##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended January 29, 2011
OR
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from __ to __
Commission File Nos. 1-8899 and 333-148108
 Claires Stores, Inc.
  Florida
    
    59-0940416(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2400 West Central Road, 
Hoffman Estates, Illinois
    
    60192(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (847) 765-1100
 None
 o x
 o x
 x o
 o o
 x
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer x
    
    Smaller reporting company o
 o x
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 Item
    
    
    
    Page No.PART I.
    
    
    
    3Item 1.
    
    Business
    
    5Item 1A.
    
    Risk Factors
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    21Item 2.
    
    Properties
    
    21Item 3.
    
    Legal Proceedings
    
    22Item 4.
    
    [Removed and Reserved]
    
    22PART II
    
    
    
    22Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters an
Issuer Purchases of Equity Securities
    
    22Item 6.
    
    Selected Financial Data
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    43Item 8.
    
    Financial Statements and Supplementary Data
    
    45Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    91Item 9A.
    
    Controls and Procedures
    
    91Item 9B.
    
    Other Information
    
    91PART III.
    
    
    
    91Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    91Item 11.
    
    Executive Compensation
    
    91Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    91Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    91Item 14.
    
    Principal Accountant Fees and Services
    
    91PART IV.
    
    
    
    92Item 15.
    
    Exhibits, Financial Statement Schedules
    
    92Signatures
    
    
    
    96EX-10.8EX-10.17EX-21.1EX-31.1EX-31.2EX-32.1EX-32.2
   
 2




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




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4




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Item 1. Business
 The Company
         
    
    Accessories  includes fashion accessories for year-round use, including legwear,
headwear, attitude glasses, scarves, armwear and belts, and seasonal use, including
sunglasses, hats, fall footwear, sandals, scarves, gloves, boots, slippers and earmuffs;
and other accessories, including hairgoods, handbags, and small leather goods, as well as
cosmetics
    
    Jewelry  includes earrings, necklaces, bracelets, body jewelry and rings, as well as
ear piercing
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Our Competitive Strengths
 Strong Claires Name Brand Recognition Across the Globe.
 Diversification Across Geographies and Merchandise Categories.
  Cost-Efficient Global Sourcing Capabilities.
 Improved Cost Structure and Streamlined Operations.
 Substantial Free Cash Flow Generation.
 Strong and Experienced Senior Management Team.
 6




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Business Strategy
  Drive organic growth through our merchandise, stores, and customer offense.
 
    
    Merchandise: We continue to enhance the fashion-orientation and quality of
our product offering to deliver a unique, proprietary assortment that is highly relevant
to our target customers, particularly the Claires Young (teenage) customer. We continue
to focus on our multi-classification Accessories assortment, while maintaining our market
leadership position in Jewelry, to capitalize on the evolving largest market
opportunities. We are enabling these improvements through investments in fashion and
trend forecasting, global product design and development, and in the enhancement of our
Hong Kong-based sourcing capabilities to leverage our global purchasing economy of scale.
Simultaneously, we are identifying product source alternatives.
    
    Stores: In our almost 3,400 stores worldwide, our objective is to provide a
consistent, engaging, and brand-right customer experience. We are continually improving
our in-store presentation of merchandise and marketing collateral through a rigorous
planning and communication process, resulting in improved execution and increased
consistency across the chain and, ultimately, a superior shopping experience. We are
also commencing efforts to heighten the selling orientation of our store teams specific
to each brand and country.
    
    Customer: In the past year, we have made significant strides to build deeper
customer relationships and support our brands. We launched a new, innovative claires.com
website that uses customer-generated content, conveys a real-life interaction with our
customers, and presents an authoritative fashion position. We further drive brand
awareness and relevance with our ongoing social media, email, and text campaigns, which
leverage our Facebook fan base and proprietary customer database. Lastly, in parallel
with our digital efforts, we have significantly upgraded our in-store marketing
collateral in order to present a much more fashionable brand image that appeals to our
target customers.
 Increase our global reach through new store expansion (owned and franchise) and new distribution
channels.
  
    
    Build New Company-owned Claires Stores: We opened 82 new stores in 2010; 69
in Europe and 13 in North America. In addition, we have plans to open approximately 140
new stores in 2011, the majority of which will be in Europe.
    
    Build New Company-owned Icing Stores: As we refine the Icing brand concept, we
believe there is significant opportunity to increase the store penetration in North
America, as well as to roll out
the concept on a global basis to markets where we can leverage the existing Claires
infrastructure.
 7




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
    
    Open New International Markets with Franchise
Partners: Building on our refined franchising model, which is present in multiple geographies
worldwide, we will pursue high potential white space opportunities in new markets
globally. In 2011, we intend to enter Mexico, India and possibly Australia. We are
currently studying our brand entrance strategy for China and Southeast Asia for the
ensuing years.
    
    Add Alternative Distribution Channels: We will seek new opportunities globally
to market and distribute our brands, beginning with the launch of E-Commerce in the
Claires North America Division which is targeted to debut in mid-2011.
  Fiscal 2011 Priorities
  Deliver An Exceptional Highly Relevant Assortment for the Young Customer.
 Sustain Merchandise Margin.
 Enhance the In-Store Experience, Especially for the Young Customer.
 Heighten Brand Relevance.
 Extend Global Reach.
 Maintain Strong Financial Discipline.
 Develop our Team Members into a Top Performing Global Organization.
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Stores
  Store Management
    Store Openings, Closings and Future Growth
  January 29,
    
    
    January 30,
    
    
    January 31,Store Count as of:
    
    2011
    
    
    2010
    
    
    2009North America
    
    
    1,972
    
    
    
    1,993
    
    
    
    2,026Europe
    
    
    1,009
    
    
    
    955
    
    
    
    943Subtotal Company-Owned
    
    
    2,981
    
    
    
    2,948
    
    
    
    2,969Joint Venture
    
    
    
    
    
    
    211
    
    
    
    214Franchise and License
    
    
    395
    
    
    
    195
    
    
    
    196Subtotal Non-Owned
    
    
    395
    
    
    
    406
    
    
    
    410Total
    
    
    3,376
    
    
    
    3,354
    
    
    
    3,379
  Purchasing and Distribution
  9




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Trademarks and Service Marks
  Information Technology
  Competition
  Seasonality
  Employees
  Further Information
  10




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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 Economic Conditions
 Economic conditions may adversely impact demand for our merchandise, reduce access to credit and
cause our customers and others with whom we do business to suffer financial hardship, all of which
could adversely impact our business, results of operations, financial condition and cash flows.
    Risks Relating to Our Company
 Fluctuations in consumer preference may adversely affect the demand for our products and result in
a decline in our sales.
  Advance purchases of our merchandise make us vulnerable to changes in consumer preferences and
pricing shifts and may negatively affect our results of operations.
  11




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A disruption of imports from our foreign suppliers may increase our costs and reduce our supply of
merchandise.
  Fluctuations in foreign currency exchange rates could negatively impact our results of operations.
  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.
  The failure to grow our store base in Europe or expand our international franchising may adversely
affect our business.
  12




