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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended February 2, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File 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
 None
 o þ
 o þ
 þ o
 þ
  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
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 Item
    
    Page No.PART I.
    
    
    3Item 1.Business
    
    
    4Item 1A.Risk Factors
    
    
    11Item 1B.Unresolved Staff Comments
    
    
    20Item 2.Properties
    
    
    21Item 3.Legal Proceedings
    
    
    21Item 4.Submission of Matters to a Vote of Security Holders
    
    
    22PART II
    
    
    22Item 5.Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    22Item 6.Selected Financial Data
    
    
    22Item 7.Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    23Item 7A.Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8.Financial Statements and Supplementary Data
    
    
    38Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    82Item 9A.Controls and Procedures
    
    
    82Item 9B.Other Information
    
    
    83PART III.
    
    
    83Item 10.Directors, Executive Officers and Corporate Governance
    
    
    83Item 11.Executive Compensation
    
    
    83Item 12.Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    83Item 13.Certain Relationships and Related Transactions
    
    
    83Item 14.Principal Accountant Fees and Services
    
    
    83PART IV.
    
    
    84Item 15.Exhibits, Financial Statement Schedules
    
    
    84Signatures
    
    
    87EX-10.11 Zimmermann Employment AgreementEX-21.1 SubsidiariesEX-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 CFO
  2




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PART I.
 Explanatory Notes
       Statement Regarding Forward-Looking Disclosures
  3




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Item 1. Business
 The Company
      
    
    Jewelry (53.6% of Fiscal 2008 net sales)  Which
includes earrings, including ear
piercing studs, necklaces, bracelets and rings; and
    
    Accessories (46.4% of Fiscal 2008 net sales)  Which
includes hairgoods, handbags, small leather goods, and other fashion
accessory classifications, as well as cosmetics.
      4




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Industry Overview
   
    
    Large Customer Base.According to U.S. Census estimates, there were over 40 million
girls and young women between the ages of 5 and 24 in the United States in 2005. According
to Euromonitor, there were over 57 million girls and young women between the ages of 5 and
24 in Western Europe in 2006.
    
    Significant Spending Power.U.S. teenagers (ages 12-21) spend approximately $220
billion according to U.S. Census estimates. In addition, according to a 2006 teen consumer
spending power report by Mintel, jewelry and accessories represented more than 40% of
spending by U.S. females ages 12-27.
    
    High Shopping Frequency.Shoppers tend to frequently visit their destination for
value-priced jewelry and accessories. For example, Claires 8 to 17 year old customers
averaged 10.6 visits and 5.7 purchases, according to the 2004 Harris Interactive study.
 Our Competitive Strengths
 Established Global Category Leader with Strong Brand Recognition.
 Proven Go-to-Market Strategy.
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Diversification Across Geographies and Merchandise Categories.
  Compelling Unit Economics.
 Strong and Experienced Management Team.
 Our Business Strategy
  Build on Effective Organizational Model
 6




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
    
    Corporate, comprised of senior leaders that set our strategies and provide oversight to
help drive sales.
    
    North American Division, our largest group, with fundamental responsibility for the
Claires and Icing brands in North America from merchandise concept, to delivery, in-store
set-up and execution, to selling and building our brand and connecting with our customers.
    
    European Division, formally established at the time of the Merger in May 2007 under one
leader based in Europe, to better maximize our growth potential in
Europe, with similar operating responsibilities as the North American
Division.
    
    International Group, which is comprised of our Franchise and Joint Venture business,
dedicated to identifying and fostering partnerships and providing oversight to these
business groups to ensure execution and integrity of our brand and store concepts.
    
    RSI, our sourcing, buying and logistics subsidiary based in Hong Kong, with
responsibility for coordinating merchandise procurement, overseas vendor relationships and
quality control, including supervising our global testing requirements.
  Strengthen our Merchandise Offense.
 
    
    Research and fact gathering, to better understand our market and competitive landscape.
We have completed an in-depth study of our Claires North America customer and developed
targeted customer profiles for our young (13-17), younger (7-11) and youngest (3-5)
customers. We plan to conduct similar research of our Claires European and Icing
customers.
    
    Improve the planning and buying surrounding our merchandise assortments, so we can
impact the content, spirit, and relevance of our merchandise offering. We are taking
various steps to achieve this initiative, including focusing on three fashion
sensibilities: trend, fashion core, and basic; implementing good-better-best price point
tiering; and better monitoring of our entry and exit points in the fashion cycle.
    
    Create a dynamic merchandising cycle to narrow our focus and bring better balance to our
merchandise assortment through various initiatives, including:
 
    
    structuring five distinct buying periods with merchandise recaps during the
development process, ongoing styleouts, and product placement reviews.
    
    ensuring our in-store plan-o-gram process will begin from product inception and
continue through in-store execution.
    
    implementing a merchandising strategy that presupposes a 50% global assortment,
25% customized for either North America or Europe, and the remaining 25% to be
regionalized or localized as appropriate.
    
    enhancing sourcing capabilities by leveraging our buying power, narrowing our
vendor base, and continuing to develop a team orientation to provide our customer with
value, quality, and a timely product offering.
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Implement
Our Pan European Transformation (PET).
 
    
    Transition merchandising responsibility, including buying and planning for continental
Europe, currently residing in North America, to the European group,
based in Birmingham, United Kingdom.
    
    Consolidate distribution operations currently in multiple locations in Europe to a
single distribution center model for all of Europe based in
Birmingham, United Kingdom.
    
    Leverage the best of both the North America and European information systems for
roll-out in Europe and then globally.
    
    Create a more traditional store operations structure to further enhance our real estate
function and store execution, including the establishment of three operating regions, each
led by a Managing Director.
 Reposition
Icing.
 
    
    Conduct market, competitor and customer research to further evolve the Icing strategy
and merchandising concept.
    
    Separate the buying, planning and allocation for Claires and Icing into two separate
organizations to focus these teams on one brand, either Claires or Icing.
 Focus
on Expense Reduction Opportunities.
 Stores
    Purchasing and Distribution
  8




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Store Management
   Store Openings, Closings and Future Growth
   9




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Brand Building
  Trademarks and Service Marks
  Management Information Systems
  Competition
  Seasonality
  Employees
  10




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Available Information
 www.clairestores.com,
  www.sec.gov,
 
 Item 1A. Risk Factors
 These risks could have a material adverse effect on our business, financial position or results of
operations. The following risk factors may not include all of the important factors that could
affect our business or our industry or that could cause our future financial results to differ
materially from historic or expected results.
 Risks Relating to Our Company
 Our business is affected by consumer spending patterns.
  Fluctuations in consumer preference may adversely affect the demand for our products and result in
a decline in our sales.
  11




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Advance purchases of our merchandise make us vulnerable to changes in consumer preferences and
pricing shifts and may negatively affect our results of operations.
  A disruption of imports from our foreign suppliers or significant fluctuation in the value of the
U.S. dollar or foreign exchange rates may increase our costs and reduce our supply of merchandise.
    Our cost of doing business could increase as a result of changes in federal, state or local
regulations.
  Recalls, product liability claims, and government, customer or consumer concerns about product
safety could harm our reputation, increase costs or reduce sales.
  12




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Government or consumer concerns about product safety could result in recalls or changes to laws,
which could harm our reputation, increase costs, or reduce sales.
  Interruptions in distribution of our merchandise from our distribution facilities may negatively
affect our profitability.
  Our continued success will depend upon our ability to implement our operational strategy and manage
our growth.
  13




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If we are unable to renew or replace our store leases or enter into leases for new stores on
favorable terms, or if any of our current leases are terminated prior to the expiration of their
stated term and we cannot find suitable alternate locations, our growth and profitability could be
adversely harmed.
  The failure to grow our store base in Europe or expand our international franchising may adversely
affect our business.
   Natural disasters or unusually adverse weather conditions or potential emergence of disease or
pandemic could adversely affect our net sales or supply of inventory.
  Information technology systems changes may disrupt our supply of merchandise.
  14




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We are implementing certain other changes to our information technology systems that may disrupt
operations.
  Changes in the anticipated seasonal business pattern could adversely affect our sales and profits
and our quarterly results may fluctuate due to a variety of factors.
  A decline in number of people who go to shopping malls, particularly in North America, could reduce
the number of our customers and reduce our net sales.
  Our industry is highly competitive.
  15




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We may be unable to continue to successfully execute our business strategies and, as a result, our
competitive strengths may be harmed.
  Higher labor and health care costs could adversely affect our business.
  Our profitability could be adversely affected by high petroleum prices.
  The possibility of war and acts of terrorism could disrupt our information or distribution systems
and increase our costs of doing business.
  We depend on our key personnel.
  Litigation matters incidental to our business could be adversely determined against us.
  16




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There are factors that can affect our provision for income taxes.
  If our independent manufacturers or franchisees or joint venture partners do not use ethical
business practices or comply with applicable laws and regulations, our brand name could be harmed
due to negative publicity and our results of operations could be adversely affected.
  We rely on third parties to distribute our merchandise and if these third parties do not adequately
perform this function, our business would be disrupted.
  Our business depends on the willingness of vendors and service providers to supply us with goods
and services pursuant to customary credit arrangements which may not be available to us in the
future.
  We may be unable to protect our trademarks and other intellectual property rights.
  17




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We may be unable to rely on liability indemnities given by foreign vendors which could adversely
affect our financial results.
  We are indirectly owned and controlled by the Sponsor, and its interests as an equity holder may
conflict with the interest of our creditors.
  Risks Relating to Our Indebtedness
 Our substantial leverage could adversely affect our ability to raise additional capital to fund our
operations, limit our ability to react to changes in the economy or our industry and prevent us
from meeting our obligations under the Notes and Credit Facility.
  
    
    increasing our vulnerability to adverse economic, industry or competitive developments;
    
    requiring a substantial portion of cash flow from operations to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability to
use our cash flow to fund our operations, capital expenditures and future business
opportunities;
    
    exposing us to the risk of increased interest rates because certain of our borrowings,
including borrowings under our senior secured credit facility, will be at variable rates of
interest;
    
    making it more difficult for us to satisfy our obligations with respect to our
indebtedness, including the notes, and any failure to comply with the obligations of any of
our debt instruments, including restrictive covenants and borrowing conditions, could
result in an event of default under the indentures governing the notes and the agreements
governing such other indebtedness;
    
    restricting us from making strategic acquisitions or causing us to make non-strategic
divestitures;
    
    limiting our ability to obtain additional financing for working capital, capital
expenditures, product development, debt service requirements, acquisitions and general
corporate or other purposes; and
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
    
    limiting our flexibility in planning for, or reacting to, changes in our business or
market conditions and placing us at a competitive disadvantage compared to our competitors
who are less highly leveraged and who therefore, may be able to take advantage of
opportunities that our leverage prevents us from exploiting.
 Despite our high indebtedness level, we and our subsidiaries are still able to incur significant
additional amounts of debt, which could further exacerbate the risks associated with our
substantial indebtedness.
  Our debt agreements contain restrictions that limit our flexibility in operating our business.
  
    
    incur additional indebtedness or issue certain preferred shares;
    
    pay dividends on, repurchase or make distributions in respect of our capital stock or
make other restricted payments;
    
    make certain investments;
    
    sell certain assets;
    
    create liens;
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
and
    
    enter into certain transactions with our affiliates.
  19




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We may not be able to generate sufficient cash to service all of our indebtedness, and may be
forced to take other actions to satisfy our obligations under our indebtedness, which may not be
successful.
   Repayment of our debt is dependent on cash flow generated by our subsidiaries.
  If we default on our obligations to pay our other indebtedness, the holders of our debt could
exercise rights that could have a material effect on us.
  
    
    the holders of such indebtedness may be able to cause all of our available cash flow to
be used to pay such indebtedness and, in any event, could elect to declare all the funds
borrowed thereunder to be due and payable, together with accrued and unpaid interest;
    
    the lenders under our senior secured credit facility could elect to terminate their
commitments thereunder, cease making further loans and institute foreclosure proceedings
against our assets; and
    
    we could be forced into bankruptcy or liquidation.
 
 Item 1B.
    
    Unresolved Staff Comments
  20




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Item 2.
    
    Properties
        
 Item 3.
    
    Legal Proceedings
  21




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Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market Information
  Holders
  
 Item 6.
    
    Selected Financial Data
   22




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Predecessor EntitySuccessorEntity
    
    
    
    
    
    
    
    Fiscal Year EndedMay 29, 2007
    
    
    
    Feb. 4, 2007Through
    
    
    
    Through
    
    
    February 3,
    
    
    January 28,
    
    
    January 29,
    
    
    January 31,Feb. 2, 2008
    
    
    
    May 28, 2007
    
    
    2007 (1)
    
    
    2006 (1)
    
    
    2005 (1)
    
    
    2004 (1)(In thousands, except for ratios and store data)Statement of Operations Data:Net sales
    
    $
    1,085,932
    
    
    
    $
    424,899
    
    
    $
    1,480,987
    
    
    $
    1,369,752
    
    
    $
    1,279,407
    
    
    $
    1,132,834Cost of sales, occupancy and buying expenses
    
    
    521,384
    
    
    
    
    206,438
    
    
    
    691,646
    
    
    
    625,866
    
    
    
    587,687
    
    
    
    524,455Gross profit
    
    
    564,548
    
    
    
    
    218,461
    
    
    
    789,341
    
    
    
    743,886
    
    
    
    691,720
    
    
    
    608,379Other expenses (income):Selling, general and administrative
    
    
    358,353
    
    
    
    
    154,482
    
    
    
    481,979
    
    
    
    449,430
    
    
    
    430,868
    
    
    
    394,152Depreciation and amortization
    
    
    61,451
    
    
    
    
    19,652
    
    
    
    56,771
    
    
    
    48,900
    
    
    
    44,882
    
    
    
    41,451Transaction-related costs
    
    
    7,319
    
    
    
    
    72,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    (3,088
    )
    
    
    
    (1,476
    )
    
    
    (3,484
    )
    
    
    (4,622
    )
    
    
    (2,335
    )
    
    
    (2,119
    )424,035
    
    
    
    
    245,330
    
    
    
    535,266
    
    
    
    493,708
    
    
    
    473,415
    
    
    
    433,484Operating income (loss)
    
    
    140,513
    
    
    
    
    (26,869
    )
    
    
    254,075
    
    
    
    250,178
    
    
    
    218,305
    
    
    
    174,895Interest expense (income), net
    
    
    147,892
    
    
    
    
    (4,876
    )
    
    
    (14,575
    )
    
    
    (9,493
    )
    
    
    (3,331
    )
    
    
    473Income (loss) from continuing operations before
income taxes
    
    
    (7,379
    )
    
    
    
    (21,993
    )
    
    
    268,650
    
    
    
    259,671
    
    
    
    221,636
    
    
    
    174,422Income taxes
    
    
    (8,020
    )
    
    
    
    21,779
    
    
    
    79,888
    
    
    
    87,328
    
    
    
    75,377
    
    
    
    59,384Income (loss) from continuing operations
    
    $
    641
    
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343
    
    
    $
    146,259
    
    
    $
    115,038Other Financial Data:Capital expenditures:New stores and remodels
    
    $
    46,225
    
    
    
