
    
    164Additions for tax positions of prior years
    
    
    
    
    
    
    22Reductions for tax positions of prior years
    
    
    (29
    )
    
    
    Reductions due to settlements
    
    
    
    
    
    
    Reductions due to lapse of the statute of limitations
    
    
    (71
    )
    
    
    Balance at the end of the year
    
    $
    897
    
    
    $
    853
   Note 5  Senior Credit Facility
   Note 6  Long-Term Leases
   Note 7  Employee Benefit Plans
 Stock-based compensation
 44




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##### Table of Contents



Weighted
    
    
    Weighted AverageNumber of
    
    
    Average
    
    
    Remaining ContractualOptions
    
    
    Exercise Price
    
    
    Term (in years)Balance at January 30, 2010
    
    
    1,317,928
    
    
    
    7.77Options granted
    
    
    240,000
    
    
    
    18.69Options exercised
    
    
    (248,554
    )
    
    
    7.69Options forfeited
    
    
    
    
    
    
    Balance at January 29, 2011
    
    
    1,309,374
    
    
    $
    9.78
    
    
    
    6.8Options Exercisable As of:January 29, 2011
    
    
    855,551
    
    
    $
    7.64
    
    
    
    5.7
  45




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##### Table of Contents



52 Weeks EndedJanuary 29,
    
    January 30,
    
    January 31,2011
    
    2010
    
    2009Expected price volatility
    
    
    0.63
    
    
    
    0.63
    
    
    
    0.61Risk-free interest rate
    
    
    2.5
    %
    
    
    3.3
    %
    
    
    3.7
    %Expected life
    
    6.3 years

    
    5.9      years

    
    5.8      yearsForfeiture rate
    
    
    5
    %
    
    
    5
    %
    
    
    5
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Expected price volatility 
 Risk-free interest rate 
 Expected lives 
 Forfeiture rate 
 Dividend yield 
 Restricted stock units 
  Weighted AverageShares
    
    
    Grant Date Fair ValueNon-vested at January 30, 2010
    
    
    384,444
    
    
    $
    2.06Granted
    
    
    114,000
    
    
    
    19.31Forfeited
    
    
    
    
    
    
    Non-vested at January 29, 2011
    
    
    498,444
    
    
    $
    6.00
 Employee Stock Purchase Plan
 4 01(k) savings plan 
 46




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##### Table of Contents



Deferred compensation plan
 Note 8  Commitments and Contingencies
    Note 9  Related Party Transactions
  Exhibits:
 Exhibits.
 47




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##### Table of Contents



ExhibitNumber
    
    
    
    Description3.1*
    
    
    
    Amended and Restated Charter of Kirklands, Inc. (Exhibit 3.1 to our Current Report
on Form 8-K dated May 7, 2010)3.2*
    
    
    
    Amended and Restated Bylaws of Kirklands, Inc. (Exhibit 3.2 to our Current Report
on Form 8-K dated March 31, 2006)4.1*
    
    
    
    Form of Specimen Stock Certificate (Exhibit 4.1 to Amendment No. 1 to our
registration statement on Form S-1 filed on June 5, 2002, Registration No. 333-86746
(Amendment No. 1 to 2002 Form S-1))10.1*
    
    
    
    Loan and Security Agreement, dated as of October 4, 2004, by and among Kirklands,
Inc., Kirklands Stores, Inc. and kirklands.com, inc., Fleet Retail Group, Inc., as
Agent, and the Financial Institutions Party Thereto From Time to Time as Lenders
(Exhibit 10.1 to our Current Report on Form 8-K dated October 8, 2004)10.2+*
    
    
    
    Severance Rights Agreement by and between Kirklands and W. Michael Madden dated
April 11, 2008 (Exhibit 99.1 to our Form 8-K/A dated April 14, 2008)10.3+*
    
    
    
    Employment Agreement by and between Kirklands and Robert E. Alderson dated June 1,
2002, (Exhibit No. 10.6 to Amendment No. 1 to 2002 Form S-1)10.4+*
    
    
    
    Amendment to Employment Agreement by and between Kirklands, Inc. and Robert E.
Alderson dated March 31, 2004 (Exhibit 10.2 to our Quarterly Report on Form 10-Q for
the quarter ended May 1, 2004)10.5+*
    