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Our cost of doing business could increase as a result of changes in federal, state, local and
international regulations regarding the content of our merchandise.
   Recalls, product liability claims, and government, customer or consumer concerns about product
safety could harm our reputation, increase costs or reduce sales.
  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.
  13




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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.
  If we experience a data security breach and confidential customer information is disclosed, we may
be subject to penalties and experience negative publicity, which could affect our customer
relationships and have a material adverse effect on our business.
  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.
  14




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Our industry is highly competitive.
  Adoption of new or revised employment and labor laws and regulations could make it easier for our
employees to obtain union representation and our business could be adversely impacted.
  Higher health care costs and labor costs could adversely affect our business.
 U.S. Patient Protection and Affordable Care Act
 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.
  15




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We depend on our key personnel.
  Litigation matters incidental to our business could be adversely determined against us.
  Goodwill and indefinite-lived intangible assets comprise a significant portion of our total assets.
We must test goodwill and indefinite-lived intangible assets for impairment at least annually or
whenever events or changes in circumstances indicate that their carrying amounts may not be
recoverable; which could result in a material, non-cash write-down of goodwill or indefinite-lived
intangible assets and could have a material adverse impact on our results of operations.
  There are factors that can affect our provision for income taxes.
  If our independent manufacturers, franchisees or licensees 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.
  16




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We rely on third parties to deliver our merchandise and if these third parties do not adequately
perform this function, our business would be disrupted.
  We depend on single North American, European and International distribution facilities.
  We may be unable to protect our tradenames and other intellectual property rights.
  Our success depends on our ability to maintain the value of our brands.
  We may be unable to rely on liability indemnities given by foreign vendors which could adversely
affect our financial results.
  17




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We are controlled by Affiliates of Apollo, 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 Credit Facility and Notes.
   
    
    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 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;
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
    
    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
    
    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;
    
    transfer or 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.
  To service our debt obligations, we may need to increase the portion of the income of our foreign
subsidiaries that is expected to be remitted to the United States, which could increase our income
tax expense.
  20




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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 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
  
 Item 2. Properties
    Approximate SquareLocation
    
    Use
    
    FootageHoffman Estates, Illinois
    
    Corporate and North America management and distribution center
    
    
    538,000
    
    
    
    (1
    )Birmingham, United Kingdom
    
    Europe management and distribution center
    
    
    105,600
    
    
    
    (2
    )Pembroke Pines, Florida
    
    Accounting and finance
    
    
    36,000Hong Kong
    
    Sourcing and buying
    
    
    11,100Paris, France
    
    Zone support
    
    
    8,800
    
    
    
    (3
    )Zurich, Switzerland
    
    Zone support
    
    
    3,800
    
    
    
    (3
    )
 
 (1)
    
    On February 19, 2010, we sold the Property to a third party. Contemporaneously with the sale
of the Property, we entered into a lease agreement that provides for (a) an initial expiration date
of February 28, 2030 with two (2) five (5) year renewal periods, each at our option, and (b) basic
rent of $2.1 million per 21




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annum (subject to annual increases). This transaction is accounted for as a capital lease. Prior
to February 19, 2010, we owned central buying and store operations offices and the North American
distribution center located in Hoffman Estates, Illinois (the Property) which is on approximately
28.4 acres of land. The Property has buildings with approximately 538,000 total square feet of
space, of which 373,000 square feet is devoted to receiving and distribution and 165,000 square
feet is devoted to office space.(2)
    
    Our subsidiary, Claires Accessories UK Ltd., or Claires UK, leases distribution and office
space in Birmingham, United Kingdom. The facility consists of approximately 23,900 square feet of
office space and approximately 81,700 square feet of distribution space. The lease expires in
December 2024, and Claires UK has the right to assign or sublet this lease at any time during the
term of the lease, subject to landlord approval. The Birmingham, United Kingdom distribution
center currently services our owned stores in Europe.(3)
    
    We maintain our human resource and select operating functions for these countries.  
 Item 3. Legal Proceedings
  
 Item 4. Removed and Reserved
 
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market Information
  Holders
  Dividends
  22




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Item 6. Selected Financial Data
   Successor Entity
    
    
    
    Predecessor EntityFiscal Year Ended
    
    
    Fiscal Year Ended
    
    
    Fiscal Year Ended
    
    
    May 29, 2007
    
    
    
    Feb. 4, 2007
    
    
    Fiscal Year EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,
    
    
    Through
    
    
    
    Through
    
    
    February 3,2011 (1)
    
    
    2010 (1)
    
    
    2009 (1)
    
    
    Feb. 2, 2008
    
    
    
    May 28, 2007
    
    
    2007 (1)(In thousands, except for ratios and store data)Statement of Operations Data:Net sales
    
    $
    1,426,397
    
    
    $
    1,342,389
    
    
    $
    1,412,960
    
    
    $
    1,085,932
    
    
    
    $
    424,899
    
    
    $
    1,480,987Cost of sales, occupancy and buying expenses
    
    
    685,111
    
    
    
    663,269
    
    
    
    724,832
    
    
    
    521,384
    
    
    
    
    206,438
    
    
    
    691,646Gross profit
    
    
    741,286
    
    
    
    679,120
    
    
    
    688,128
    
    
    
    564,548
    
    
    
    
    218,461
    
    
    
    789,341Other expenses:Selling, general and administrative
    
    
    498,212
    
    
    
    465,706
    
    
    
    513,752
    
    
    
    354,875
    
    
    
    
    154,409
    
    
    
    481,979Depreciation and amortization
    
    
    65,198
    
    
    
    71,471
    
    
    
    85,093
    
    
    
    61,451
    
    
    
    
    19,652
    
    
    
    56,771Impairment of assets
    
    
    12,262
    
    
    
    3,142
    
    
    
    498,490
    
    
    
    3,478
    
    
    
    
    73
    
    
    
    Severance and transaction-related costs
    
    
    741
    
    
    
    921
    
    
    
    15,928
    
    
    
    7,319
    
    
    
    
    72,672
    
    
    
    Other expense (income), net
    
    
    411
    
    
    
    (4,234
    )
    
    
    (4,499
    )
    
    
    (3,088
    )
    
    
    
    (1,476
    )
    
    
    (3,484
    )576,824
    
    
    
    537,006
    
    
    
    1,108,764
    
    
    
    424,035
    
    
    
    
    245,330
    
    
    
    535,266Operating income (loss)
    
    
    164,462
    
    
    
    142,114
    
    
    
    (420,636
    )
    
    
    140,513
    
    
    
    
    (26,869
    )
    
    
    254,075Gain on early debt extinguishment
    
    
    13,388
    
    
    
    36,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of equity investment
    
    
    6,030
    
    
    
    
    
    
    
    25,500
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense (income), net
    
    
    157,706
    
    
    
    177,418
    
    
    
    195,947
    
    
    
    147,892
    
    
    
    
    (4,876
    )
    