    $
    24,231
    
    
    $
    77,021
    
    
    $
    64,275
    
    
    $
    58,582
    
    
    $
    45,513Other
    
    
    12,259
    
    
    
    
    3,757
    
    
    
    18,171
    (2)
    
    
    9,169
    
    
    
    5,052
    
    
    
    3,325Total capital expenditures
    
    
    58,484
    
    
    
    
    27,988
    
    
    
    95,192
    
    
    
    73,444
    
    
    
    63,634
    
    
    
    48,838Cash interest expense (4)
    
    
    123,620
    
    
    
    
    79
    
    
    
    118
    
    
    
    125
    
    
    
    193
    
    
    
    2,561Ratio of earnings to fixed charges (3)
    
    
    
    
    
    
    
    
    
    
    
    5.2 x
    
    
    
    5.3 x
    
    
    
    4.7 x
    
    
    
    4.0 xStore Data:Number of stores (at period end)North America
    
    
    2,135
    
    
    
    
    2,124
    
    
    
    2,133
    
    
    
    2,106
    
    
    
    2,119
    
    
    
    2,112Europe
    
    
    905
    
    
    
    
    879
    
    
    
    859
    
    
    
    772
    
    
    
    717
    
    
    
    700Total number of stores (at period end)
    
    
    3,040
    
    
    
    
    3,003
    
    
    
    2,992
    
    
    
    2,878
    
    
    
    2,836
    
    
    
    2,812Total gross square footage (000s) (at period end)
    
    
    3,105
    
    
    
    
    3,043
    
    
    
    3,021
    
    
    
    2,883
    
    
    
    2,801
    
    
    
    2,175Net sales per store (000s) (5)
    
    $
    359
    
    
    
    $
    142
    
    
    $
    504
    
    
    $
    479
    
    
    $
    452
    
    
    $
    401Net sales per square foot (6)
    
    
    353
    
    
    
    
    140
    
    
    
    500
    
    
    
    480
    
    
    
    459
    
    
    
    413Balance Sheet Data (at period end)Cash and cash equivalents
    
    $
    85,974
    
    
    
    $
    350,476
    
    
    $
    340,877
    
    
    $
    431,122
    
    
    $
    191,006
    
    
    $
    224,630Total assets
    
    
    3,348,497
    
    
    
    
    1,119,047
    
    
    
    1,091,266
    
    
    
    1,090,701
    
    
    
    966,129
    
    
    
    805,924Total debt
    
    
    2,377,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    605,200
    
    
    
    
    792,071
    
    
    
    847,662
    
    
    
    868,318
    
    
    
    755,687
    
    
    
    632,450
 
 (1)
    
    Fiscal 2007 was a fifty-three week period and Fiscal 2006, Fiscal 2005 and Fiscal 2004
were fifty-two week periods.(2)
    
    Includes management information system expenditures of $5.2 million in Fiscal 2007 for
strategic projects of POS, merchandising systems, business intelligence, technology and the
logistics system for the new distribution center in the Netherlands.(3)
    
    For purposes of calculating the ratio of earnings to fixed charges, earnings represent
income from continuing operations before income taxes plus fixed charges. Fixed charges
include interest expense, including amortization of debt issuance costs, and the portion of
rental expense which management believes is representative of the interest component of
rental expense. Due to the Companys loss during the period from May 29, 2007 through
February 2, 2008 and the period from February 4, 2007 through May 28, 2007, the ratio
coverage was less than 1:1. The Company must generate additional earnings of $7,480 and
$22,661 during the period from May 29, 2007 through February 2, 2008 and the period from
February 4, 2007 through May 28, 2007, respectively, to achieve a coverage of 1:1.(4)
    
    Cash interest expense does not include amortization of debt issuance costs.(5)
    
    Net sales per store is calculated based on the average number of stores during the
period.(6)
    
    Net sales per square foot is calculated based on the average gross square feet during the
period. 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
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Acquisition of the Company by Apollo Management VI, L.P.
  
    
    the closing of the offering of the Notes;
    
    the closing of our $1.65 billion Credit Facility;
    
    the termination of the Companys existing $60.0 million secured credit facility; and
    
    the equity investment of approximately $595.7 million by Apollo Management VI, L.P. on
behalf of certain affiliated co-investment partnerships.
  Effect of the Transactions
     24




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Results of Consolidated Operations
   SuccessorCombined
    
    Entity
    
    Predecessor EntityFiscal Year
    
    May 29, 2007
    
    Feb. 4, 2007Ended
    
    Through
    
    Through
    
    Fiscal Year EndedFebruary 2,
    
    February 2,
    
    May 28,
    
    February 3,
    
    January 28,2008
    
    2008
    
    2007
    
    2007
    
    2006Net sales
    
    $
    1,510,831
    
    
    $
    1,085,932
    
    
    $
    424,899
    
    
    $
    1,480,987
    
    
    $
    1,369,752Increase (decrease) in same store sales
    
    
    (1.8
    )%
    
    
    (2.8
    )%
    
    
    0.5
    %
    
    
    1.5
    %
    
    
    5.9
    %Gross profit percentage
    
    
    51.8
    %
    
    
    52.0
    %
    
    
    51.4
    %
    
    
    53.3
    %
    
    
    54.3
    %Selling, general and administrative expenses
as a percentage of net sales
    
    
    33.9
    %
    
    
    33.0
    %
    
    
    36.4
    %
    
    
    32.5
    %
    
    
    32.8
    %Depreciation and amortization as a
percentage of net sales
    
    
    5.4
    %
    
    
    5.7
    %
    
    
    4.6
    %
    
    
    3.8
    %
    
    
    3.6
    %Transaction-related costs as percentage of
net sales
    
    
    5.3
    %
    
    
    0.7
    %
    
    
    17.1
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating income (loss)
    
    $
    113,644
    
    
    $
    140,513
    
    
    $
    (26,869
    )
    
    $
    254,075
    
    
    $
    250,178Net income (loss)
    
    $
    (43,131
    )
    
    $
    641
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343Number of stores at the end of the period (1)
    
    
    3,040
    
    
    
    3,040
    
    
    
    3,003
    
    
    
    2,992
    
    
    
    2,878
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements outside of North America and joint venture stores.  rd
  rd
  25




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##### Table of Contents



Combined
    
    
    Successor Entity
    
    
    Predecessor EntityFiscal Year
    
    
    May 29, 2007
    
    
    Feb. 4, 2007Ended
    
    
    Through
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2,
    
    
    February 2,
    
    
    May 28,
    
    
    February 3,
    
    
    January 28,% of Total
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2006Jewelry
    
    
    53.6
    
    
    
    52.6
    
    
    
    55.8
    
    
    
    57.8
    
    
    
    57.8Accessories
    
    
    46.4
    
    
    
    47.4
    
    
    
    44.2
    
    
    
    42.2
    
    
    
    42.2100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
           26




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##### Table of Contents



Segment Operations
  North America
  Combined
    
    Successor Entity
    
    Predecessor EntityFiscal Year
    
    May 29, 2007
    
    Feb. 4, 2007Ended
    
    Through
    
    Through
    
    Fiscal Year EndedFebruary 2,
    
    February 2,
    
    May 28,
    
    February 3,
    
    January 28,2008
    
    2008
    
    2007
    
    2007
    
    2006Net sales
    
    $
    995,469
    
    
    $
    702,986
    
    
    $
    292,483
    
    
    $
    1,024,009
    
    
    $
    964,008Increase (decrease) in same store sales
    
    
    (2.6
    )%
    
    
    (4.2
    )%
    
    
    1.3
    %
    
    
    2.5
    %
    
    
    5.7
    %Gross profit percentage
    
    
    52.0
    %
    
    
    51.5
    %
    
    
    53.1
    %
    
    
    53.6
    %
    
    
    54.5
    %Number of stores at the end of the period (1)
    
    
    2,135
    
    
    
    2,135
    
    
    
    2,124
    
    
    
    2,133
    
    
    
    2,106
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements outside of North America
and joint venture stores. rd
  rd
 27




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##### Table of Contents



Combined
    
    
    Successor Entity
    
    
    Predecessor EntityFiscal Year
    
    
    May 29, 2007
    
    
    Feb. 4, 2007Ended
    
    
    Through
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2,
    
    
    February 2,
    
    
    May 28,
    
    
    February 3,
    
    
    January 28,% of Total
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2006Jewelry
    
    
    57.2
    
    
    
    56.3
    
    
    
    59.4
    
    
    
    62.0
    
    
    
    63.9Accessories
    
    
    42.8
    
    
    
    43.7
    
    
    
    40.6
    
    
    
    38.0
    
    
    
    36.1100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Europe
  Combined
    
    Successor Entity
    
    Predecessor EntityFiscal Year
    
    May 29, 2007
    
    Feb. 4, 2007Ended
    
    Through
    
    Through
    
    Fiscal Year EndedFebruary 2,
    
    February 2,
    
    May 28,
    
    February 3,
    
    January 28,2008
    
    2008
    
    2007
    
    2007
    
    2006Net sales
    
    $
    515,362
    
    
    $
    382,946
    
    
    $
    132,416
    
    
    $
    456,978
    
    
    $
    405,744Increase (decrease) in same store sales
    
    
    (0.2
    )%
    
    
    0.2
    %
    
    
    (1.2
    )%
    
    
    (0.9
    )%
    
    
    6.4
    %Gross profit percentage
    
    
    51.5
    %
    
    
    52.8
    %
    
    
    47.8
    %
    
    
    52.7
    %
    
    
    53.8
    %Number of stores at the end of the period (1)
    
    
    905
    
    
    
    905
    
    
    
    879
    
    
    
    859
    
    
    
    772
 
 (1)
    
    Number of stores excludes stores operated under franchise agreements and joint venture stores. rd
    28




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##### Table of Contents



Combined
    
    
    Successor Entity
    
    
    Predecessor EntityFiscal Year
    
    
    May 29, 2007
    
    
    Feb. 4, 2007Ended
    
    
    Through
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2,
    
    
    February 2,
    
    
    May 28,
    
    
    February 3,
    
    
    January 28,% of Total
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2006Jewelry
    
    
    46.5
    
    
    
    46.0
    
    
    
    47.9
    
    
    
    48.3
    
    
    
    44.7Accessories
    
    
    53.5
    
    
    
    54.0
    
    
    
    52.1
    
    
    
    51.7
    
    
    
    55.3100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Liquidity and Capital Resources
  Credit Facility
    29




---



##### Table of Contents




    
    a perfected pledge of all the equity interests held by us or any subsidiary guarantor,
which pledge, in the case of any foreign subsidiary, is limited to 100% of the non-voting
equity interests and 65% of the voting equity interests of such foreign subsidiary held
directly by us and the subsidiary guarantors; and
    
    perfected security interests in, and mortgages on, substantially all material tangible
and intangible assets owned by us and each subsidiary guarantor, subject to certain
exceptions.
  Notes
    30




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##### Table of Contents



Pre-Transaction Credit Facilities
   Analysis of Consolidated Financial Condition
  Combined
    
    Successor Entity
    
    Predecessor EntityFiscal Year
    
    May 29, 2007
    
    Feb. 4, 2007Ended
    
    Through
    
    Through
    
    Fiscal Year EndedFebruary 2,
    
    February 2,
    
    May 28,
    
    February 3,
    
    January 28,2008
    
    2008
    
    2007
    
    2007
    
    2006Operating activities
    
    $
    6,795
    
    
    $
    (35,851
    )
    
    $
    42,646
    
    
    $
    232,250
    
    
    $
    242,358Investing activities
    
    
    (3,140,441
    )
    
    
    (3,112,372
    )
    
    
    (28,069
    )
    
    
    (99,256
    )
    
    
    52,614Financing activities
    
    
    2,874,807
    
    
    
    2,880,810
    
    
    
    (6,003
    )
    
    
    (224,584
    )
    
    
    (58,000
    )
    31




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##### Table of Contents



Critical Accounting Policies and Estimates
   Inventory Valuation
  Valuation of Long-Lived Assets
  32




---



##### Table of Contents



Goodwill Impairment
  Intangible Asset Impairment
   Income Taxes
   33




---



##### Table of Contents



Stock-Based Compensation
       34




---



##### Table of Contents



Derivatives and Hedging
     35




---



##### Table of Contents



Contractual Obligations and Off Balance Sheet Arrangements
   Payments Due by PeriodContractual Obligations
    
    
    
    
    
    Less than
    
    
    1-3
    
    
    3-5
    
    
    More than(in millions)
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsOperating leases for real estate
    
    $
    1,262.1
    
    
    $
    198.7
    
    
    $
    352.0
    
    
    $
    287.0
    
    
    $
    424.4Operating leases for equipment,
leasehold improvements, and
equipment purchases
    
    
    5.1
    
    
    
    3.0
    
    
    
    2.0
    
    
    
    0.1
    
    
    
    Long-term debt obligations
    
    
    2,377.8
    
    
    
    14.5
    
    
    
    29.0
    
    
    
    29.0
    
    
    
    2,305.3
    (1)Letters of credit
    
    
    5.9
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    Interest (2)
    
    
    1,283.3
    
    
    
    184.7
    
    
    
    361.7
    
    
    
    345.9
    
    
    
    391.0Total
    
    $
    4,934.2
    
    
    $
    406.8
    
    
    $
    744.7
    
    
    $
    662.0
    
    
    $
    3,120.7
 
 (1)
    
    Includes $935 million under our Notes and $1,370.3 million under our credit facility.(2)
    
    Represents interest expected to be paid on our debt and does not assume any debt repurchases
or prepayments, other than scheduled amortization of our credit facility. Projected interest
on variable rate debt is based on the 90 day LIBOR rate in effect on February 1, 2008, plus
the applicable LIBOR margin of 2.75%, and the impact through June 2010 of interest rate swaps
discussed in Note 9 to the consolidated financial statements.   Seasonality and Quarterly Results
  Impact of Inflation
  36




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##### Table of Contents



Recent Accounting Pronouncements
     
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency
  37




---



##### Table of Contents



Interest Rates
   
 Item 8. Financial Statements and Supplementary Data
 Page No.Report of Independent Registered Public Accounting Firm
    
    
    39Consolidated Balance Sheets as of February 2, 2008 (Successor Entity) and February 3, 2007 (Predecessor Entity)
    
    
    40Consolidated Statements of Operations and Comprehensive Income (Loss) for the period from May 29, 2007 through
February 2, 2008 (Successor Entity), the period from February 4, 2007 through May 28, 2007 (Predecessor Entity),
and the fiscal years ended February 3, 2007 (Predecessor Entity) and January 28, 2006 (Predecessor Entity)
    
    
    41Consolidated Statements of Changes in Stockholders Equity for the period from May 29,
2007 through February 2, 2008 (Successor Entity), the period from February 4, 2007
through May 28, 2007 (Predecessor Entity), and the fiscal years ended February 3, 2007
(Predecessor Entity) and January 28, 2006 (Predecessor Entity)
    