    
    
    1996 Executive Incentive and Non-Qualified Stock Option Plan, as amended through
April 17, 2002 (Exhibit 10.10 to our registration statement on Form S-1 filed on
April 23, 2002, Registration No. 333-86746 (the 2002 Form S-1))10.6+*
    
    
    
    2002 Equity Incentive Plan (Exhibit 10.11 to Amendment No. 1 to 2002 Form S-1)10.7*
    
    
    
    Employee Stock Purchase Plan (Exhibit 10.12 to Amendment No. 4 to our registration
statement on Form S-1 filed on July 10, 2002, Registration No. 333-86746)10.8+*
    
    
    
    Form of Non-Qualified Stock Option Award Agreement for Director Grants (Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended October 30, 2004
(October 2004 Form 10-Q))10.9+*
    
    
    
    Form of Incentive Stock Option Agreement (Exhibit 10.2 to the October 2004 Form 10-Q)10.10+*
    
    
    
    Executive Non-Qualified Excess Plan (Exhibit 10.19 to our Annual Report on Form 10-K
for the year ended January 29, 2005)10.11*
    
    
    
    First Amendment to Loan and Security Agreement dated as of August 6, 2007, by and
among Kirklands, Inc., Kirklands Stores, Inc. and kirklands.com, inc., Fleet
Retail Group, Inc., as Agent, and the Financial Institutions Party Thereto From Time
to Time as Lenders (Exhibit 10.1 to our Current Report on Form 8-K dated August 10,
2007)10.12*
    
    
    
    First Amendment to Kirklands, Inc. 2002 Equity Incentive Plan effective March 17,
2006 (Exhibit 99.2 to our Current Report on Form 8-K dated March 22, 2006 (the
March 22, 2006 Form 8-K))10.13*
    
    
    
    Office Lease Agreement dated March 1, 2007 by and between Kirklands and Two Rivers
Corporate Centre, L.P. (Exhibit 10.1 to our Current Report on Form 8-K dated March
7, 2007)10.14+*
    
    
    
    Severance Rights Agreement by and between Kirklands and Robert E. Alderson dated
May 30, 2006 (Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter
ended July 29, 2006)21.1*
    
    
    
    Subsidiaries of Kirklands (Exhibit 21 to the 2002 Form S-1)23.1
    
    
    
    Consent of Ernst & Young LLP31.1
    
    
    
    Certification of the President and Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certification of the Senior Vice President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of the President and 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 the Senior Vice President and Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 
 *
    
    Incorporated by reference.+
    
    Management contract or compensatory plan or arrangement. 48




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##### Table of Contents



SIGNATURES
   By:
    
    /s/ ROBERT E. ALDERSON

Robert E. AldersonPresident and Chief Executive Officer
   Signature
    
    Title
    
    Date/s/ ROBERT E. ALDERSON

Robert E. Alderson
    
    President and Chief Executive Officer, and Director
(Principal Executive Officer)
    
    April 14, 2011/s/ W. MICHAEL MADDEN

W. Michael Madden
    
    Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    April 14, 2011/s/ CARL KIRKLAND

Carl Kirkland
    
    Director
    
    April 14, 2011/s/ STEVEN J. COLLINS

Steven J. Collins
    
    Director
    
    April 14, 2011/s/ MILES KIRKLAND

Miles Kirkland
    
    Director
    
    April 14, 2011/s/ R. WILSON ORR, III

R. Wilson Orr, III
    
    Director
    
    April 14, 2011/s/ RALPH T. PARKS

Ralph T. Parks
    
    Director
    
    April 14, 2011/s/ MURRAY M. SPAIN

Murray M. Spain
    
    Director
    
    April 14, 2011
 49




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##### Table of Contents



KIRKLANDS, INC.
 
 INDEX OF EXHIBITS FILED WITH THIS ANNUAL REPORT ON 10-K
 ExhibitNumber
    
    Description23.1
    
    Consent of Ernst & Young LLP.31.1
    
    Certification of the President and Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)31.2
    
    Certification of the Senior Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)32.1
    
    Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2
    
    Certification of the Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 50