    
    (14,575
    )Income (loss) from continuing operations before
income taxes
    
    
    14,114
    
    
    
    1,108
    
    
    
    (642,083
    )
    
    
    (7,379
    )
    
    
    
    (21,993
    )
    
    
    268,650Income tax expense (benefit)
    
    
    9,791
    
    
    
    11,510
    
    
    
    1,509
    
    
    
    (8,020
    )
    
    
    
    21,779
    
    
    
    79,888Income (loss) from continuing operations
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )
    
    $
    641
    
    
    
    $
    (43,772
    )
    
    $
    188,762Other Financial Data:Capital expenditures:New stores and remodels
    
    $
    39,022
    
    
    $
    16,557
    
    
    $
    36,270
    
    
    $
    46,225
    
    
    
    $
    24,231
    
    
    $
    77,021Other
    
    
    9,689
    
    
    
    8,395
    
    
    
    23,135
    
    
    
    12,259
    
    
    
    
    3,757
    
    
    
    18,171
    (2)Total capital expenditures
    
    
    48,711
    
    
    
    24,952
    
    
    
    59,405
    
    
    
    58,484
    
    
    
    
    27,988
    
    
    
    95,192Cash interest expense (3)
    
    
    108,923
    
    
    
    126,733
    
    
    
    168,567
    
    
    
    123,620
    
    
    
    
    86
    
    
    
    118Store Data:Number of stores (at period end)
North America
    
    
    1,972
    
    
    
    1,993
    
    
    
    2,026
    
    
    
    2,135
    
    
    
    
    2,124
    
    
    
    2,133Europe
    
    
    1,009
    
    
    
    955
    
    
    
    943
    
    
    
    905
    
    
    
    
    879
    
    
    
    859Total number of stores (at period end)
    
    
    2,981
    
    
    
    2,948
    
    
    
    2,969
    
    
    
    3,040
    
    
    
    
    3,003
    
    
    
    2,992Total gross square footage (000s) (at period end)
    
    
    3,012
    
    
    
    2,982
    
    
    
    3,011
    
    
    
    3,105
    
    
    
    
    3,043
    
    
    
    3,021Net sales per store (000s) (4)
    
    $
    481
    
    
    $
    454
    
    
    $
    461
    
    
    $
    359
    
    
    
    $
    142
    
    
    $
    504Net sales per square foot (5)
    
    
    476
    
    
    
    448
    
    
    
    453
    
    
    
    353
    
    
    
    
    140
    
    
    
    500Balance Sheet Data (at period end)Cash and cash equivalents (6)
    
    $
    279,766
    
    
    $
    198,708
    
    
    $
    204,574
    
    
    $
    85,974
    
    
    
    $
    350,476
    
    
    $
    340,877Total assets
    
    
    2,866,449
    
    
    
    2,834,105
    
    
    
    2,881,095
    
    
    
    3,348,497
    
    
    
    
    1,119,047
    
    
    
    1,091,266Total debt
    
    
    2,524,286
    
    
    
    2,521,878
    
    
    
    2,581,772
    
    
    
    2,377,750
    
    
    
    
    
    
    
    
    Total stockholders equity (deficit)
    
    
    (26,515
    )
    
    
    (34,642
    )
    
    
    (55,843
    )
    
    
    605,200
    
    
    
    
    792,071
    
    
    
    847,662
 
 (1)
    
    Fiscal 2006 was a fifty-three week period and Fiscal 2010, Fiscal 2009, Fiscal 2008 and
Fiscal 2007 were fifty-two week periods.(2)
    
    Includes management information system expenditures of $5.2 million in Fiscal 2006 for
strategic projects of POS, merchandising systems, business intelligence, technology and the
logistics system for the new distribution center in the Netherlands.(3)
    
    Cash interest expense does not include amortization of debt issuance costs or interest expense paid in kind.(4)
    
    Net sales per store are calculated based on the average number of stores during the period.(5)
    
    Net sales per square foot are calculated based on the average gross square feet during the period.(6)
    
    At January 29, 2011, cash and cash equivalents included restricted cash of $23.9 million. 23




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Acquisition of the Company by Apollo Management VI, L.P.
  
    
    the closing of the Companys senior secured term loan facility and revolving Credit
Facility (collectively the Credit Facility) of $1.65 billion;
    
    the closing of the Companys senior notes offering (the Notes) in the aggregate
principal amount of $935.0 million; and
    
    the equity investment by Apollo Management VI, L.P. (Apollo Management), together with
certain affiliated co-investment partnerships (collectively the Sponsors), of
approximately $595.7 million.
     24




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##### Table of Contents



Results of Consolidated Operations
 Management overview
  Financial highlights for 2010 include the following:
 
    
    Same store sales performance:
 Fiscal 2010Consolidated
    
    
    6.5
    %North America
    
    
    7.8
    %Europe
    
    
    4.3
    %
 
    
    Operating income increase of $22.3 million or 15.7% to $164.5 million.
    
    Net income increase of $14.7 million to $4.3 million from $(10.4) million.
    
    Cash flow from operating activities increase of $75.8 million or 100.4% to $151.3
million.
    
    Paid $79.9 million to retire $93.8 million of Notes.
    
    Cash and cash equivalents and restricted cash increase to $279.8 million.
  Operational highlights for 2010 include the following:
 
    
    Opened 82 new company-owned stores including stores in three new markets
    
    Reacquired exclusive territory rights for all of Asia, outside of Japan
    
    Executed license agreement with former joint venture partner to operate Claires Nippon
stores as licensed stores in Japan
    
    Increased the average transaction value and average number of transactions per store
    
    Increased sales mix of our accessories product category
    
    Attained positive operating cash flow in approximately 95% of our stores.
 25




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##### Table of Contents



Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Net sales
    
    $
    1,426,397
    
    
    $
    1,342,389
    
    
    $
    1,412,960Increase (decrease) in same store sales
    
    
    6.5
    %
    
    
    (1.7
    )%
    
    
    (6.9
    )%Gross profit percentage
    
    
    52.0
    %
    
    
    50.6
    %
    
    
    48.7
    %Selling, general and administrative expenses as a percentage of
net sales
    
    
    34.9
    %
    
    
    34.7
    %
    
    
    36.4
    %Depreciation and amortization as a percentage of net sales
    
    
    4.6
    %
    
    
    5.3
    %
    
    
    6.0
    %Severance and transaction-related costs as percentage of net sales
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    1.1
    %Impairment of assets
    
    $
    12,262
    
    
    $
    3,142
    
    
    $
    498,490Operating income (loss)
    
    $
    164,462
    
    
    $
    142,114
    
    
    $
    (420,636
    )Gain on early debt extinguishment
    
    $
    13,388
    
    
    $
    36,412
    
    
    $
    Impairment of equity investment
    
    $
    6,030
    
    
    $
    
    
    
    $
    25,500Net income (loss)
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )Number of stores at the end of the period (1)
    
    
    2,981
    
    
    
    2,948
    
    
    
    2,969
 
 (1)
    