    
    42Consolidated Statements of Cash Flows for the period from May 29, 2007 through February 2, 2008 (Successor Entity), the
period from February 4, 2007 through May 28, 2007 (Predecessor Entity), and the fiscal years ended February 3, 2007
(Predecessor Entity) and January 28, 2006 (Predecessor Entity)
    
    
    43Notes to Consolidated Financial Statements
    
    
    44
 38




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.
 Share-Based Payment
  
 39




---



##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 Successor Entity
    
    
    
    Predecessor EntityFebruary 2, 2008
    
    
    
    February 3, 2007(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    85,974
    
    
    
    $
    340,877Inventories
    
    
    117,679
    
    
    
    
    121,119Prepaid expenses
    
    
    37,315
    
    
    
    
    35,565Other current assets
    
    
    37,658
    
    
    
    
    41,081Total current assets
    
    
    278,626
    
    
    
    
    538,642Property and equipment:Land and building
    
    
    22,288
    
    
    
    
    17,350Furniture, fixtures and equipment
    
    
    130,130
    
    
    
    
    283,556Leasehold improvements
    
    
    211,163
    
    
    
    
    288,499363,581
    
    
    
    
    589,405Less accumulated depreciation and amortization
    
    
    (53,972
    )
    
    
    
    (324,080
    )309,609
    
    
    
    
    265,325Intangible assets, net
    
    
    777,130
    
    
    
    
    51,582Deferred financing costs, net of accumulated amortization of $7,079
    
    
    70,511
    
    
    
    
    Other assets
    
    
    71,754
    
    
    
    
    34,775Goodwill
    
    
    1,840,867
    
    
    
    
    200,9422,760,262
    
    
    
    
    287,299Total assets
    
    $
    3,348,497
    
    
    
    $
    1,091,266LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    56,089
    
    
    
    $
    56,323Current portion of long-term debt
    
    
    14,500
    
    
    
    
    Income taxes payable
    
    
    12,191
    
    
    
    
    35,102Accrued interest payable
    
    
    19,536
    
    
    
    
    Accrued expenses and other liabilities
    
    
    117,076
    
    
    
    
    104,026Total current liabilities
    
    
    219,392
    
    
    
    
    195,451Long-term debt
    
    
    2,363,250
    
    
    
    
    Deferred tax liability
    
    
    139,506
    
    
    
    
    19,424Deferred rent expense
    
    
    10,572
    
    
    
    
    26,125Other liabilities
    
    
    10,577
    
    
    
    
    2,6042,523,905
    
    
    
    
    48,153Commitments and contingencies
    
    
    
    
    
    
    
    Stockholders equity:Preferred stock par value $1.00 per share; authorized 1,000,000
shares, issued and outstanding 0 shares (Predecessor Entity)
    
    
    
    
    
    
    
    Class A common stock par value $0.05 per share;
authorized 40,000,000 shares, issued and outstanding
4,869,041 shares (Predecessor Entity)
    
    
    
    
    
    
    
    243Common stock par value $0.001 per share; authorized 1,000 shares;
issued and outstanding 100 shares (Successor Entity); par value
$0.05 per share; authorized 300,000,000 shares, issued and
outstanding 88,202,733
shares (Predecessor Entity)
    
    
    
    
    
    
    
    4,410Additional paid-in capital
    
    
    601,201
    
    
    
    
    75,486Accumulated other comprehensive income, net of tax
    
    
    3,358
    
    
    
    
    33,956Retained earnings
    
    
    641
    
    
    
    
    733,567605,200
    
    
    
    
    847,662Total liabilities and stockholders equity
    
    $
    3,348,497
    
    
    
    $
    1,091,266
  40




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Successor Entity
    
    
    
    Predecessor EntityMay 29, 2007
    
    
    
    February 4, 2007Through
    
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2,
    
    
    
    May 28,
    
    
    February 3,
    
    
    January 28,2008
    
    
    
    2007
    
    
    2007
    
    
    2006Net sales
    
    $
    1,085,932
    
    
    
    $
    424,899
    
    
    $
    1,480,987
    
    
    $
    1,369,752Cost of sales, occupancy and buying
expenses
    
    
    521,384
    
    
    
    
    206,438
    
    
    
    691,646
    
    
    
    625,866Gross profit
    
    
    564,548
    
    
    
    
    218,461
    
    
    
    789,341
    
    
    
    743,886Other expenses (income):Selling, general and administrative
    
    
    358,353
    
    
    
    
    154,482
    
    
    
    481,979
    
    
    
    449,430Depreciation and amortization
    
    
    61,451
    
    
    
    
    19,652
    
    
    
    56,771
    
    
    
    48,900Transaction-related costs
    
    
    7,319
    
    
    
    
    72,672
    
    
    
    
    
    
    
    Other income
    
    
    (3,088
    )
    
    
    
    (1,476
    )
    
    
    (3,484
    )
    
    
    (4,622
    )424,035
    
    
    
    
    245,330
    
    
    
    535,266
    
    
    
    493,708Operating income (loss)
    
    
    140,513
    
    
    
    
    (26,869
    )
    
    
    254,075
    
    
    
    250,178Interest expense (income), net
    
    
    147,892
    
    
    
    
    (4,876
    )
    
    
    (14,575
    )
    
    
    (9,493
    )Income (loss) before income taxes
    
    
    (7,379
    )
    
    
    
    (21,993
    )
    
    
    268,650
    
    
    
    259,671Income tax expense (benefit)
    
    
    (8,020
    )
    
    
    
    21,779
    
    
    
    79,888
    
    
    
    87,328Net income (loss)
    
    $
    641
    
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343Net income (loss)
    
    $
    641
    
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343Foreign currency
translation and interest
rate swap adjustments
    
    
    3,358
    
    
    
    
    8,440
    
    
    
    12,920
    
    
    
    (7,005
    )Comprehensive income (loss)
    
    $
    3,999
    
    
    
    $
    (35,332
    )
    
    $
    201,682
    
    
    $
    165,338
  41




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    Accumulatedshares of
    
    
    Class A
    
    
    shares of
    
    
    
    
    
    
    Additional
    
    
    otherClass A
    
    
    common
    
    
    common
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    RetainedPredecessor Entity
    
    common stock
    
    
    stock
    
    
    stock
    
    
    stock
    
    
    capital
    
    
    income, net
    
    
    earnings
    
    
    TotalBalance: January 29, 2005
    
    
    5,125
    
    
    $
    256
    
    
    
    93,858
    
    
    $
    4,693
    
    
    $
    50,477
    
    
    $
    28,041
    
    
    $
    672,220
    
    
    $
    755,687Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,343
    
    
    
    172,343Class A common stock converted to common stock
    
    
    (229
    )
    
    
    (11
    )
    
    
    229
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends ($0.65 per common share and $0.325 per
Class A common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,886
    )
    
    
    (62,886
    )Stock options exercised, including tax benefit
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    17
    
    
    
    5,727
    
    
    
    
    
    
    
    
    
    
    
    5,744Acceleration of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    314Restricted stock, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    171
    
    
    
    8
    
    
    
    1,122
    
    
    
    
    
    
    
    
    
    
    
    1,130Long-term incentive plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,991
    
    
    
    
    
    
    
    
    
    
    
    2,991Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,005
    )
    
    
    
    
    
    
    (7,005
    )Balance: January 28, 2006
    
    
    4,896
    
    
    
    245
    
    
    
    94,581
    
    
    
    4,729
    
    
    
    60,631
    
    
    
    21,036
    
    
    
    781,677
    
    
    
    868,318Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,762
    
    
    
    188,762Class A common stock converted to common stock
    
    
    (27
    )
    
    
    (2
    )
    
    
    27
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends ($0.40 per common share and $0.20 per
Class A common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,553
    )
    
    
    (37,553
    )Stock options exercised, including tax benefit
    
    
    
    
    
    
    
    
    
    
    619
    
    
    
    31
    
    
    
    12,618
    
    
    
    
    
    
    
    
    
    
    
    12,649Stock repurchased
    
    
    
    
    
    
    
    
    
    
    (7,097
    )
    
    
    (356
    )
    
    
    
    
    
    
    
    
    
    
    (199,319
    )
    
    
    (199,675
    )Restricted stock, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    1
    
    
    
    1,287
    
    
    
    
    
    
    
    
    
    
    
    1,288Long-term incentive plan
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    3
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    953Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,920
    
    
    
    
    
    
    
    12,920Balance: February 3, 2007
    
    
    4,869
    
    
    
    243
    
    
    
    88,203
    
    
    
    4,410
    
    
    
    75,486
    
    
    
    33,956
    
    
    
    733,567
    
    
    
    847,662Net loss for period from February 4, 2007 to May 28,
2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,772
    )
    
    
    (43,772
    )Cash dividends ($0.18 per common share and $0.09 per
Class A common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,317
    )
    
    
    (16,317
    )Stock options exercised, including tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    177Restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,851
    
    
    
    
    
    
    
    
    
    
    
    1,851Option conversion payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,924
    )
    
    
    
    
    
    
    
    
    
    
    (7,924
    )Tax benefit from options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,885
    
    
    
    
    
    
    
    
    
    
    
    2,885Long-term incentive plan, net of amounts reclassified
as liabilities upon acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    (933
    )
    
    
    
    
    
    
    
    
    
    
    (931
    )Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,440
    
    
    
    
    
    
    
    8,440Balance: May 28, 2007
    
    
    4,869
    
    
    
    243
    
    
    
    88,203
    
    
    
    4,412
    
    
    
    71,542
    
    
    
    42,396
    
    
    
    673,478
    
    
    
    792,071Successor EntityAcquisition transaction
    
    
    (4,869
    )
    
    
    (243
    )
    
    
    (88,103
    )
    
    
    (4,412
    )
    
    
    524,133
    
    
    
    (42,396
    )
    
    
    (673,478
    )
    
    
    (196,396
    )Capital contribution
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    595,675
    
    
    
    
    
    
    
    
    
    
    
    595,675Net income for period May 29, 2007 to February 2, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    641
    
    
    
    641Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,092
    
    
    
    
    
    
    
    
    
    
    
    5,092Restricted stock, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    434Foreign currency translation adjustment and
unrealized loss on interest rate swaps, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,358
    
    
    
    
    
    
    
    3,358Balance: February 2, 2008
    
    
    
    
    
    $
    
    
    
    
    100
    
    
    $
    
    
    
    $
    601,201
    
    
    $
    3,358
    
    
    $
    641
    
    
    $
    605,200
  42




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Successor Entity
    
    
    
    Predecessor EntityMay 29, 2007
    
    
    
    Feb. 4, 2007Through
    
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2, 2008
    
    
    
    May 28, 2007
    
    
    February 3, 2007
    
    
    January 28, 2006Cash flows from operating activities:Net income (loss)
    
    $
    641
    
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    61,451
    
    
    
    
    19,652
    
    
    
    56,771
    
    
    
    48,900Amortization of lease rights and other assets
    
    
    1,313
    
    
    
    
    622
    
    
    
    1,489
    
    
    
    1,232Amortization of debt issuance costs
    
    
    7,079
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of assets
    
    
    3,478
    
    
    
    
    73
    
    
    
    
    
    
    
    Loss on sale/retirement of property and
equipment, net
    
    
    592
    
    
    
    
    1,201
    
    
    
    2,361
    
    
    
    3,460Gain on sale of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Excess tax benefit from stock compensation
    
    
    
    
    
    
    
    (2,885
    )
    
    
    (3,648
    )
    
    
    857Stock compensation expense
    
    
    5,526
    
    
    
    
    8,946
    
    
    
    7,080
    
    
    
    4,121Acceleration of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314(Increase) decrease in:Inventories
    
    
    16,838
    
    
    
    
    (10,932
    )
    
    
    (5,105
    )
    
    
    (4,995
    )Prepaid expenses
    
    
    (6,551
    )
    
    
    
    6,389
    
    
    
    (16,441
    )
    
    
    8,637Other assets
    
    
    (31,144
    )
    
    
    
    (2,941
    )
    
    
    (10,725
    )
    
    
    (6,143
    )Increase (decrease) in:Trade accounts payable
    
    
    (32,987
    )
    
    
    
    31,202
    
    
    
    3,444
    
    
    
    9,747Income taxes
    
    
    4,076
    
    
    
    
    (11,732
    )
    
    
    2,184
    
    
    
    5,776Accrued expenses and other liabilities
    
    
    (73,060
    )
    
    
    
    39,727
    
    
    
    6,853
    
    
    
    (309
    )Accrued interest payable
    
    
    19,531
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (18,508
    )
    
    
    
    6,723
    
    
    
    (4,558
    )
    
    
    (4,458
    )Deferred rent expense
    
    
    5,874
    
    
    
    
    373
    
    
    
    3,778
    
    
    
    2,876Net cash provided by (used in) operating activities
    
    
    (35,851
    )
    
    
    
    42,646
    
    
    
    232,250
    
    
    
    242,358Cash flows from investing activities:Acquisition of property and equipment
    
    
    (58,484
    )
    
    
    
    (27,988
    )
    
    
    (95,192
    )
    
    
    (73,444
    )Acquisition of Predecessor Entity, net of cash
acquired
    
    
    (3,053,334
    )
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of land and building
    
    
    
    
    
    
    
    
    
    
    
    881
    
    
    
    Acquisition of intangible assets
    
    
    (554
    )
    
    
    
    (81
    )
    
    
    (4,945
    )
    
    
    (8,555
    )Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,334
    )Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216,947Net cash provided by (used in) investing activities
    
    
    (3,112,372
    )
    
    
    
    (28,069
    )
    
    
    (99,256
    )
    
    
    52,614Cash flows from financing activities:Credit facility proceeds
    
    
    1,450,000
    
    
    
    
    
    
    
    
    
    
    
    
    Credit facility payments
    
    
    (7,250
    )
    
    
    
    
    
    
    
    
    
    
    
    Note offerings proceeds
    
    
    935,000
    
    
    
    
    
    
    
    
    
    
    
    
    Capital contribution
    
    
    595,675
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised stock option proceeds
    
    
    
    
    
    
    
    177
    
    
    
    8,996
    
    
    
    4,886Purchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    
    (199,675
    )
    
    
    Excess tax benefit from stock compensation
    
    
    
    
    
    
    
    2,885
    
    
    
    3,648
    
    
    
    Option conversion payment
    
    
    (7,924
    )
    
    
    
    
    
    
    
    
    
    
    
    Financing fees paid
    
    
    (77,439
    )
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    (7,252
    )
    
    
    
    (9,065
    )
    
    
    (37,553
    )
    
    
    (62,886
    )Net cash provided by (used in) financing activities:
    
    
    2,880,810
    
    
    
    
    (6,003
    )
    
    
    (224,584
    )
    
    
    (58,000
    )Effect of foreign currency exchange rate changes on cash
and cash equivalents
    
    
    2,911
    
    
    
    
    1,025
    
    
    
    1,345
    
    
    
    3,144Net increase (decrease) in cash and cash equivalents
    
    
    (264,502
    )
    
    
    
    9,599
    
    
    
    (90,245
    )
    
    
    240,116Cash and cash equivalents at beginning of period
    
    
    350,476
    
    
    
    
    340,877
    
    
    
    431,122
    
    
    