    Number of stores excludes stores operated under franchise and license agreements. Net sales
      Percentage of TotalProduct Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Accessories
    
    
    54.5
    
    
    
    53.6
    
    
    
    48.4Jewelry
    
    
    45.5
    
    
    
    46.4
    
    
    
    51.6100.0
    
    
    
    100.0
    
    
    
    100.0
 Gross profit
   26




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Selling, general and administrative expenses
   Depreciation and amortization expense
   Impairment charges
    27




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##### Table of Contents



Severance and transaction-related costs
  Gain on early debt extinguishment
  Fiscal 2010Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Notes
    
    $
    14,000
    
    
    $
    12,268
    
    
    $
    1,467Senior Toggle Notes
    
    
    57,173
    
    
    
    49,798
    
    
    
    7,612Senior Subordinated Notes
    
    
    22,625
    
    
    
    17,799
    
    
    
    4,309$
    93,798
    
    
    $
    79,865
    
    
    $
    13,388
 (1)
    
    Net of deferred issuance cost write-offs of $265 for the Senior Notes, $922 for the Senior
Toggle Notes and $517 for the Senior Subordinated Notes, and accrued interest write-off of
$1,159 for the Senior Toggle Notes.
 Fiscal 2009Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Toggle Notes
    
    $
    30,500
    
    
    $
    19,744
    
    
    $
    11,297Senior Subordinated Notes
    
    
    52,763
    
    
    
    26,347
    
    
    
    25,115$
    83,263
    
    
    $
    46,091
    
    
    $
    36,412
 
 (1)
    
    Net of deferred issuance cost write-offs of $603 and $1,301 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $1,144 for the
Senior Toggle Notes. Other expense (income), net
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Equity loss (income)
    
    $
    2,529
    
    
    $
    1,014
    
    
    $
    (320
    )Franchise fees
    
    
    (1,638
    )
    
    
    (1,943
    )
    
    
    (2,309
    )Gain on sale of assets
    
    
    
    
    
    
    (1,935
    )
    
    
    (1,287
    )Other income
    
    
    (480
    )
    
    
    (1,370
    )
    
    
    (583
    )$
    411
    
    
    $
    (4,234
    )
    
    $
    (4,499
    )
 28




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##### Table of Contents



Interest expense (income), net
    Income taxes
     Segment Operations
  North America
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Net sales
    
    $
    914,149
    
    
    $
    850,313
    
    
    $
    907,486Increase (decrease) in same store sales
    
    
    7.8
    %
    
    
    (3.2
    )%
    
    
    (9.2
    )%Gross profit percentage
    
    
    52.1
    %
    
    
    50.0
    %
    
    
    47.9
    %Number of stores at the end of the period (1)
    
    
    1,972
    
    
    
    1,993
    
    
    
    2,026
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. 29




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##### Table of Contents



Net sales
     Gross profit
    Percentage of TotalProduct Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Accessories
    
    
    49.8
    
    
    
    48.5
    
    
    
    43.3Jewelry
    
    
    50.2
    
    
    
    51.5
    
    
    
    56.7100.0
    
    
    
    100.0
    
    
    
    100.0
 Europe
  Fiscal 2010
    
    Fiscal 2009
    
    Fiscal 2008Net sales
    
    $
    512,248
    
    
    $
    492,076
    
    
    $
    505,474Increase (decrease) in same store sales
    
    
    4.3
    %
    
    
    1.1
    %
    
    
    (2.5
    )%Gross profit percentage
    
    
    51.7
    %
    
    
    51.7
    %
    
    
    50.1
    %Number of stores at the end of the period (1)
    
    
    1,009
    
    
    
    955
    
    
    
    943
 
 (1)
    
    Number of stores excludes stores operated under franchise and licensing agreements. Net sales
  30




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Gross profit
    Percentage of TotalProduct Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Accessories
    
    
    62.7
    
    
    
    62.2
    
    
    
    57.3Jewelry
    
    
    37.3
    
    
    
    37.8
    
    
    
    42.7100.0
    
    
    
    100.0
    
    
    
    100.0
 Liquidity and Capital Resources
  31




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Short-term Debt
   
 
 Credit Facility
      32




---



##### 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.
  Senior Secured Second Lien Notes
 Senior Notes and Senior Subordinated Notes
   33




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##### Table of Contents



Senior Secured Second Lien Notes
   
    
    incur additional indebtedness;
    
    pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness;
    
    make certain investments;
    
    create or incur certain liens;
    
    create restrictions on the payment of dividends or other distributions to us from our
subsidiaries;
    
    transfer or sell assets;
    
    engage in certain transactions with our affiliates; and
    
    merge or consolidate with other companies or transfer all or substantially all of our
assets.
   European Credit Facilities
  34




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##### Table of Contents



Analysis of Consolidated Financial Condition
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Operating activities
    
    $
    151,259
    
    
    $
    75,476
    
    
    $
    1,373Investing activities
    
    
    (56,952
    )
    
    
    (21,259
    )
    
    
    (60,756
    )Financing activities
    
    
    (38,139
    )
    
    
    (60,591
    )
    
    
    179,500
  Cash flows from operating activities
   Cash flows from investing activities
    Cash flows from financing activities
  35




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Cash position
   Current market conditions
  Critical Accounting Policies and Estimates
  36




---



##### Table of Contents



Inventory Valuation
  Valuation of Long-Lived Assets
    Goodwill Impairment
 Intangibles  Goodwill and Other
  37




---



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Intangible Asset Impairment
  38




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Income Taxes
      39




---



##### Table of Contents



Stock-Based Compensation
  Compensation  Stock Compensation
      40




---



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Derivatives and Hedging
 Derivatives and Hedging
  Fair Value Measurements and
Disclosures,
  41




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##### Table of Contents



Contractual Obligations and Off Balance Sheet Arrangements
  Payments Due by PeriodContractual Obligations
    
    
    
    
    
    
    
    
    
    2-3
    
    
    4-5
    
    
    More than 5(in millions)
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsRecorded Contractual Obligations:Debt (1)
    
    $
    2,519.0
    
    
    $
    76.2
    
    
    $
    223.0
    
    
    $
    1,960.3
    (2)
    
    $
    259.5Capital lease obligation
    
    
    48.7
    
    
    
    2.2
    
    
    
    4.5
    
    
    
    4.6
    
    
    
    37.4Unrecorded Contractual Obligations:Operating lease obligations (3)
    
    
    1,053.9
    
    
    
    202.2
    
    
    
    338.7
    
    
    
    246.9
    
    
    
    266.1Interest (4)
    
    
    584.2
    
    
    
    122.8
    
    
    
    265.5
    
    
    
    155.0
    
    
    
    40.9Letters of credit
    
    
    7.1
    
    
    
    7.1
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    4,212.9
    
    
    $
    410.5
    
    
    $
    831.7
    
    
    $
    2,366.8
    
    
    $
    603.9
 
 (1)
    
    Represents debt expected to be paid and does not assume any note repurchases or prepayments
other than scheduled debt payments under our Credit Facility.(2)
    
    Includes $1,351.8 million under our senior secured term loan facility, $372.5 million under
our Senior Toggle Notes and $236.0 million under our Senior Subordinated Notes.(3)
    
    Operating lease obligations consists of future minimum lease commitments related to store
operating leases, distribution center leases, office leases and equipment leases. Operating
lease obligations do not include common area maintenance (CAM), contingent rent, insurance,
marketing or tax payments for which the Company is also obligated.(4)
    
    Represents interest expected to be paid on our debt and does not assume any note repurchases
or prepayments, other than scheduled debt payments under our Credit Facility. Projected
interest on variable rate debt is calculated using the applicable interest rate at January 29,
2011, and the effect of the interest rate swap through July 2013 as discussed in Note 6 
Derivatives and Hedging Activities in the Notes to Consolidated Financial Statements.  Seasonality and Quarterly Results
  Impact of Inflation
  42




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Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures  Improving
Disclosures about Fair Value Measurements Fair Value Measurements and
Disclosures
 Subsequent Events: Amendments to Certain Recognition
and Disclosure Requirements Subsequent Events
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Cash and Cash Equivalents
  Interest Rates
   43




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Foreign Currency
    General Market Risk
  44




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Page No.Report of Independent Registered Public Accounting Firm
    
    
    46Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010
    
    
    47Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended January
29, 2011, January 30, 2010 and January 31, 2009
    
    
    48Consolidated Statements of Changes in Stockholders Equity (Deficit) for the fiscal years ended January
29, 2011, January 30, 2010 and January 31, 2009
    
    
    49Consolidated Statements of Cash Flows for the fiscal years ended January 29,
2011, January 30, 2010 and January 31, 2009
    
    
    50Notes to Consolidated Financial Statements
    
    
    51
 45




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Report of Independent Registered Public Accounting Firm
 
     
 46




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CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 January 29, 2011
    
    
    January 30, 2010(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents and restricted cash of $23,864 and $0,
respectively
    
    $
    279,766
    
    
    $
    198,708Inventories
    
    
    136,148
    
    
    
    110,338Prepaid expenses
    
    
    21,449
    
    
    
    32,873Other current assets
    
    
    24,658
    
    
    
    28,236Total current assets
    
    
    462,021
    
    
    
    370,155Property and equipment:Land and building
    
    
    
    
    
    
    19,318Furniture, fixtures and equipment
    
    
    186,514
    
    
    
    162,602Leasehold improvements
    
    
    248,030
    
    
    
    228,503434,544
    
    
    
    410,423Less accumulated depreciation and amortization
    
    
    (233,511
    )
    
    
    (182,439
    )201,033
    
    
    
    227,984Leased property under capital lease:Land and building
    
    
    18,055
    
    
    
    Less accumulated depreciation and amortization
    
    
    (903
    )
    
    
    17,152
    
    
    
    Goodwill
    
    
    1,550,056
    
    
    
    1,550,056Intangible assets, net of accumulated amortization of $38,747 and
$28,032, respectively
    
    
    557,466
    
    
    
    580,027Deferred financing costs, net of accumulated amortization of
$41,659 and $29,949, respectively
    
    
    36,434
    
    
    
    47,641Other assets
    
    
    42,287
    
    
    
    58,2422,186,243
    
    
    
    2,235,966Total assets
    
    $
    2,866,449
    
    
    $
    2,834,105LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    76,154
    
    
    $
    14,500Trade accounts payable
    
    
    54,355
    
    
    
    42,163Income taxes payable
    
    
    11,744
    
    
    
    10,272Accrued interest payable
    
    
    16,783
    
    
    
    14,644Accrued expenses and other current liabilities
    
    
    107,115
    
    
    
    99,933Total current liabilities
    
    
    266,151
    
    
    
    181,512Long-term debt
    
    
    2,236,842
    
    
    
    2,313,378Revolving credit facility
    
    
    194,000
    
    
    
    194,000Obligation under capital lease
    
    
    17,290
    
    
    
    Deferred tax liability
    
    
    121,776
    
    
    
    122,145Deferred rent expense
    
    
    26,637
    
    
    
    22,082Unfavorable lease obligations and other long-term liabilities
    
    
    30,268
    
    
    
    35,6302,626,813
    
    
    
    2,687,235Commitments and contingenciesStockholders deficit:Common stock par value $0.001 per share; authorized 1,000 shares;
issued and outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    621,099
    
    
    
    616,086Accumulated other comprehensive income, net of tax
    
    
    1,416
    
    
    
    2,625Accumulated deficit
    
    
    (649,030
    )
    
    
    (653,353
    )(26,515
    )
    
    
    (34,642
    )Total liabilities and stockholders deficit
    
    $
    2,866,449
    
    
    $
    2,834,105
  47




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,2011
    
    
    2010
    
    
    2009Net sales
    
    $
    1,426,397
    
    
    $
    1,342,389
    
    
    $
    1,412,960Cost of sales, occupancy and buying expenses
    
    
    685,111
    
    
    
    663,269
    
    
    
    724,832Gross profit
    
    
    741,286
    
    
    
    679,120
    
    
    
    688,128Other expenses:Selling, general and administrative
    
    
    498,212
    
    
    
    465,706
    
    
    
    513,752Depreciation and amortization
    
    
    65,198
    
    
    
    71,471
    
    
    
    85,093Impairment of assets
    
    
    12,262
    
    
    
    3,142
    
    
    
    498,490Severance and transaction-related costs
    
    
    741
    
    
    
    921
    
    
    
    15,928Other expense (income), net
    
    
    411
    
    
    
    (4,234
    )
    
    
    (4,499
    )576,824
    
    
    
    537,006
    
    
    
    1,108,764Operating income (loss)
    
    
    164,462
    
    
    
    142,114
    
    
    
    (420,636
    )Gain on early debt extinguishment
    
    
    13,388
    
    
    
    36,412
    
    
    
    Impairment of equity investment
    
    
    6,030
    
    
    
    
    
    
    
    25,500Interest expense, net
    
    
    157,706
    
    
    
    177,418
    
    
    
    195,947Income (loss) before income tax expense
    
    
    14,114
    
    
    
    1,108
    
    
    
    (642,083
    )Income tax expense
    
    
    9,791
    
    
    
    11,510
    
    
    
    1,509Net income (loss)
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )Net income (loss)
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )Foreign currency translation and interest rate
swap adjustments, net of tax
    
    
    8,363
    
    
    
    24,944
    
    
    
    (25,677
    )Reclassification of foreign currency
translation adjustments into net income (loss)
    
    
    (9,572
    )
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    3,114
    
    
    $
    14,542
    
    
    $
    (669,269
    )
  48




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 Number of
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    Retainedshares of
    
    
    
    
    
    
    Additional
    
    
    other
    
    
    earningscommon
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    (Accumulatedstock
    
    
    stock
    
    
    capital
    
    
    income (loss), net
    
    
    deficit)
    
    
    TotalBalance: February 2, 2008
    
    
    100
    
    
    $
    
    
    