    191,006Cash and cash equivalents at end of period
    
    $
    85,974
    
    
    
    $
    350,476
    
    
    $
    340,877
    
    
    $
    431,122
  43




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. NATURE OF OPERATIONS AND ACQUISITION OF CLAIRES STORES, INC.
 Nature of Operations
 Acquisition of Claires Stores, Inc.
     
    
    the closing of the Companys offering for the senior notes (Notes) in the aggregate
principal amount of $935.0 million;
    
    the closing of the Companys senior secured term loan facility and revolving credit
facility (collectively the Credit Facility) of $1.65 billion;
    
    the termination of the Companys existing $60.0 million secured credit facility; and
    
    the equity investment described above.
     44




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##### Table of Contents



Predecessor Entity
    
    
    Successor EntityMay 28,
    
    
    Transaction
    
    
    May 29,2007
    
    
    Adjustments
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    350,476
    
    
    $
    (186,053
    )
    
    $
    164,423Inventories
    
    
    133,156
    
    
    
    
    
    
    
    133,156Prepaid expenses
    
    
    29,792
    
    
    
    
    
    
    
    29,792Other current assets
    
    
    36,378
    
    
    
    
    
    
    
    36,378Total current assets
    
    
    549,802
    
    
    
    (186,053
    )
    
    
    363,749Property and equipment:Land and buildings
    
    
    17,272
    
    
    
    5,016
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    289,974
    
    
    
    (194,125
    )
    
    
    95,849Leasehold improvements
    
    
    305,469
    
    
    
    (120,083
    )
    
    
    185,386612,715
    
    
    
    (309,192
    )
    
    
    303,523Less accumulated depreciation and amortization
    
    
    (336,240
    )
    
    
    336,240
    
    
    
    276,475
    
    
    
    27,048
    
    
    
    303,523Intangible assets, net
    
    
    55,629
    
    
    
    718,524
    
    
    
    774,153Deferred debt issuance costs, net
    
    
    
    
    
    
    77,411
    
    
    
    77,411Other assets
    
    
    35,589
    
    
    
    27,287
    
    
    
    62,876Goodwill
    
    
    201,552
    
    
    
    1,637,702
    
    
    
    1,839,254292,770
    
    
    
    2,460,924
    
    
    
    2,753,694Total assets
    
    $
    1,119,047
    
    
    $
    2,301,919
    
    
    $
    3,420,966LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    87,854
    
    
    $
    (753
    )
    
    $
    87,101Current portion of long-term debt
    
    
    
    
    
    
    10,875
    
    
    
    10,875Income taxes payable
    
    
    11,355
    
    
    
    3,611
    
    
    
    14,966Accrued expenses and other liabilities
    
    
    170,444
    
    
    
    1,169
    
    
    
    171,613Total current liabilities
    
    
    269,653
    
    
    
    14,902
    
    
    
    284,555Long-term debt
    
    
    
    
    
    
    2,374,125
    
    
    
    2,374,125Deferred tax liability
    
    
    21,534
    
    
    
    135,278
    
    
    
    156,812Deferred rent expense
    
    
    26,808
    
    
    
    (26,808
    )
    
    
    Other liabilities
    
    
    8,981
    
    
    
    818
    
    
    
    9,79957,323
    
    
    
    2,483,413
    
    
    
    2,540,736Stockholders equity
    
    
    792,071
    
    
    
    (196,396
    )
    
    
    595,675Total liabilities and stockholders equity
    
    $
    1,119,047
    
    
    $
    2,301,919
    
    
    $
    3,420,966
 45




---



##### Table of Contents




    
    Trademarks  $646.1 million.
    
    Lease rights  $73.6 million (including residual value of approximately $62 million).
    
    Franchise agreements  $50.0 million.
    
    Covenants not to compete  $4.5 million.
  Fiscal Year EndedFebruary 2, 2008
    
    February 3, 2007(Dollars in thousands)Net sales
    
    $
    1,510,831
    
    
    $
    1,480,987Depreciation and amortization
    
    
    92,176
    
    
    
    87,567Transaction-related costs
    
    
    7,319
    
    
    
    7,319Operating income
    
    
    173,482
    
    
    
    210,677Interest expense, net
    
    
    218,271
    
    
    
    210,775Loss before income taxes
    
    
    (44,789
    )
    
    
    (98
    )Net income (loss)
    
    
    (19,483
    )
    
    
    24,557
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Use of Estimates
 Fiscal Year
 46




---



##### Table of Contents



Cash and Cash Equivalents
  Short-term Investments
 Inventories
 Prepaid Expenses
 Successor Entity
    
    
    Predecessor EntityFeb. 2, 2008
    
    
    Feb. 3, 2007Prepaid rent and occupancy
    
    $
    32,135
    
    
    $
    30,078Prepaid insurance
    
    
    1,781
    
    
    
    3,134Other
    
    
    3,399
    
    
    
    2,353$
    37,315
    
    
    $
    35,565
 Other Current Assets
 Successor Entity
    
    
    Predecessor EntityFeb. 2, 2008
    
    
    Feb. 3, 2007Deferred tax asset
    
    $
    19,474
    
    
    $
    15,059Credit card and other receivables
    
    
    11,495
    
    
    
    10,369Trust assets relating to our deferred compensation plan
    
    
    
    
    
    
    9,317Store supplies
    
    
    6,519
    
    
    
    6,166Other
    
    
    170
    
    
    
    170$
    37,658
    
    
    $
    41,081
 Property and Equipment
 47




---



##### Table of Contents



Impairment of Long-Lived Assets
 Goodwill
   Other Assets
  Intangible Assets
 Deferred Financing Costs
 48




---



##### Table of Contents



Accrued Expenses and Other Liabilities
 Successor Entity
    
    
    Predecessor EntityFeb. 2, 2008
    
    
    Feb. 3, 2007Compensation and benefits
    
    $
    37,441
    
    
    $
    50,672Interest rate swaps
    
    
    22,640
    
    
    
    Sales and local taxes
    
    
    11,548
    
    
    
    13,002Gift cards and certificates
    
    
    17,992
    
    
    
    15,411Store rent
    
    
    6,367
    
    
    
    6,161Other
    
    
    21,088
    
    
    
    18,780$
    117,076
    
    
    $
    104,026
 Revenue Recognition
 Cost of Sales
 Gift Cards and Gift Certificates
 Leasing
 Income Taxes
 49




---



##### Table of Contents



Foreign Currency Translation
 Accumulated Other Comprehensive Income
 ForeignCurrency
    
    
    DerivativePredecessor Entity
    
    Translation
    
    
    Instruments
    
    
    TotalBalance at January 29, 2005
    
    $
    28,041
    
    
    $
    
    
    
    $
    28,041Foreign currency translation adjustment
    
    
    (7,005
    )
    
    
    
    
    
    
    (7,005
    )Balance at January 28, 2006
    
    
    21,036
    
    
    
    
    
    
    
    21,036Foreign currency translation adjustment
    
    
    12,920
    
    
    
    
    
    
    
    12,920Balance at February 3, 2007
    
    
    33,956
    
    
    
    
    
    
    
    33,956Foreign currency translation adjustment
    
    
    8,440
    
    
    
    
    
    
    
    8,440Balance at May 28, 2007
    
    
    42,396
    
    
    
    
    
    
    
    42,396Acquisition transaction
    
    
    (42,396
    )
    
    
    
    
    
    
    (42,396
    )
    
    
    
    
    
    
    
    Successor EntityForeign currency translation adjustment
    
    
    17,191
    
    
    
    
    
    
    
    17,191Unrealized loss on interest rate swaps
    
    
    
    
    
    
    (13,833
    )
    
    
    (13,833
    )Balance at February 2, 2008
    
    $
    17,191
    
    
    $
    (13,833
    )
    
    $
    3,358
 Fair Value of Financial Instruments
   50




---



##### Table of Contents



Derivative Financial Instruments
 Stock-Based Compensation
  Predecessor Entity
        Fiscal Year EndedJan. 28, 2006Net income  as reported
    
    $
    172,343Stock-based employee compensation expense determined
under the fair value based methods, net of income tax
    
    
    (6,734
    )Stock-based employee compensation expense included in
reported net income, net of income tax
    
    
    2,945Net income  pro forma
    
    $
    168,554
 51




---



##### Table of Contents



Successor Entity
   Recent Accounting Pronouncements
     Reclassifications
 52




---



##### Table of Contents



3. STATEMENTS OF CASH FLOWS
   4. INTANGIBLE ASSETS
  Successor Entity
    
    
    Predecessor EntityFebruary 2, 2008
    
    
    February 3, 2007Estimated
    
    
    Gross
    
    
    
    
    
    
    GrossLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulatedin Years
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible assets subject to amortization:Lease rights
    
    Lease terms ranging from 4.5 to 16.5
    
    $
    81,181
    
    
    $
    (1,008
    )
    
    $
    56,571
    
    
    $
    (6,382
    )Franchise agreements
    
    
    15
    
    
    
    50,000
    
    
    
    (2,222
    )
    
    
    
    
    
    
    Non-compete agreements
    
    
    2
    
    
    
    4,500
    
    
    
    (1,500
    )
    
    
    
    
    
    
    Trademarks
    
    
    5
    
    
    
    85
    
    
    
    (32
    )
    
    
    1,088
    
    
    
    (794
    )Total intangible assets subject to
amortization
    
    
    
    
    
    
    135,766
    
    
    
    (4,762
    )
    
    
    57,659
    
    
    
    (7,176
    )Indefinite-lived trademarks
    
    
    
    
    
    
    646,126
    
    
    
    
    
    
    
    1,099
    
    
    
    Total intangible assets
    
    
    
    
    
    $
    781,892
    
    
    $
    (4,762
    )
    
    $
    58,758
    
    
    $
    (7,176
    )
  Weighted Average AmortizationPeriod for AmortizableLease
Rights (in 000s)
    
    Non-Amortizable
    
    Amortizable
    
    Intangible Asset AcquisitionsPeriod from May 29, 2007 through
February 2, 2008
    
    $
    
    
    
    $
    554
    
    
    
    9.2Period from February 4, 2007
through May 28, 2007
    
    
    
    
    
    
    81
    
    
    
    9.0Fiscal year ended February 3, 2007
    
    
    
    
    
    
    4,945
    
    
    
    12.2Fiscal year ended January 28, 2006
    
    
    
    
    
    
    8,555
    
    
    
    8.9
  53




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##### Table of Contents



Fiscal Year
    
    Amortization2009
    
    $
    7,1862010
    
    
    5,6302011
    
    
    4,8362012
    
    
    4,6172013
    
    
    4,5622014 and thereafter
    
    
    35,969Total
    
    $
    62,800
 5. DEBT
  Successor Entity
    
    
    Predecessor EntityFebruary 2, 2008
    
    
    February 3, 2007Senior secured term loan facility due 2014
    
    $
    1,442,750
    
    
    $
    Senior notes due 2015
    
    
    250,000
    
    
    
    Senior toggle notes due 2015
    
    
    350,000
    
    
    
    Senior subordinated notes due 2017
    
    
    335,000
    
    
    
    2,377,750
    
    
    
    Less: current portion of long-term debt
    
    
    (14,500
    )
    
    
    Long-term debt, net of current portion
    
    $
    2,363,250
    
    
    $
    
  Senior
    
    
    SeniorFiscal
    
    Term Loan
    
    
    Senior
    
    
    Toggle
    
    
    SubordinatedYear
    
    Facility
    
    
    Notes
    
    
    Notes
    
    
    Notes
    
    
    Total2009
    
    $
    14,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,5002010
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,5002011
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,5002012
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,5002013
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Thereafter
    
    
    1,370,250
    
    
    
    250,000
    
    
    
    350,000
    
    
    
    335,000
    
    
    
    2,305,250$
    1,442,750
    
    
    $
    250,000
    
    
    $
    350,000
    
    
    $
    335,000
    
    
    $
    2,377,750
 54




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##### Table of Contents



Successor Entity
    
    
    Predecessor EntityFebruary 4, 2007May 29, 2007
    
    
    ThroughThrough
    
    
    May 28,
    
    
    Fiscal Year EndedFebruary 2, 2008
    
    
    2007
    
    
    February 3, 2007
    
    
    January 28, 2006Term loan facility
    
    $
    81,021
    
    
    $
    
    
    
    $
    
    
    
    $
    Senior notes
    
    
    15,623
    
    
    
    
    
    
    
    
    
    
    
    Senior toggle notes
    
    
    22,753
    
    
    
    
    
    
    
    
    
    
    
    Senior subordinated notes
    
    
    23,757
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred debt issue costs
    
    
    7,079
    
    
    
    
    
    
    
    
    
    
    
    Other interest expense
    
    
    83
    
    
    
    86
    
    
    
    118
    
    
    
    125Interest income
    
    
    (2,424
    )
    
    
    (4,962
    )
    
    
    (14,693
    )
    
    
    (9,618
    )$
    147,892
    
    
    $
    (4,876
    )
    
    $
    (14,575
    )
    
    $
    (9,493
    )
  Successor Entity
    
    
    Predecessor EntityFebruary 2, 2008
    
    
    February 3, 2007Term loan facility
    
    $
    3,948
    
    
    $
    Senior notes
    
    
    3,918
    
    
    
    Senior toggle notes
    
    
    5,708
    
    
    
    Senior subordinated notes
    
    
    5,960
    
    
    
    Other
    
    
    2
    
    
    
    $
    19,536
    
    
    $
    
 Credit Facility
    55




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##### Table of Contents




    
    a perfected pledge of all the equity interests held by us or any subsidiary guarantor,
which pledge, in the case of any foreign subsidiary, is limited to 100% of the non-voting
equity interests and 65% of the voting equity interests of such foreign subsidiary held
directly by us and the subsidiary guarantors; and
    
    perfected security interests in, and mortgages on, substantially all material tangible
and intangible assets owned by us and each subsidiary guarantor, subject to certain
exceptions.
   
    
    incur additional indebtedness or issue certain preferred shares;
    
    pay dividends on, repurchase or make distributions in respect of our capital stock or
make other restricted payments;
    
    make certain investments;
    
    sell certain assets;
    
    create liens;
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
and
    
    enter into certain transactions with our affiliates.
  56




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##### Table of Contents



Senior Notes
  1)
    
    $250.0 million of 9.25% Senior Notes due 2015 (the Senior Cash Pay Notes), and2)
    
    $350.0 million of 9.625%/10.375% Senior Toggle Notes due 2015 (the Senior Toggle
Notes and together with the Senior Cash Pay Notes, the Senior Notes)
        Senior Subordinated Notes
  57




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##### Table of Contents



6. COMMITMENTS AND CONTINGENCIES
 Leasing
 Successor Entity
    
    
    Predecessor EntityMay 29, 2007
    
    
    Feb. 4, 2007Through
    
    
    Through
    
    
    Fiscal Year EndedFebruary 2,
    
    
    May 28,
    
    
    February 3,
    
    
    January 28,2008
    
    
    2007
    
    
    2007
    
    
    2006Minimum store rentals
    
    $
    137,236
    
    
    $
    60,751
    
    
    $
    178,591
    
    
    $
    162,066Store rentals based on net sales
    
    
    2,332
    
    
    