    $
    601,201
    
    
    $
    3,358
    
    
    $
    641
    
    
    $
    605,200Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (643,592
    )
    
    
    (643,592
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    7,783
    
    
    
    
    
    
    
    
    
    
    
    7,783Restricted stock expense, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    443Foreign currency translation adjustment and unrealized
loss on interest rate swaps, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,677
    )
    
    
    
    
    
    
    (25,677
    )Balance: January 31, 2009
    
    
    100
    
    
    
    
    
    
    
    609,427
    
    
    
    (22,319
    )
    
    
    (642,951
    )
    
    
    (55,843
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,402
    )
    
    
    (10,402
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    6,518
    
    
    
    
    
    
    
    
    
    
    
    6,518Restricted stock expense, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    141Foreign currency translation adjustment and unrealized
gain on interest rate swaps, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,944
    
    
    
    
    
    
    
    24,944Balance: January 30, 2010
    
    
    100
    
    
    
    
    
    
    
    616,086
    
    
    
    2,625
    
    
    
    (653,353
    )
    
    
    (34,642
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,323
    
    
    
    4,323Stock option expense
    
    
    
    
    
    
    
    
    
    
    4,946
    
    
    
    
    
    
    
    
    
    
    
    4,946Restricted stock expense, net of unearned compensation
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Foreign currency translation adjustment and unrealized
gain on interest rate swaps, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,363
    
    
    
    
    
    
    
    8,363Reclassification of foreign currency translation
adjustments into net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,572
    )
    
    
    
    
    
    
    (9,572
    )Balance: January 29, 2011
    
    
    100
    
    
    $
    
    
    
    $
    621,099
    
    
    $
    1,416
    
    
    $
    (649,030
    )
    
    $
    (26,515
    )
  49




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    EndedJanuary 29,
    
    
    January 30,
    
    
    January 31,2011
    
    
    2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    65,198
    
    
    
    71,471
    
    
    
    85,093Impairment
    
    
    18,292
    
    
    
    3,142
    
    
    
    523,990Amortization of lease rights and other assets
    
    
    3,204
    
    
    
    2,199
    
    
    
    2,059Amortization of debt issuance costs
    
    
    10,005
    
    
    
    10,398
    
    
    
    10,567Payment of in kind interest expense
    
    
    36,872
    
    
    
    39,013
    
    
    
    24,522Net unfavorable accretion of lease obligations
    
    
    (1,490
    )
    
    
    (2,151
    )
    
    
    (1,856
    )Loss (gain) on sale/retirement of property and equipment, net
    
    
    672
    
    
    
    (1,389
    )
    
    
    (183
    )Gain on early debt extinguishment
    
    
    (13,388
    )
    
    
    (36,412
    )
    
    
    Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    (506
    )
    
    
    (1,372
    )Stock compensation expense
    
    
    5,013
    
    
    
    6,659
    
    
    
    8,226(Increase) decrease in:Inventories
    
    
    (25,374
    )
    
    
    (4,081
    )
    
    
    6,482Prepaid expenses
    
    
    12,658
    
    
    
    1,797
    
    
    
    (1,087
    )Other assets
    
    
    751
    
    
    
    (5,519
    )
    
    
    (9,085
    )Increase (decrease) in:Trade accounts payable
    
    
    10,314
    
    
    
    (12,744
    )
    
    
    7,372Income taxes payable
    
    
    3,667
    
    
    
    5,510
    
    
    
    (10,710
    )Accrued interest payable
    
    
    2,139
    
    
    
    1,328
    
    
    
    (6,219
    )Accrued expenses and other liabilities
    
    
    14,575
    
    
    
    (129
    )
    
    
    3,032Deferred income taxes
    
    
    (595
    )
    
    
    4,114
    
    
    
    (4,809
    )Deferred rent expense
    
    
    4,423
    
    
    
    3,178
    
    
    
    8,943Net cash provided by operating activities
    
    
    151,259
    
    
    
    75,476
    
    
    
    1,373Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (48,711
    )
    
    
    (24,952
    )
    
    
    (59,405
    )Proceeds from sale of property and equipment
    
    
    16,765
    
    
    
    1,830
    
    
    
    104Acquisition of intangible assets/lease rights
    
    
    (1,104
    )
    
    
    (546
    )
    
    
    (1,971
    )Proceeds from sale of intangible assets/lease rights
    
    
    
    
    
    
    2,409
    
    
    
    516Changes in restricted cash
    
    
    (23,902
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (56,952
    )
    
    
    (21,259
    )
    
    
    (60,756
    )Cash flows from financing activities:Proceeds from Credit facility
    
    
    
    
    
    
    
    
    
    
    194,000Payments of Credit facility
    
    
    (14,500
    )
    
    
    (14,500
    )
    
    
    (14,500
    )Proceeds from Short-term debt
    
    
    57,494
    
    
    
    
    
    
    
    Repurchases of Notes
    
    
    (79,865
    )
    
    
    (46,091
    )
    
    
    Payment of debt issuance costs
    
    
    (503
    )
    
    
    
    
    
    
    Principal payments of capital lease
    
    
    (765
    )
    
    
    
    
    
    
    Net cash (used in) provided by financing activities:
    
    
    (38,139
    )
    
    
    (60,591
    )
    
    
    179,500Effect of foreign currency exchange rate changes on cash and cash
equivalents
    
    
    1,026
    
    
    
    508
    
    
    
    (1,517
    )Net increase (decrease) in cash and cash equivalents
    
    
    57,194
    
    
    
    (5,866
    )
    
    
    118,600Cash and cash equivalents, at beginning of period
    
    
    198,708
    
    
    
    204,574
    
    
    
    85,974Cash and cash equivalents, at end of period
    
    
    255,902
    
    
    
    198,708
    
    
    
    204,574Restricted cash, at end of period
    
    
    23,864
    
    
    
    
    
    
    
    Cash and cash equivalents and restricted cash, at end of period
    
    $
    279,766
    
    
    $
    198,708
    
    
    $
    204,574Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    6,332
    
    
    $
    3,159
    
    
    $
    14,227Interest paid
    
    
    108,923
    
    
    
    126,733
    
    
    
    168,567Non-cash investing and financing activities:Property acquired under capital lease
    
    
    18,055
    
    
    
    
    
    
    
    
  50




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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 senior secured term loan facility and revolving Credit
Facility (collectively the Credit Facility) of $1.65 billion;
    
    the closing of the Companys senior notes offering (the Notes) in the aggregate
principal amount of $935.0 million; and
    
    the equity investment by the Sponsors, collectively, of approximately $595.7 million.
     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 51




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##### Table of Contents



Fiscal Year
 Use of Estimates
 Reclassifications
 Cash and Cash Equivalents and Restricted Cash 
 Inventories
 Prepaid Expenses
 January 29,
    
    
    January 30,2011
    
    
    2010Prepaid rent and occupancy
    
    $
    19,532
    
    
    $
    30,444Prepaid insurance
    
    
    577
    
    
    
    193Other
    
    
    1,340
    
    
    
    2,236Total prepaid expenses
    
    $
    21,449
    
    
    $
    32,873
 52




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##### Table of Contents



Other Current Assets
 January 29,
    
    
    January 30,2011
    
    
    2010Credit card receivables
    
    $
    5,209
    
    
    $
    4,617Franchise receivables
    
    
    4,139
    
    
    
    6,457Store supplies
    
    
    6,567
    
    
    
    6,794Deferred tax assets, net of valuation allowance
    
    
    4,064
    
    
    
    2,839Income taxes receivable
    
    
    69
    
    
    
    2,556Other
    
    
    4,610
    
    
    
    4,973Total other current assets
    
    $
    24,658
    
    
    $
    28,236
 Property and Equipment
 Capital Leases
 Goodwill
  53




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##### Table of Contents



Intangible Assets
 Deferred Financing Costs
 Other Assets
 January 29,
    
    
    January 30,2011
    
    
    2010Investment in Claires Nippon joint venture
    
    $
    
    
    
    $
    17,758Initial direct costs of leases
    
    
    16,358
    
    
    
    16,905Prepaid lease payments
    
    
    6,856
    
    
    
    7,098Deferred tax assets, non-current
    
    
    2,726
    
    
    
    2,362Other
    
    
    16,347
    
    
    
    14,119Total other assets
    
    $
    42,287
    
    
    $
    58,242
 Nonmonetary Transactions
   Impairment of Long-Lived Assets
 54




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##### Table of Contents



Accrued Expenses and Other Current Liabilities
 January 29,
    
    
    January 30,2011
    
    
    2010Compensation and benefits
    
    $
    46,121
    
    
    $
    41,861Gift cards and certificates
    
    
    21,917
    
    
    
    20,989Sales and local taxes
    
    
    14,321
    
    
    
    8,036Store rent
    
    
    3,753
    
    
    
    4,873Interest rate swaps
    
    
    1,165
    
    
    
    8,752Other
    
    
    19,838
    
    
    
    15,422Total accrued expenses and other current liabilities
    
    $
    107,115
    
    
    $
    99,933
 Revenue Recognition
   Cost of Sales
 Advertising Expenses
 Rent Expense
 55




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##### Table of Contents



Stock-Based Compensation
   Income Taxes Income Taxes,
  Foreign Currency Translation
 56




---



##### Table of Contents



Comprehensive Income (Loss)
 Derivative Financial Instruments
 Fair Value Measurements Fair Value Measurement Disclosures
 Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at January 29, 2011 UsingQuoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swap
    
    $
    (1,165
    )
    
    $
    
    
    
    $
    (1,165
    )
    
    $
    
 Fair Value Measurements at January 30, 2010 UsingQuoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservable(Liabilities)
    
    
    Inputs
    
    
    InputsCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swaps
    
    $
    (8,752
    )
    
    $
    
    
    
    $
    (8,752
    )
    
    $
    
  57




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##### Table of Contents



Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
   Fair Value Measurements at January 29, 2011 UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    Unobservable
    
    
    ImpairmentIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    ChargesCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3) (1)
    
    
    Fiscal 2010Intangible assets
    
    $
    28,180
    
    
    $
    
    
    
    $
    
    
    
    $
    28,180
    
    
    $
    12,262
 
 (1)
    
    See Note 3  Impairment Charges for discussion of the valuation techniques used to measure fair value, the description
of the inputs and information used to develop those inputs. Fair Value Measurements at January 30, 2010 UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    Unobservable
    
    
    ImpairmentIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    ChargesCarrying Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3) (1)
    
    
    Fiscal 2009Long-lived assets
    
    $
    17,000
    
    
    $
    
    
    
    $
    
    
    
    $
    17,000
    
    
    $
    3,142
 
 (1)
    
    See Note 3  Impairment Charges for discussion of the valuation techniques used to measure fair value, the description
of the inputs and information used to develop those inputs.   Financial Instruments Not Measured at Fair Value
  58




---



##### Table of Contents



Recent Accounting Pronouncements Fair
Value Measurements and Disclosures  Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures
 Subsequent Events: Amendments to Certain Recognition
and Disclosure Requirements Subsequent Events
  3. IMPAIRMENT CHARGES
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    297,000Tradenames
    
    
    
    
    
    
    
    
    
    
    199,000Franchise agreements
    
    
    12,262
    
    
    
    
    
    
    
    Investment in Claires Nippon
    
    
    6,030
    
    
    
    
    
    
    
    25,500Long-lived assets
    
    
    
    
    
    
    3,142
    
    
    
    2,490Total impairment charges
    
    $
    18,292
    
    
    $
    3,142
    
    
    $
    523,990
   59




---



##### Table of Contents



Intangibles  Goodwill and Other
     60




---



##### Table of Contents



Investments  Equity Method and Joint Ventures
 Property, Plant, and
Equipment
 4. GOODWILL AND OTHER INTANGIBLE ASSETS
  61




---



##### Table of Contents



North America
    
    
    Europe
    
    
    TotalBalance as of January 31, 2009:Goodwill
    
    $
    1,409,941
    
    
    $
    431,405
    
    
    $
    1,841,346Accumulated impairment losses
    
    
    (180,000
    )
    
    
    (117,000
    )
    
    
    (297,000
    )$
    1,229,941
    
    
    $
    314,405
    
    
    $
    1,544,346Reclassification adjustment in
Fiscal 2009 (1)
    
    
    5,710
    
    
    
    
    
    
    
    5,710Balance as of January 29, 2011 and
January 30, 2010:Goodwill
    
    $
    1,415,651
    
    
    $
    431,405
    
    
    $
    1,847,056Accumulated impairment losses
    
    
    (180,000
    )
    
    
    (117,000
    )
    
    
    (297,000
    )$
    1,235,651
    
    
    $
    314,405
    
    
    $
    1,550,056
 
 (1)
    
    Reclassification of valuation allowance on deferred tax assets.  January 29, 2011
    
    
    January 30, 2010Estimated
    
    
    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
    
    $
    24,757
    
    
    $
    (5,996
    )
    
    $
    13,681
    
    
    $
    (4,145
    )Franchise agreements
    
    1 to 9
    
    
    40,738
    
    
    
    (12,558
    )
    
    
    53,000
    
    
    
    (9,291
    )Favorable lease obligations
    
10
    
    
    30,859
    
    
    
    (20,000
    )
    
    
    30,501
    
    
    
    (14,493
    )Other
    
5
    
    
    499
    
    
    
    (193
    )
    
    
    372
    
    
    
    (103
    )Total intangible assets subject to
amortization
    
    
    
    
    
    
    96,853
    
    
    
    (38,747
    )
    
    
    97,554
    
    
    
    (28,032
    )Indefinite-lived intangible assets:Indefinite-lived tradenames
    
    
    
    
    
    $
    447,108
    
    
    $
    
    
    
    $
    447,112
    
    
    $
    Indefinite-lived lease rights
    
    
    
    
    
    
    51,652
    
    
    