    1,938
    
    
    
    4,421
    
    
    
    4,734Other rental expense
    
    
    7,929
    
    
    
    4,078
    
    
    
    12,051
    
    
    
    14,141Total rental expense
    
    $
    147,497
    
    
    $
    66,767
    
    
    $
    195,063
    
    
    $
    180,941
 58




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##### Table of Contents



2009
    
    $
    201,7442010
    
    
    185,1312011
    
    
    168,8312012
    
    
    152,0032013
    
    
    135,021Thereafter
    
    
    424,434$
    1,267,164
    Legal
  Employment Agreements
 Other
  59




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##### Table of Contents



7. STOCKHOLDERS EQUITY
 Predecessor Entity
 Preferred Stock
 Class A Common Stock
 Rights to Purchase Series A Junior Participating Preferred Stock
 Stock Repurchase Program
 8. STOCK OPTIONS AND STOCK-BASED COMPENSATION
 Predecessor Entity
  60




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##### Table of Contents



61




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##### Table of Contents



Stock Options
  Period From February 4, 2007
    
    
    Fiscal Year EndedThrough May 28, 2007
    
    
    February 3, 2007
    
    
    January 28, 2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Average
    
    
    Number
    
    
    Average
    
    
    Number
    
    
    Averageof
    
    
    Exercise
    
    
    Of
    
    
    Exercise
    
    
    of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of period
    
    
    484,000
    
    
    $
    16.31
    
    
    
    1,113,436
    
    
    $
    15.33
    
    
    
    1,511,813
    
    
    $
    15.40Options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options exercised
    
    
    (10,000
    )
    
    
    17.72
    
    
    
    (619,436
    )
    
    
    14.53
    
    
    
    (323,127
    )
    
    
    15.09Options canceled
    
    
    
    
    
    
    
    
    
    
    (10,000
    )
    
    
    16.93
    
    
    
    (75,250
    )
    
    
    17.30Options converted
    
    
    (474,000
    )
    
    
    16.28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    
    
    
    $
    
    
    
    
    484,000
    
    
    $
    16.31
    
    
    
    1,113,436
    
    
    $
    15.33Exercisable at end of period
    
    
    
    
    
    $
    
    
    
    
    484,000
    
    
    $
    16.31
    
    
    
    1,108,436
    
    
    $
    15.32
  Time-Vested Stock Awards
   62




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##### Table of Contents



Period From February 4, 2007
    
    
    Fiscal Year EndedThrough May 28, 2007
    
    
    February 3, 2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageNumber of
    
    
    Grant Date
    
    
    Number of
    
    
    Grant DateShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNon-vested at beginning of period
    
    
    93,400
    
    
    $
    22.64
    
    
    
    169,933
    
    
    $
    22.48Granted
    
    
    
    
    
    
    
    
    
    
    18,400
    
    
    
    24.38Vested
    
    
    (93,400
    )
    
    
    22.64
    
    
    
    (94,933
    )
    
    
    22.70Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-vested at end of period
    
    
    
    
    
    $
    
    
    
    
    93,400
    
    
    $
    22.64
 Long-Term Incentive Stock Plans
   63




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##### Table of Contents



Successor Entity
    .
 64




---



##### Table of Contents



WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Shares
    
    Price
    
    Life (Years)
    
    ValueOutstanding at beginning of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    6,204,872
    
    
    $
    10.00
    
    
    
    6.4
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options forfeited
    
    
    (62,250
    )
    
    
    
    
    
    
    
    
    
    
    Options expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    6,142,622
    
    
    $
    10.00
    
    
    
    6.4
    
    
    
    Exercisable at end of period
    
    
    1,089,500
    
    
    $
    10.00
    
    
    
    6.4
    
    
    
    
   Time Options
    
    Performanceand BOGO Options
    
    Options(Black-Scholes)
    
    (Monte Carlo)Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Weighted average expected stock price volatility
    
    
    47.56
    %
    
    
    52.00
    %Weighted average risk-free interest rate
    
    
    4.55
    %
    
    
    4.71
    %Range of risk-free interest rate
    
    
    2.99% - 5.01
    %
    
    
    2.97% - 5.16
    %Weighted average expected life of options
(years)
    
    
    4.92
    
    
    
    N/A
    65




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##### Table of Contents



Time-Vested Stock Awards
   WeightedAverageGrant DateShares
    
    
    Fair ValueNonvested at beginning of period
    
    
    
    
    
    
    Granted
    
    
    125,000
    
    
    $
    10.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at end of period
    
    
    125,000
    
    
    $
    10.00
 9. DERIVATIVES AND HEDGING ACTIVITIES
    66




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##### Table of Contents



10. EMPLOYEE BENEFIT PLANS
  Predecessor Entity
  67




---



##### Table of Contents



11. INCOME TAXES
  May 29, 2007
    
    
    Feb. 4, 2007Through
    
    
    Through
    
    
    Fiscal Year EndedFeb. 2, 2008
    
    
    May 28, 2007
    
    
    Feb. 3, 2007
    
    
    Jan. 28, 2006U.S.
    
    $
    (75,357
    )
    
    $
    (27,568
    )
    
    $
    198,603
    
    
    $
    186,904Foreign
    
    
    67,978
    
    
    
    5,575
    
    
    
    70,047
    
    
    
    72,767$
    (7,379
    )
    
    $
    (21,993
    )
    
    $
    268,650
    
    
    $
    259,671
  May 29, 2007
    
    
    Feb. 4, 2007Through
    
    
    Through
    
    
    Fiscal Year EndedFeb. 2, 2008
    
    
    May 28, 2007
    
    

Feb. 3, 2007
    
    

Jan. 28, 2006Federal:Current
    
    $
    (460
    )
    
    $
    16,408
    
    
    $
    64,044
    
    
    $
    71,693Deferred
    
    
    (10,838
    )
    
    
    6,416
    
    
    
    (3,169
    )
    
    
    (3,315
    )(11,298
    )
    
    
    22,824
    
    
    
    60,875
    
    
    
    68,378StateCurrent
    
    
    (381
    )
    
    
    314
    
    
    
    5,978
    
    
    
    6,028Deferred
    
    
    (5,283
    )
    
    
    599
    
    
    
    (508
    )
    
    
    (343
    )(5,664
    )
    
    
    913
    
    
    
    5,470
    
    
    
    5,685ForeignCurrent
    
    
    8,768
    
    
    
    (1,670
    )
    
    
    14,333
    
    
    
    14,247Deferred
    
    
    174
    
    
    
    (288
    )
    
    
    (790
    )
    
    
    (982
    )8,942
    
    
    
    (1,958
    )
    
    
    13,543
    
    
    
    13,265Total income tax expense (benefit)
    
    $
    (8,020
    )
    
    $
    21,779
    
    
    $
    79,888
    
    
    $
    87,328
  May 29, 2007
    
    
    Feb. 4, 2007Through
    
    
    Through
    
    
    Fiscal Year EndedFeb. 2, 2008
    
    
    May 28, 2007
    
    
    Feb. 3, 2007
    
    
    Jan. 28, 2006U.S. income taxes at statutory federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Foreign rate differential
    
    
    237.8
    
    
    
    28.6
    
    
    
    (6.8
    )
    
    
    (6.4
    )State and local income taxes, net of federal tax
benefit
    
    
    12.0
    
    
    
    (0.1
    )
    
    
    1.7
    
    
    
    1.4American Jobs Creation Act repatriation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2Transaction related costs
    
    
    
    
    
    
    (45.3
    )
    
    
    
    
    
    
    Repatriation of foreign earnings
    
    
    (70.7
    )
    
    
    (100.1
    )
    
    
    
    
    
    
    Change in accrual for estimated tax contingencies
    
    
    (24.9
    )
    
    
    (5.3
    )
    
    
    (3.0
    )
    
    
    2.3Other, net
    
    
    (80.5
    )
    
    
    (11.8
    )
    
    
    2.8
    
    
    
    (0.9
    )108.7
    %
    
    
    (99.0
    )%
    
    
    29.7
    %
    
    
    33.6
    %
   68




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##### Table of Contents



Feb. 2, 2008
    
    
    Feb. 3, 2007Deferred tax assets:Accrued expenses
    
    $
    5,956
    
    
    $
    5,947Deferred rent
    
    
    643
    
    
    
    4,901Depreciation
    
    
    
    
    
    
    1,153Compensation & benefits
    
    
    4,366
    
    
    
    7,903Inventory
    
    
    1,331
    
    
    
    1,201Gift cards
    
    
    1,319
    
    
    
    1,529Net operating loss carry forwards
    
    
    59,235
    
    
    
    9,710Other
    
    
    9,443
    
    
    
    944Total gross deferred tax assets
    
    
    82,293
    
    
    
    33,288Valuation allowance
    
    
    (11,472
    )
    
    
    (8,288
    )Total deferred tax assets, net
    
    
    70,821
    
    
    
    25,000Deferred tax liabilities:Depreciation
    
    
    4,011
    
    
    
    Intangible asset amortization
    
    
    
    
    
    
    26,694Trademark intangibles
    
    
    168,880
    
    
    
    Other
    
    
    15,997
    
    
    
    1,245Total deferred tax liabilities
    
    
    188,888
    
    
    
    27,939Net deferred tax liability
    
    $
    (118,067
    )
    
    $
    (2,939
    )
   69




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##### Table of Contents



May 29, 2007
    
    
    February 4, 2007Through
    
    
    ThroughFebruary 2, 2008
    
    
    May 28, 2007Beginning Balance
    
    $
    7,386
    
    
    $
    6,481Additions based on tax positions related
to the current year
    
    
    1,418
    
    
    
    748Additions for tax positions of prior years
    
    
    1,754
    
    
    
    174Reductions for tax positions of prior years
    
    
    (517
    )
    
    
    (17
    )Statute expirations
    
    
    (239
    )
    
    
    Settlements
    
    
    (185
    )
    
    
    Ending Balance
    
    $
    9,617
    
    
    $
    7,386
  70




---



##### Table of Contents



12. RELATED PARTY TRANSACTIONS
     71




---



##### Table of Contents



13. SELECTED QUARTERLY FINANCIAL DATA
  Fiscal Year Ended February 2, 2008Predecessor Entity
    
    Successor Entity1st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th Qtr
    
    Year(In thousands)May 6, 2007
    
    May 29, 2007Through
    
    ThroughMay 28, 2007
    
    August 4, 2007Net sales
    
    $
    340,571
    
    
    $
    84,328
    
    
    $
    281,190
    
    
    $
    357,366
    
    
    $
    447,376
    
    
    $
    1,510,831Gross Profit
    
    
    178,980
    
    
    
    39,482
    
    
    
    142,914
    
    
    
    181,151
    
    
    
    240,482
    
    
    
    783,009Transaction related costs
    
    
    3,486
    
    
    
    69,186
    
    
    
    2,061
    
    
    
    1,200
    
    
    
    4,058
    
    
    
    79,991Interest expense (income)
    
    
    (3,753
    )
    
    
    (1,123
    )
    
    
    35,928
    
    
    
    56,322
    
    
    
    55,642
    
    
    
    143,016Net income (loss)
    
    
    28,781
    
    
    
    (72,551
    )
    
    
    (807
    )
    
    
    (13,812
    )
    
    
    15,258
    
    
    
    (43,131
    )
 Predecessor EntityFiscal Year Ended February 3, 20071st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th Qtr
    
    Year(In thousands)Net sales
    
    $
    311,927
    
    
    $
    349,160
    
    
    $
    347,593
    
    
    $
    472,307
    
    
    $
    1,480,987Gross profit
    
    
    164,753
    
    
    
    181,281
    
    
    
    182,106
    
    
    
    261,201
    
    
    
    789,341Transaction-related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense (income)
    
    
    (4,181
    )
    
    
    (3,848
    )
    
    
    (3,161
    )
    
    
    (3,385
    )
    
    
    (14,575
    )Net income
    
    
    29,701
    
    
    
    35,962
    
    
    
    36,627
    
    
    
    86,472
    
    
    
    188,762
 14. SEGMENT REPORTING
  72




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Successor Entity
    
    
    Predecessor EntityMay 29, 2007
    
    
    Feb. 4, 2007Through
    
    
    Through
    
    
    Fiscal YearFeb. 2, 2008
    
    
    May 28, 2007
    
    
    2007
    
    
    2006Net sales:North America
    
    $
    702,986
    
    
    $
    292,483
    
    
    $
    1,024,009
    
    
    $
    964,008Europe
    
    
    382,946
    
    
    
    132,416
    
    
    
    456,978
    
    
    
    405,744Total net sales
    
    $
    1,085,932
    
    
    $
    424,899
    
    
    $
    1,480,987
    
    
    $
    1,369,752Depreciation and amortization:North America
    
    $
    42,846
    
    
    $
    12,823
    
    
    $
    37,252
    
    
    $
    32,383Europe
    
    
    18,605
    
    
    
    6,829
    
    
    
    19,519
    
    
    
    16,517Total depreciation and amortization
    
    $
    61,451
    
    
    $
    19,652
    
    
    $
    56,771
    
    
    $
    48,900Segment operating income (loss):North America
    
    $
    95,238
    
    
    $
    46,569
    
    
    $
    197,961
    
    
    $
    197,385Europe
    
    
    52,594
    
    
    
    (766
    )
    
    
    56,114
    
    
    
    52,793Total segment operating income (loss)
    
    $
    147,832
    
    
    $
    45,803
    
    
    $
    254,075
    
    
    $
    250,178Interest expense (income), net:North America
    
    $
    148,616
    
    
    $
    (3,898
    )
    
    $
    (12,617
    )
    
    $
    (7,169
    )Europe
    
    
    (724
    )
    
    
    (978
    )
    
    
    (1,958
    )
    
    
    (2,324
    )Total interest expense (income), net
    
    $
    147,892
    
    
    $
    (4,876
    )
    
    $
    (14,575
    )
    
    $
    (9,493
    )Income (loss) before income taxes:North America
    
    $
    (59,468
    )
    
    $
    (22,205
    )
    
    $
    210,578
    
    
    $
    204,554Europe
    
    
    52,089
    
    
    
    212
    
    
    
    58,072
    
    
    
    55,117Total income (loss) before income taxes
    
    $
    (7,379
    )
    
    $
    (21,993
    )
    
    $
    268,650
    
    
    $
    259,671Income taxes:North America
    
    $
    (17,444
    )
    
    $
    25,189
    
    
    $
    70,207
    
    
    $
    81,794Europe
    
    
    9,424
    
    
    
    (3,410
    )
    
    
    9,681
    
    
    
    5,534Total income taxes
    
    $
    (8,020
    )
    
    $
    21,779
    
    
    $
    79,888
    
    
    $
    87,328Net income (loss):North America
    
    $
    (42,024
    )
    
    $
    (47,394
    )
    
    $
    140,372
    
    
    $
    122,760Europe
    
    
    42,665
    
    
    
    3,622
    
    
    
    48,390
    
    
    
    49,583Net income (loss)
    
    $
    641
    
    
    $
    (43,772
    )
    
    $
    188,762
    
    
    $
    172,343Goodwill:North America
    
    $
    1,401,959
    
    
    $
    170,650
    
    
    $
    170,650
    
    
    $
    170,650Europe
    
    
    438,908
    
    
    
    30,902
    
    
    
    30,292
    
    
    
    27,988Total goodwill
    
    $
    1,840,867
    
    
    $
    201,552
    
    
    $
    200,942
    
    
    $
    198,638Long lived assets:North America
    
    $
    217,230
    
    
    $
    189,226
    
    
    $
    181,756
    
    
    $
    159,361Europe
    
    
    92,379
    
    
    
    87,249
    
    
    
    83,569
    
    
    
    63,358Total long lived assets
    
    $
    309,609
    
    
    $
    276,475
    
    
    $
    265,325
    
    
    $
    222,719Total assets:North America
    
    $
    2,600,540
    
    
    $
    746,996
    
    
    $
    746,805
    
    
    $
    822,687Europe
    
    
    747,957
    
    
    
    372,051
    
    
    
    344,461
    
    
    
    268,014Total assets
    
    $
    3,348,497
    
    
    $
    1,119,047
    
    
    $
    1,091,266
    
    
    $
    1,090,701Capital ExpendituresNorth America
    
    $
    38,105
    
    
    $
    19,697
    
    
    $
    62,557
    
    
    $
    46,895Europe
    
    
    20,379
    
    
    
    8,291
    
    
    
    32,635
    
    
    
    26,549Total capital expenditures
    
    $
    58,484
    
    
    $
    27,988
    
    
    $
    95,192
    
    
    $
    73,444
 73




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##### Table of Contents



15. SUPPLEMENTAL FINANCIAL INFORMATION
   74




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##### Table of Contents



Successor Entity
Combining Condensed Balance Sheet
February 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,835
    
    
    $
    1,892
    
    
    $
    58,247
    
    
    $
    
    
    
    $
    85,974Inventories
    
    
    
    
    
    
    84,952
    
    
    
    32,727
    
    
    
    
    
    
    
    117,679Prepaid expenses
    
    
    403
    
    
    
    15,264
    
    
    
    21,648
    
    
    
    
    
    
    
    37,315Other current assets
    
    
    100
    
    
    
    31,501
    
    
    
    6,057
    
    
    
    
    
    
    
    37,658Total current assets
    
    
    26,338
    
    
    
    133,609
    
    
    
    118,679
    
    
    
    
    
    
    
    278,626Property and equipment:Land and building
    
    
    
    
    
    
    22,288
    
    
    
    
    
    
    
    
    
    
    
    22,288Furniture, fixtures and equipment
    
    
    2,050
    
    
    
    83,924
    
    
    
    44,156
    
    
    
    
    
    
    
    130,130Leasehold improvements
    
    
    1,628
    
    
    
    127,522
    
    
    
    82,013
    
    
    
    
    
    
    
    211,1633,678
    
    
    
    233,734
    
    
    
    126,169
    
    
    
    
    
    
    
    363,581Less accumulated depreciation and amortization
    
    
    (609
    )
    
    
    (34,615
    )
    
    
    (18,748
    )
    
    
    
    
    
    
    (53,972
    )3,069
    
    
    
    199,119
    
    
    
    107,421
    
    
    
    
    
    
    
    309,609Intercompany receivables
    
    
    20,198
    
    
    
    
    
    
    
    13
    
    
    
    (20,211
    )
    
    
    Investment in subsidiaries
    
    
    2,452,074
    
    
    
    5,764
    
    
    
    
    
    
    
    (2,457,838
    )
    
    
    Intangible assets, net
    
    
    423,000
    
    
    
    300
    
    
    
    353,830
    
    
    
    
    
    
    
    777,130Deferred financing costs
    
    
    70,511
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,511Other assets
    
    
    35,124
    
    
    
    1,269
    
    
    
    35,361
    
    
    
    
    
    
    
    71,754Goodwill
    
    
    
    
    
    
    1,401,959
    
    
    
    438,908
    
    
    
    
    
    
    
    1,840,8673,000,907
    
    
    
    1,409,292
    
    
    
    828,112
    
    
    
    (2,478,049
    )
    
    
    2,760,262Total assets
    
    $
    3,030,314
    
    
    $
    1,742,020
    
    
    $
    1,054,212
    
    
    $
    (2,478,049
    )
    
    $
    3,348,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    762
    
    
    $
    22,140
    
    
    $
    33,187
    
    
    $
    
    
    
    $
    56,089Current portion of long-term debt
    
    
    14,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,500Income taxes payable
    
    
    (8,383
    )
    
    
    14,246
    
    
    
    6,328
    
    
    
    
    
    
    
    12,191Accrued interest payable
    
    
    19,534
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    19,536Accrued expenses and other liabilities
    
    
    34,194
    
    
    
    39,737
    
    
    
    43,145
    
    
    
    
    
    
    
    117,076Total current liabilities
    
    
    60,607
    
    
    
    76,123
    
    
    
    82,662
    
    
    
    
    
    
    
    219,392Intercompany payables
    
    
    
    
    
    
    20,211
    
    
    
    
    
    
    
    (20,211
    )
    
    
    Long-term debt
    
    
    2,363,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,363,250Deferred tax liability
    
    
    
    
    
    
    120,742
    
    
    
    18,764
    
    
    
    
    
    
    
    139,506Deferred rent expense
    
    
    1,257
    
    
    
    5,350
    
    
    
    3,965
    
    
    
    
    
    
    
    10,572Other liabilities
    
    
    
    
    
    
    10,577
    
    
    
    
    
    
    
    
    
    
    
    10,5772,364,507
    
    
    
    156,880
    
    
    
    22,729
    
    
    
    (20,211
    )
    
    
    2,523,905Stockholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    601,201
    
    
    
    1,449,307
    
    
    
    878,145
    
    
    
    (2,327,452
    )
    
    
    601,201Accumulated other comprehensive income, net
of tax
    
    
    3,358
    
    
    
    2,959
    
    
    
    17,513
    
    
    
    (20,472
    )
    
    
    3,358Retained earnings
    
    
    641
    
    
    
    56,384
    
    
    
    53,161
    
    
    
    (109,545
    )
    
    
    641605,200
    
    
    
    1,509,017
    
    
    
    948,821
    
    
    
    (2,457,838
    )
    
    
    605,200Total liabilities and stockholders equity
    
    $
    3,030,314
    
    
    $
    1,742,020
    
    
    $
    1,054,212
    
    
    $
    (2,478,049
    )
    
    $
    3,348,497
 75




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##### Table of Contents



Predecessor Entity
Combining Condensed Balance Sheet
February 3, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedASSETSCurrent assets:Cash and cash equivalents
    
    $
    194,098
    
    
    $
    15,807
    
    
    $
    130,972
    
    
    $
    
    
    
    $
    340,877Inventories
    
    
    
    
    
    
    88,458
    
    
    
    32,661
    
    
    
    
    
    
    
    121,119Prepaid expenses
    
    
    1,464
    
    
    
    13,127
    
    
    
    20,974
    
    
    
    
    
    
    
    35,565Other current assets
    
    
    9,976
    
    
    
    28,217
    
    
    
    2,888
    
    
    
    
    
    
    
    41,081Total current assets
    
    
    205,538
    
    
    
    145,609
    
    
    
    187,495
    
    
    
    
    
    
    
    538,642Property and equipment:Land and building
    
    
    78
    
    
    
    17,272
    
    
    
    
    
    
    
    
    
    
    
    17,350Furniture, fixtures and equipment
    
    
    5,197
    
    
    
    191,347
    
    
    
    87,012
    
    
    
    
    
    
    
    283,556Leasehold improvements
    
    
    4,532
    
    
    
    162,370
    
    
    
    121,597
    
    
    
    
    
    
    
    288,4999,807
    
    
    
    370,989
    
    
    
    208,609
    
    
    
    
    
    
    
    589,405Less accumulated depreciation and amortization
    
    
    (6,296
    )
    
    
    (207,229
    )
    
    
    (110,555
    )
    
    
    
    
    
    
    (324,080
    )3,511
    
    
    
    163,760
    
    
    
    98,054
    
    
    
    
    
    
    
    265,325Intercompany receivables
    
    
    10,241
    
    
    
    
    
    
    
    
    
    
    
    (10,241
    )
    
    
    Investment in subsidiaries
    
    
    649,516
    
    
    
    24,942
    
    
    
    
    
    
    
    (674,458
    )
    
    
    Intangible assets, net
    
    
    
    
    
    
    618
    
    
    
    50,964
    
    
    
    
    
    
    
    51,582Other assets
    
    
    7,547
    
    
    
    904
    
    
    
    26,324
    
    
    
    
    
    
    
    34,775Goodwill
    
    
    
    
    
    
    170,650
    
    
    
    30,292
    
    
    
    
    
    
    
    200,942667,304
    
    
    
    197,114
    
    
    
    107,580
    
    
    
    (684,699
    )
    
    
    287,299Total assets
    
    $
    876,353
    
    
    $
    506,483
    
    
    $
    393,129
    
    
    $
    (684,699
    )
    
    $
    1,091,266LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    1,422
    
    
    $
    25,228
    
    
    $
    29,673
    
    
    $
    
    
    
    $
    56,323Income taxes payable
    
    
    
    
    
    
    24,838
    
    
    
    10,264
    
    
    
    
    
    
    
    35,102Accrued expenses and other liabilities
    
    
    24,665
    
    
    
    42,608
    
    
    
    36,753
    
    
    
    
    
    
    
    104,026Total current liabilities
    
    
    26,087
    
    
    
    92,674
    
    
    
    76,690
    
    
    
    
    
    
    
    195,451Intercompany payables
    
    
    
    
    
    
    1,176
    
    
    
    9,065
    
    
    
    (10,241
    )
    
    
    Deferred tax liability
    
    
    
    
    
    
    17,195
    
    
    
    2,229
    
    
    
    
    
    
    
    19,424Deferred rent expense
    
    
    
    
    
    
    17,522
    
    
    
    8,603
    
    
    
    
    
    
    
    26,125Other liabilities
    
    
    2,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,6042,604
    
    
    
    35,893
    
    
    
    19,897
    
    
    
    (10,241
    )
    
    
    48,153Stockholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A common stock
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243Common stock
    
    
    4,410
    
    
    
    367
    
    
    
    
    
    
    
    (367
    )
    
    
    4,410Additional paid in capital
    
    
    75,486
    
    
    
    42,544
    
    
    
    76,958
    
    
    
    (119,502
    )
    
    
    75,486Accumulated other comprehensive income, net
of tax
    
    
    33,956
    
    
    
    4,394
    
    
    
    37,100
    
    
    
    (41,494
    )
    
    
    33,956Retained earnings
    
    
    733,567
    
    
    
    330,611
    
    
    
    182,484
    
    
    
    (513,095
    )
    
    
    733,567847,662
    
    
    
    377,916
    
    
    
    296,542
    
    
    
    (674,458
    )
    
    
    847,662Total liabilities and stockholders equity
    
    $
    876,353
    
    
    $
    506,483
    
    
    $
    393,129
    
    
    $
    (684,699
    )
    
    $
    1,091,266
 76




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##### Table of Contents



Successor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Period May 29, 2007 Through February 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,224,858
    
    
    $
    431,615
    
    
    $
    (570,541
    )
    
    $
    1,085,932Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    893,847
    
    
    
    198,078
    
    
    
    (570,541
    )
    
    
    521,384Gross profit
    
    
    
    
    
    
    331,011
    
    
    
    233,537
    
    
    
    
    
    
    
    564,548Other expenses (income):Selling, general and administrative
    
    
    18,897
    
    
    
    191,544
    
    
    
    147,912
    
    
    
    
    
    
    
    358,353Depreciation and amortization
    
    
    2,136
    
    
    
    37,930
    
    
    
    21,385
    
    
    
    
    
    
    
    61,451Transaction-related costs
    
    
    6,090
    
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    7,319Other income
    
    
    (8,570
    )
    
    
    9,595
    
    
    
    (4,113
    )
    
    
    
    
    
    
    (3,088
    )18,553
    
    
    
    239,069
    
    
    
    166,413
    
    
    
    
    
    
    
    424,035Operating income (loss)
    
    
    (18,553
    )
    
    
    91,942
    
    
    
    67,124
    
    
    
    
    
    
    
    140,513Interest expense (income), net
    
    
    149,527
    
    
    
    (711
    )
    
    
    (924
    )
    
    
    
    
    
    
    147,892Income (loss) before income taxes
    
    
    (168,080
    )
    
    
    92,653
    
    
    
    68,048
    
    
    
    
    
    
    
    (7,379
    )Income taxes
    
    
    (56,335
    )
    
    
    38,035
    
    
    
    10,280
    
    
    
    
    
    
    
    (8,020
    )Income (loss) from continuing operations
    
    
    (111,745
    )
    
    
    54,618
    
    
    
    57,768
    
    
    
    
    
    
    
    641Equity in earnings of subsidiaries
    
    
    112,386
    
    
    
    6,371
    
    
    
    
    
    
    
    (118,757
    )
    
    
    Net income
    
    
    641
    
    
    
    60,989
    
    
    
    57,768
    
    
    
    (118,757
    )
    
    
    641Foreign currency translation and interest
rate swap adjustments
    
    
    3,358
    
    
    
    2,959
    
    
    
    17,513
    
    
    
    (20,472
    )
    
    
    3,358Comprehensive income
    
    $
    3,999
    
    
    $
    63,948
    
    
    $
    75,281
    
    
    $
    (139,229
    )
    
    $
    3,999
 Predecessor Entity
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For The Period February 4, 2007 Through May 28, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    540,394
    
    
    $
    149,666
    
    
    $
    (265,161
    )
    
    $
    424,899Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    397,435
    
    
    
    74,164
    
    
    
    (265,161
    )
    
    
    206,438Gross profit
    
    
    
    
    
    
    142,959
    
    
    
    75,502
    
    
    
    
    
    
    
    218,461Other expenses (income):Selling, general and administrative
    
    
    7,021
    
    
    
    84,633
    
    
    
    62,828
    
    
    
    
    
    
    
    154,482Depreciation and amortization
    
    
    367
    
    
    
    11,504
    
    
    
    7,781
    
    
    
    
    
    
    
    19,652Transaction-related costs
    
    
    72,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,672Other (income) expense
    
    
    (8,054
    )
    
    
    5,926
    
    
    
    652
    
    
    
    
    
    
    
    (1,476
    )72,006
    
    
    
    102,063
    
    
    
    71,261
    
    
    
    
    
    
    
    245,330Operating income (loss)
    
    
    (72,006
    )
    
    
    40,896
    
    
    
    4,241
    
    
    
    
    
    
    
    (26,869
    )Interest expense (income), net
    
    
    (3,235
    )
    
    
    (376
    )
    
    
    (1,265
    )
    
    
    
    
    
    
    (4,876
    )Income (loss) before income taxes
    
    
    (68,771
    )
    
    
    41,272
    
    
    
    5,506
    
    
    
    
    
    
    
    (21,993
    )Income taxes
    
    
    8,369
    
    
    
    15,361
    
    
    
    (1,951
    )
    
    
    
    
    
    
    21,779Income (loss) from continuing operations
    
    
    (77,140
    )
    
    
    25,911
    
    
    
    7,457
    
    
    
    
    
    
    
    (43,772
    )Equity in earnings of subsidiaries
    
    
    33,368
    
    
    
    2,775
    
    
    
    
    
    
    
    (36,143
    )
    
    
    Net income (loss)
    
    
    (43,772
    )
    
    
    28,686
    
    
    
    7,457
    
    
    
    (36,143
    )
    
    
    (43,772
    )Foreign currency translation adjustments
    
    
    8,440
    
    
    
    2,861
    
    
    
    8,478
    
    
    
    (11,339
    )
    
    
    8,440Comprehensive income (loss)
    
    $
    (35,332
    )
    
    $
    31,547
    
    
    $
    15,935
    
    
    $
    (47,482
    )
    
    $
    (35,332
    )
 77




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##### Table of Contents



Predecessor Entity
Combining Condensed Statement of Operations and Comprehensive Income
Fiscal Year Ended February 3, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedNet sales
    
    $
    
    
    
    $
    1,905,368
    
    
    $
    526,451
    
    
    $
    (950,832
    )
    
    $
    1,480,987Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    1,405,906
    
    
    
    236,572
    
    
    
    (950,832
    )
    
    
    691,646Gross profit
    
    
    
    
    
    
    499,462
    
    
    
    289,879
    
    
    
    
    
    
    
    789,341Other expenses (income):Selling, general and administrative
    
    
    32,095
    
    
    
    265,704
    
    
    
    184,180
    
    
    
    
    
    
    
    481,979Depreciation and amortization
    
    
    945
    
    
    
    33,389
    
    
    
    22,437
    
    
    
    
    
    
    
    56,771Other expense (income)
    
    
    (22,267
    )
    
    
    3,031
    
    
    
    15,752
    
    
    
    
    
    
    
    (3,484
    )10,773
    
    
    
    302,124
    
    
    
    222,369
    
    
    
    
    
    
    
    535,266Operating income (loss)
    
    
    (10,773
    )
    
    
    197,338
    
    
    
    67,510
    
    
    
    
    
    
    
    254,075Interest expense (income), net
    
    
    (11,714
    )
    
    
    (326
    )
    
    
    (2,535
    )
    
    
    
    
    
    
    (14,575
    )Income before income taxes
    
    
    941
    
    
    
    197,664
    
    
    
    70,045
    
    
    
    
    
    
    
    268,650Income taxes
    
    
    379
    
    
    
    66,736
    
    
    
    12,773
    
    
    
    
    
    
    
    79,888Income from continuing operations
    
    
    562
    
    
    
    130,928
    
    
    
    57,272
    
    
    
    
    
    
    
    188,762Equity in earnings of subsidiaries
    
    
    188,200
    
    
    
    8,702
    
    
    
    
    
    
    
    (196,902
    )
    
    
    Net income
    
    
    188,762
    
    
    
    139,630
    
    
    
    57,272
    
    
    
    (196,902
    )
    
    
    188,762Foreign currency translation adjustments
    
    
    12,920
    
    
    
    (731
    )
    
    
    12,605
    
    
    
    (11,874
    )
    
    
    12,920Comprehensive income
    
    $
    201,682
    
    
    $
    138,899
    
    
    $
    69,877
    
    
    $
    (208,776
    )
    
    $
    201,682
 Predecessor Entity
Combining Condensed Statement of Operations and Comprehensive Income
Fiscal Year Ended January 28, 2006
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedNet sales
    
    $
    
    
    
    $
    1,781,885
    
    
    $
    472,414
    
    
    $
    (884,547
    )
    
    $
    1,369,752Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    1,303,309
    
    
    
    207,104
    
    
    
    (884,547
    )
    
    
    625,866Gross profit
    
    
    
    
    
    
    478,576
    
    
    
    265,310
    
    
    
    
    
    
    
    743,886Other expenses (income):Selling, general and administrative
    
    
    32,140
    
    
    
    252,060
    
    
    
    165,230
    
    
    
    
    
    
    
    449,430Depreciation and amortization
    
    
    900
    
    
    
    29,094
    
    
    
    18,906
    
    
    
    
    
    
    
    48,900Other expense (income)
    
    
    (25,554
    )
    
    
    9,908
    
    
    
    11,024
    
    
    
    
    
    
    
    (4,622
    )7,486
    
    
    
    291,062
    
    
    
    195,160
    
    
    
    
    
    
    
    493,708Operating income (loss)
    
    
    (7,486
    )
    
    
    187,514
    
    
    
    70,150
    
    
    
    
    
    
    
    250,178Interest expense (income), net
    
    
    (6,627
    )
    
    
    (248
    )
    
    
    (2,618
    )
    
    
    
    
    
    
    (9,493
    )Income (loss) before income taxes
    
    
    (859
    )
    
    
    187,762
    
    
    
    72,768
    
    
    
    
    
    
    
    259,671Income taxes
    
    
    (1,730
    )
    
    
    79,667
    
    
    
    9,391
    
    
    
    
    
    
    
    87,328Income from continuing operations
    
    
    871
    
    
    
    108,095
    
    
    
    63,377
    
    
    
    
    
    
    
    172,343Equity in earnings of subsidiaries
    
    
    171,472
    
    
    
    14,547
    
    
    
    
    
    
    
    (186,019
    )
    
    
    Net income
    
    
    172,343
    
    
    
    122,642
    
    
    
    63,377
    
    
    
    (186,019
    )
    
    
    172,343Foreign currency translation adjustments
    
    
    (7,005
    )
    
    
    2,734
    
    
    
    (6,910
    )
    
    
    4,176
    
    
    
    (7,005
    )Comprehensive income
    
    $
    165,338
    
    
    $
    125,376
    
    
    $
    56,467
    
    
    $
    (181,843
    )
    
    $
    165,338
 78




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##### Table of Contents



Successor Entity
Condensed Consolidating Statement of Cash Flows
For The Period May 29, 2007 through February 2, 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    641
    
    
    $
    60,989
    
    
    $
    57,768
    
    
    $
    (118,757
    )
    
    $
    641Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (112,386
    )
    
    
    (6,371
    )
    
    
    
    
    
    
    118,757
    
    
    
    Depreciation and amortization
    
    
    2,136
    
    
    
    37,930
    
    
    
    21,385
    
    
    
    
    
    
    
    61,451Amortization of intangibles and other assets
    
    
    
    
    
    
    37
    
    
    
    1,276
    
    
    
    
    
    
    
    1,313Amortization of debt issuance costs
    
    
    7,079
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,079Impairment of assets
    
    
    
    
    
    
    3,478
    
    
    
    
    
    
    
    
    
    
    
    3,478Loss on sale / retirement of property and equipment, net
    
    
    23
    
    
    
    368
    
    
    
    201
    
    
    
    
    
    
    
    592Stock compensation expense
    
    
    5,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,526(Increase) decrease in:Inventories
    
    
    
    
    
    
    13,057
    
    
    
    3,781
    
    
    
    
    
    
    
    16,838Prepaid expenses
    
    
    596
    
    
    
    (13,403
    )
    
    
    6,256
    
    
    
    
    
    
    
    (6,551
    )Other assets
    
    
    18,942
    
    
    
    (12,039
    )
    
    
    (38,047
    )
    
    
    
    
    
    
    (31,144
    )Increase (decrease) in:Trade accounts payable
    
    
    (570
    )
    
    
    (10,579
    )
    
    
    (21,838
    )
    
    
    
    
    
    
    (32,987
    )Income taxes payable
    
    
    (9,252
    )
    
    
    11,508
    
    
    
    1,820
    
    
    
    
    
    
    
    4,076Accrued expenses and other liabilities
    
    
    (87,819
    )
    
    
    4,624
    
    
    
    10,135
    
    
    
    
    
    
    
    (73,060
    )Accrued interest payable
    
    
    19,534
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    19,531Deferred income taxes
    
    
    
    
    
    
    (24,684
    )
    
    
    6,176
    
    
    
    
    
    
    
    (18,508
    )Deferred rent expense
    
    
    (372
    )
    
    
    4,971
    
    
    
    1,275
    
    
    
    
    
    
    
    5,874Net cash provided by (used in) operating activities
    
    
    (155,922
    )
    
    
    69,886
    
    
    
    50,185
    
    
    
    
    
    
    
    (35,851
    )Cash flows from investing activities:Acquisition of property and equipment
    
    
    (160
    )
    
    
    (40,224
    )
    
    
    (18,100
    )
    
    
    
    
    
    
    (58,484
    )Acquisition of Predecessor Entity
    
    
    (2,857,411
    )
    
    
    (79,065
    )
    
    
    (116,858
    )
    
    
    
    
    
    
    (3,053,334
    )Acquisition of intangible assets
    
    
    
    
    
    
    20
    
    
    
    (574
    )
    
    
    
    
    
    
    (554
    )Net cash used in investing activities
    
    
    (2,857,571
    )
    
    
    (119,269
    )
    
    
    (135,532
    )
    
    
    
    
    
    
    (3,112,372
    )Cash flows from financing activities:Credit facility proceeds
    
    
    1,450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,450,000Credit facility payments
    
    
    (7,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,250
    )Note offerings proceeds
    
    
    935,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935,000Capital contribution
    
    
    595,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,675Option conversion payment
    
    
    (7,924
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,924
    )Financing fees paid
    
    
    (77,439
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,439
    )Dividends paid
    
    
    (7,252
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,252
    )Intercompany financing
    
    
    (29,636
    )
    
    
    (79,809
    )
    
    
    109,445
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    2,851,174
    
    
    
    (79,809
    )
    
    
    109,445
    
    
    
    
    
    
    
    2,880,810Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    (253
    )
    
    
    (126
    )
    
    
    3,290
    
    
    
    
    
    
    
    2,911Net increase (decrease) in cash and cash equivalents
    
    
    (162,572
    )
    
    
    (129,318
    )
    
    
    27,388
    
    
    
    
    
    
    
    (264,502
    )Cash and cash equivalents at beginning of period
    
    
    188,407
    
    
    
    131,210
    
    
    
    30,859
    
    
    
    
    
    
    
    350,476Cash and cash equivalents at end of period
    
    $
    25,835
    
    
    $
    1,892
    
    
    $
    58,247
    
    
    $
    
    
    
    $
    85,974
 79




---



##### Table of Contents



Predecessor Entity
Condensed Consolidating Statement of Cash Flows
For The Period February 4, 2007 Through May 28, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (43,772
    )
    
    $
    28,686
    
    
    $
    7,457
    
    
    $
    (36,143
    )
    
    $
    (43,772
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (33,368
    )
    
    
    (2,775
    )
    
    
    
    
    
    
    36,143
    
    
    
    Depreciation and amortization
    
    
    367
    
    
    
    11,504
    
    
    
    7,781
    
    
    
    
    
    
    
    19,652Amortization of intangibles and other assets
    
    
    
    
    
    
    39
    
    
    
    583
    
    
    
    
    
    
    
    622Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    73(Gain) loss on sale / retirement of property
and equipment, net
    
    
    
    
    
    
    873
    
    
    
    328
    
    
    
    
    
    
    
    1,201Excess tax benefit from stock compensation
    
    
    (2,885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,885
    )Stock compensation expense
    
    
    8,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,946(Increase) decrease in:Inventories
    
    
    
    
    
    
    (9,551
    )
    
    
    (1,381
    )
    
    
    
    
    
    
    (10,932
    )Prepaid expenses
    
    
    465
    
    
    
    11,266
    
    
    
    (5,342
    )
    
    
    
    
    
    
    6,389Other assets
    
    
    (941
    )
    
    
    1,164
    
    
    
    (3,164
    )
    
    
    
    
    
    
    (2,941
    )Increase (decrease) in:Trade accounts payable
    
    
    (90
    )
    
    
    7,490
    
    
    
    23,802
    
    
    
    
    
    
    
    31,202Income taxes
    
    
    3,754
    
    
    
    (9,903
    )
    
    
    (5,583
    )
    
    
    
    
    
    
    (11,732
    )Accrued expenses and other liabilities
    
    
    54,909
    
    
    
    (8,666
    )
    
    
    (6,516
    )
    
    
    
    
    
    
    39,727Deferred income taxes
    
    
    
    
    
    
    7,015
    
    
    
    (292
    )
    
    
    
    
    
    
    6,723Deferred rent expense
    
    
    
    
    
    
    634
    
    
    
    (261
    )
    
    
    
    
    
    
    373Net cash provided by (used in) operating activities
    
    
    (12,615
    )
    
    
    37,776
    
    
    
    17,485
    
    
    
    
    
    
    
    42,646Cash flows from investing activities:Acquisition of property and equipment
    
    
    (171
    )
    
    
    (18,822
    )
    
    
    (8,995
    )
    
    
    
    
    
    
    (27,988
    )Acquisition of intangible assets
    
    
    
    
    
    
    (20
    )
    
    
    (61
    )
    
    
    
    
    
    
    (81
    )Net cash used in investing activities
    
    
    (171
    )
    
    
    (18,842
    )
    
    
    (9,056
    )
    
    
    
    
    
    
    (28,069
    )Cash flows from financing activities:Exercised stock option proceeds
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Excess tax benefit from stock compensation
    
    
    2,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,885Dividends paid
    
    
    (9,065
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,065
    )Intercompany financing
    
    
    13,118
    
    
    
    96,485
    
    
    
    (109,603
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    7,115
    
    
    
    96,485
    
    
    
    (109,603
    )
    
    
    
    
    
    
    (6,003
    )Effect of foreign currency exchange rate changes on
cash and cash equivalents
    
    
    (20
    )
    
    
    (16
    )
    
    
    1,061
    
    
    
    
    
    
    
    1,025Net increase (decrease) in cash and cash equivalents
    
    
    (5,691
    )
    
    
    115,403
    
    
    
    (100,113
    )
    
    
    
    
    
    
    9,599Cash and cash equivalents at beginning of period
    
    
    194,098
    
    
    
    15,807
    
    
    
    130,972
    
    
    
    
    
    
    
    340,877Cash and cash equivalents at end of period
    
    $
    188,407
    
    
    $
    131,210
    
    
    $
    30,859
    
    
    $
    
    
    
    $
    350,476
 80




---



##### Table of Contents



Predecessor Entity
Combining Condensed Statement of Cash Flows
Fiscal Year Ended February 3, 2007
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedCash flows from operating activities:Net income
    
    $
    188,762
    
    
    $
    139,630
    
    
    $
    57,272
    
    
    $
    (196,902
    )
    
    $
    188,762Adjustments to reconcile net income to net
cash provided by operating activities:Equity in earnings of subsidiaries
    
    
    (188,200
    )
    
    
    (8,702
    )
    
    
    
    
    
    
    196,902
    
    
    
    Depreciation and amortization
    
    
    945
    
    
    
    33,389
    
    
    
    22,437
    
    
    
    
    
    
    
    56,771Amortization of intangible assets
    
    
    
    
    
    
    76
    
    
    
    1,413
    
    
    
    
    
    
    
    1,489(Gain) loss on retirement of property and equipment, net
    
    
    (734
    )
    
    
    2,397
    
    
    
    698
    
    
    
    
    
    
    
    2,361Loss on sale of intangible assets
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Excess tax benefit from stock compensation
    
    
    (3,648
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,648
    )Stock compensation expense
    
    
    7,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,080(Increase) decrease in:Inventories
    
    
    
    
    
    
    (3,449
    )
    
    
    (1,656
    )
    
    
    
    
    
    
    (5,105
    )Prepaid expenses
    
    
    100
    
    
    
    (12,186
    )
    
    
    (4,355
    )
    
    
    
    
    
    
    (16,441
    )Other assets
    
    
    (4,785
    )
    
    
    (623
    )
    
    
    (5,317
    )
    
    
    
    
    
    
    (10,725
    )Increase (decrease) in:Trade accounts payable
    
    
    142
    
    
    
    (1,544
    )
    
    
    4,846
    
    
    
    
    
    
    
    3,444Income taxes payable
    
    
    3,648
    
    
    
    (7,170
    )
    
    
    5,706
    
    
    
    
    
    
    
    2,184Accrued expenses and other liabilities
    
    
    2,247
    
    
    
    1,734
    
    
    
    2,872
    
    
    
    
    
    
    
    6,853Deferred income taxes
    
    
    
    
    
    
    (3,677
    )
    
    
    (881
    )
    
    
    
    
    
    
    (4,558
    )Deferred rent expense
    
    
    
    
    
    
    812
    
    
    
    2,966
    
    
    
    
    
    
    
    3,778Net cash provided by operating activities
    
    
    5,557
    
    
    
    140,687
    
    
    
    86,006
    
    
    
    
    
    
    
    232,250Cash flows from investing activities:Acquisition of property and equipment
    
    
    (1,242
    )
    
    
    (57,225
    )
    
    
    (36,725
    )
    
    
    
    
    
    
    (95,192
    )Proceeds from sale of land and buildings
    
    
    881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881Acquisition of intangible assets
    
    
    
    
    
    
    (266
    )
    
    
    (4,679
    )
    
    
    
    
    
    
    (4,945
    )Net cash used in investing activities
    
    
    (361
    )
    
    
    (57,491
    )
    
    
    (41,404
    )
    
    
    
    
    
    
    (99,256
    )Cash flows from financing activities:Exercised stock option proceeds
    
    
    8,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,996Purchase and retirement of common stock
    
    
    (199,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199,675
    )Excess tax benefit from stock compensation
    
    
    3,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,648Dividends paid
    
    
    (37,553
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,553
    )Intercompany financing
    
    
    72,249
    
    
    
    (70,597
    )
    
    
    (1,652
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (152,335
    )
    
    
    (70,597
    )
    
    
    (1,652
    )
    
    
    
    
    
    
    (224,584
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    (31
    )
    
    
    344
    
    
    
    1,032
    
    
    
    
    
    
    
    1,345Net increase (decrease) in cash and cash equivalents
    
    
    (147,170
    )
    
    
    12,943
    
    
    
    43,982
    
    
    
    
    
    
    
    (90,245
    )Cash and cash equivalents at beginning of period
    
    
    341,268
    
    
    
    2,864
    
    
    
    86,990
    
    
    
    
    
    
    
    431,122Cash and cash equivalents at end of period
    
    $
    194,098
    
    
    $
    15,807
    
    
    $
    130,972
    
    
    $
    
    
    
    $
    340,877
 81




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##### Table of Contents



Predecessor Entity
Combining Condensed Statement of Cash Flows
Fiscal Year Ended January 28, 2006
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedCash flows from operating activities:Net income
    
    $
    172,343
    
    
    $
    122,642
    
    
    $
    63,377
    
    
    $
    (186,019
    )
    
    $
    172,343Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (171,472
    )
    
    
    (14,547
    )
    
    
    
    
    
    
    186,019
    
    
    
    Depreciation and amortization
    
    
    900
    
    
    
    29,094
    
    
    
    18,906
    
    
    
    
    
    
    
    48,900Amortization of intangible assets
    
    
    
    
    
    
    137
    
    
    
    1,095
    
    
    
    
    
    
    
    1,232Loss on retirement of property and equipment, net
    
    
    3
    
    
    
    1,647
    
    
    
    1,810
    
    
    
    
    
    
    
    3,460Excess tax benefit from stock compensation
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857Stock compensation expense
    
    
    4,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,121Acceleration of stock options
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314(Increase) decrease in:Inventories
    
    
    
    
    
    
    (2,687
    )
    
    
    (2,308
    )
    
    
    
    
    
    
    (4,995
    )Prepaid expenses
    
    
    (297
    )
    
    
    11,430
    
    
    
    (2,496
    )
    
    
    
    
    
    
    8,637Other assets
    
    
    (4,133
    )
    
    
    (406
    )
    
    
    (1,604
    )
    
    
    
    
    
    
    (6,143
    )Increase (decrease) in:Trade accounts payable
    
    
    (76
    )
    
    
    1,445
    
    
    
    8,378
    
    
    
    
    
    
    
    9,747Income taxes payable
    
    
    
    
    
    
    7,998
    
    
    
    (2,222
    )
    
    
    
    
    
    
    5,776Accrued expenses and other liabilities
    
    
    (5,328
    )
    
    
    2,306
    
    
    
    2,713
    
    
    
    
    
    
    
    (309
    )Deferred income taxes
    
    
    
    
    
    
    (3,658
    )
    
    
    (800
    )
    
    
    
    
    
    
    (4,458
    )Deferred rent expense
    
    
    
    
    
    
    1,772
    
    
    
    1,104
    
    
    
    
    
    
    
    2,876Net cash provided by (used in) operating activities
    
    
    (2,768
    )
    
    
    157,173
    
    
    
    87,953
    
    
    
    
    
    
    
    242,358Cash flows from investing activities:Acquisition of property and equipment
    
    
    (1,000
    )
    
    
    (40,910
    )
    
    
    (31,534
    )
    
    
    
    
    
    
    (73,444
    )Acquisition of intangible assets
    
    
    
    
    
    
    (192
    )
    
    
    (8,363
    )
    
    
    
    
    
    
    (8,555
    )Purchase of short-term investments
    
    
    (82,334
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,334
    )Sale of short-term investments
    
    
    216,947
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216,947Net cash provided by (used in) investing activities
    
    
    133,613
    
    
    
    (41,102
    )
    
    
    (39,897
    )
    
    
    
    
    
    
    52,614Cash flows from financing activities:Exercised stock options proceeds
    
    
    4,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,886Dividends paid
    
    
    (62,886
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,886
    )Intercompany financing
    
    
    204,125
    
    
    
    (109,587
    )
    
    
    (94,538
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    146,125
    
    
    
    (109,587
    )
    
    
    (94,538
    )
    
    
    
    
    
    
    (58,000
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    (288
    )
    
    
    193
    
    
    
    3,239
    
    
    
    
    
    
    
    3,144Net increase (decrease) in cash and cash equivalents
    
    
    276,682
    
    
    
    6,677
    
    
    
    (43,243
    )
    
    
    
    
    
    
    240,116Cash and cash equivalents at beginning of period
    
    
    64,586
    
    
    
    (3,813
    )
    
    
    130,233
    
    
    
    
    
    
    
    191,006Cash and cash equivalents at end of period
    
    $
    341,268
    
    
    $
    2,864
    
    
    $
    86,990
    
    
    $
    
    
    
    $
    431,122
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   82




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##### Table of Contents



Item 9B. Other Information
  
 PART III.
  83




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##### Table of Contents



PART IV.
 
 Item 15. Exhibits, Financial Statement Schedules
  1.
    
    Financial Statements
 Page No.Report of Independent Registered Public Accounting Firm
    
    
    39Consolidated Balance Sheets as of February 2, 2008 (Successor
Entity) and February 3, 2007 (Predecessor Entity)
    
    
    40Consolidated Statements of Operations and Comprehensive Income
(Loss) for the period from May 29, 2007 through February 2,
2008 (Successor Entity), the period from February 4, 2007
through May 28, 2007 (Predecessor Entity), and the fiscal
years ended February 3, 2007 (Predecessor Entity) and
January 28, 2006 (Predecessor Entity)
    
    
    41Consolidated Statements of Changes in Stockholders Equity for
the period from May 29, 2007 through February 2, 2008
(Successor Entity), the period from February 4, 2007
through May 28, 2007 (Predecessor Entity), and the fiscal
years ended February 3, 2007 (Predecessor Entity) and
January 28, 2006 (Predecessor Entity)
    
    
    42Consolidated Statements of Cash Flows for the period from May
29, 2007 through February 2, 2008 (Successor Entity), the
period from February 4, 2007 through May 28, 2007
(Predecessor Entity), and the fiscal years ended February
3, 2007 (Predecessor Entity) and January 28, 2006
(Predecessor Entity)
    
    
    43Notes to Consolidated Financial Statements
    
    
    44
 2.
    
    Financial Statement Schedules
  3.
    
    Exhibits
 3.1
    
    Articles of Incorporation of Claires Stores, Inc.*3.2
    
    By-laws of Claires Stores, Inc.*3.3
    
    Certificate of Incorporation of Afterthoughts Merchandising Corp.*3.4
    
    By-laws of Afterthoughts Merchandising Corp.*3.5
    
    Certificate of Incorporation of BMS Distributing Corp.*3.6
    
    By-laws of BMS Distributing Corp.*3.7
    
    Certificate of Incorporation of CBI Distributing Corp.*3.8
    
    By-laws of CBI Distributing Corp.*3.9
    
    Articles of Incorporation of Claires Boutiques, Inc.*
 84




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##### Table of Contents



3.10
    
    By-laws of Claires Boutiques, Inc.*3.11
    
    Certificate of Incorporation of Claires Canada Corp.*3.12
    
    By-laws of Claires Canada Corp.*3.13
    
    Certificate of Incorporation of Claires Puerto Rico Corp.*3.14
    
    By-laws of Claires Puerto Rico Corp.*3.15
    
    Certificate of Incorporation of Sassy Doo!, Inc.*3.16
    
    By-laws of Sassy Doo!, Inc.*4.1
    
    Senior Notes Indenture, dated as of May 29, 2007, between Bauble
Acquisition Sub, Inc. and The Bank of New York, as Trustee*4.2
    
    Senior Toggle Notes Indenture, dated as of May 29, 2007, between
Bauble Acquisition Sub, Inc. and The Bank of New York, as Trustee*4.3
    
    Senior Subordinated Notes Indenture, dated as of May 29, 2007,
between Bauble Acquisition Sub, Inc. and The Bank of New York, as Trustee*4.4
    
    Senior Notes Supplemental Indenture, dated as of May 29, 2007, by
and among Claires Stores, Inc., the guarantors listed on Exhibit A thereto and
The Bank of New York, as Trustee, to the Senior Notes Indenture, dated as of May
29, 2007, between Bauble Acquisition Sub, Inc. and The Bank of New York, as
Trustee*4.5
    
    Senior Toggle Notes Supplemental Indenture, dated as of May 29,
2007, by and among Claires Stores, Inc., the guarantors listed on Exhibit A
thereto and The Bank of New York, as Trustee, to the Senior Toggle Notes
Indenture, dated as of May 29, 2007, between Bauble Acquisition Sub, Inc. and The
Bank of New York, as Trustee*4.6
    
    Senior Subordinated Notes Supplemental Indenture, dated as of May
29, 2007, by and among Claires Stores, Inc., the guarantors listed on Exhibit A
thereto and The Bank of New York, as Trustee, to the Senior Subordinated Notes
Indenture, dated as of May 29, 2007, between Bauble Acquisition Sub, Inc. and The
Bank of New York, as Trustee*4.7
    
    Form of 9.25% Senior Notes due 2015*4.8
    
    Form of 9.625%/10.375% Senior Toggle Notes due 2015*4.9
    
    Form of 10.50% Senior Subordinated Notes due 2017*4.10
    
    Senior Notes Registration Rights Agreement, dated May 29, 2007, by
and among Claires Stores, Inc., the Guarantors listed on Schedule I thereto and
Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC, Lehman Brothers
Inc., ABN AMRO Incorporated, Mizuho Securities USA Inc. and Natexis Bleichroeder
Inc.*4.11
    
    Senior Subordinated Notes Registration Rights Agreement, dated May
29, 2007, by and among Claires Stores, Inc., the Guarantors listed on Schedule I
thereto and Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC, Lehman
Brothers Inc., ABN AMRO Incorporated, Mizuho Securities USA Inc. and Natexis
Bleichroeder Inc.*
 85




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##### Table of Contents



10.1
    
    Credit Agreement, dated as of May 29, 2007, 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 Arrangers*10.2
    
    Management Services Agreement, dated as of May 29, 2007, among
Claires Stores, Inc., Bauble Holdings Corp. and Apollo Management VI, L.P. and
Tri-Artisan Capital Partners, LLC and TACP Investments  Claires LLC*10.3
    
    Claires Inc. Amended and Restated Stock Incentive Plan, dated June
29, 2007*10.4
    
    Standard Form of Option Grant Letter (Target Performance Option and
Stretch Performance Option)*10.5
    
    Standard Form of Option Grant Letter (Target Performance Option)*10.6
    
    Standard Form of Director Option Grant Letter*10.7
    
    Employment Agreement with Eugene S. Kahn*10.8
    
    Employment Agreement with Mark Smith*10.9
    
    Employment Agreement with James Conroy*10.10
    
    Amended and Restated Office Lease dated January 1, 2004 between
the Company and Rowland Schaefer Associates*10.11
    
    Employment Agreement with John Zimmermann**21.1
    
    Subsidiaries of Claires Stores, Inc.**24
    
    Power of Attorney (included on signature page)31.1
    
    Certification of Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a)**31.2
    
    Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a)**32.1
    
    Certification of Chief Executive Officer pursuant to 18 USC Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***32.2
    
    Certification of Chief Financial Officer pursuant to 18 USC Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***
 
 (*)
    
    Filed previously as exhibit to the Registration Statement on Form S-4
(File No. 333-148108) by the Company on December 17, 2007.(**)
    
    Filed herewith.(***)
    
    Furnished herewith. 86




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##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.April 25, 2008
    By:
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer)April 25, 2008
    By:
    /s/ J. Per BrodinJ. Per Brodin, Senior Vice President and ChiefFinancial Officer (principal financial and
accounting officer) POWER OF ATTORNEY
   April 25, 2008
    /s/ Peter CopsesPeter Copses, Chairman of the Board of DirectorsApril 25, 2008
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer and DirectorApril 25, 2008
    /s/ Lance MilkenLance Milken, DirectorApril 25, 2008
    /s/ George GolleherGeorge Golleher, DirectorApril 25, 2008
    /s/ Robert J. DiNicolaRobert J. DiNicola, DirectorApril 25, 2008
    /s/ Rohit ManochaRohit Manocha, DirectorApril 25, 2008
    /s/ Ron MarshallRon Marshall, Director 87




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION10.11
    
    Employment Agreement with John
Zimmermann.21.1
    
    Claires Stores, Inc. Subsidiaries.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 USC Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 USC Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 88