    
    
    
    
    63,393
    
    
    
    Indefinite-lived territory rights
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    Total indefinite-lived intangible assets
    
    
    
    
    
    
    499,360
    
    
    
    
    
    
    
    510,505
    
    
    
    Total intangible assets
    
    
    
    
    
    $
    596,213
    
    
    $
    (38,747
    )
    
    $
    608,059
    
    
    $
    (28,032
    )
  62




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##### Table of Contents



Weighted Average AmortizationPeriod for AmortizableIntangible Asset Acquisitions (in 000s)
    
    Amortizable
    
    
    Intangible Asset AcquisitionsLease rights:Fiscal 2010
    
    $
    978
    
    
    
    9.9Fiscal 2009
    
    
    435
    
    
    
    9.9Fiscal 2008
    
    
    1,794
    
    
    
    8.7Other:Fiscal 2010
    
    
    126
    
    
    
    5.0Fiscal 2009
    
    
    111
    
    
    
    5.0Fiscal 2008
    
    
    176
    
    
    
    5.0
   Fiscal Year
    
    Amortization2011
    
    $
    10,6092012
    
    
    8,0572013
    
    
    7,2022014
    
    
    6,4062015
    
    
    5,2112016 and thereafter
    
    
    20,621Total
    
    $
    58,106
 5. DEBT
  January 29, 2011
    
    
    January 30, 2010Short-term debt and current portion of long-term debt:Note payable to bank due 2012
    
    $
    57,703
    
    
    $
    Current portion of long-term debt
    
    
    18,451
    
    
    
    14,500Total short-term debt and current portion of long-term debt
    
    $
    76,154
    
    
    $
    14,500Long-term debt:Senior secured term loan facility due 2014
    
    $
    1,399,250
    
    
    $
    1,413,750Senior notes due 2015
    
    
    236,000
    
    
    
    250,000Senior toggle notes due 2015
    
    
    360,431
    
    
    
    381,891Senior subordinated notes due 2017
    
    
    259,612
    
    
    
    282,2372,255,293
    
    
    
    2,327,878Less: current portion of long-term debt
    
    
    (18,451
    )
    
    
    (14,500
    )Long-term debt
    
    $
    2,236,842
    
    
    $
    2,313,378Senior secured revolving credit facility due 2013
    
    $
    194,000
    
    
    $
    194,000Obligations under capital leases
    
    $
    17,290
    
    
    $
    
 63




---



##### Table of Contents



Capital Leases
    
    
    Debt2011
    
    $
    2,165
    
    
    $
    76,1542012
    
    
    2,209
    
    
    
    14,5002013
    
    
    2,253
    
    
    
    208,5002014
    
    
    2,298
    
    
    
    1,351,7992015
    
    
    2,344
    
    
    
    596,431Thereafter
    
    
    37,407
    
    
    
    259,612Total
    
    
    48,676
    
    
    $
    2,506,996Imputed interest
    
    
    (31,386
    )Present value of minimum capital lease principal payments
    
    
    17,290Current portion
    
    
    Long-term capital lease obligation
    
    $
    17,290
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Term loan facility
    
    $
    53,255
    
    
    $
    66,348
    
    
    $
    88,216Revolving credit facility
    
    
    6,110
    
    
    
    5,708
    
    
    
    4,835Senior notes
    
    
    22,605
    
    
    
    23,154
    
    
    
    23,074Senior toggle notes
    
    
    36,881
    
    
    
    39,021
    
    
    
    35,671Senior subordinated notes
    
    
    27,620
    
    
    
    32,913
    
    
    
    35,090Note payable to bank
    
    
    85
    
    
    
    
    
    
    
    Capital lease obligation
    
    
    1,232
    
    
    
    
    
    
    
    Amortization of deferred debt issue costs
    
    
    10,005
    
    
    
    10,398
    
    
    
    10,567Other interest expense
    
    
    57
    
    
    
    82
    
    
    
    (17
    )Interest income
    
    
    (144
    )
    
    
    (206
    )
    
    
    (1,489
    )Interest expense, net
    
    $
    157,706
    
    
    $
    177,418
    
    
    $
    195,947
  January 29, 2011
    
    
    January 30, 2010Term loan facility
    
    $
    8,239
    
    
    $
    5,474Revolving credit facility
    
    
    231
    
    
    
    328Senior notes
    
    
    3,658
    
    
    
    3,875Senior subordinated notes
    
    
    4,568
    
    
    
    4,966Note payable to bank
    
    
    87
    
    
    
    Other
    
    
    
    
    
    
    1Total accrued interest payable
    
    $
    16,783
    
    
    $
    14,644
 SHORT-TERM DEBT
  
 
 64




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##### Table of Contents



LONG-TERM DEBT
 Credit Facility
     
    
    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.
  65




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
    
    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.
  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)
      66




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Period
    
    Senior Cash Pay Notes

    
    Senior Toggle Notes2011
    
    
    104.625
    %
    
    
    104.813
    %2012
    
    
    102.313
    %
    
    
    102.406
    %2013 and thereafter
    
    
    100.000
    %
    
    
    100.000
    %
   Senior Subordinated Notes
    Period
    
    Redemption Price2012
    
    
    105.25
    %2013
    
    
    103.50
    %2014
    
    
    101.75
    %2015 and thereafter
    
    
    100.00
    %
   67




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
    
    incur additional indebtedness;
    
    pay dividends or distributions on capital stock, repurchase or retire capital stock
and redeem, repurchase or defease any subordinated indebtedness;
    
    make certain investments;
    
    create or incur certain liens;
    
    create restrictions on the payment of dividends or other distributions to the Company
from its subsidiaries;
    
    transfer or sell assets;
    
    engage in certain transactions with its affiliates; and
    
    merge or consolidate with other companies or transfer all or substantially all of its
assets.
  European Credit Facilities
  Note Repurchases
  Fiscal 2010Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Notes
    
    $
    14,000
    
    
    $
    12,268
    
    
    $
    1,467Senior Toggle Notes
    
    
    57,173
    
    
    
    49,798
    
    
    
    7,612Senior Subordinated Notes
    
    
    22,625
    
    
    
    17,799
    
    
    
    4,309$
    93,798
    
    
    $
    79,865
    
    
    $
    13,388
 
 (1)
    
    Net of deferred issuance cost write-offs of $265 for the Senior Notes, $922 for the Senior
Toggle Notes and $517 for the Senior Subordinated Notes, and accrued interest write-off of
$1,159 for the Senior Toggle Notes 68




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##### Table of Contents



Fiscal 2009Principal
    
    
    Repurchase
    
    
    RecognizedNotes Repurchased
    
    Amount
    
    
    Price
    
    
    Gain (1)Senior Toggle Notes
    
    $
    30,500
    
    
    $
    19,744
    
    
    $
    11,297Senior Subordinated Notes
    
    
    52,763
    
    
    
    26,347
    
    
    
    25,115$
    83,263
    
    
    $
    46,091
    
    
    $
    36,412
 
 (1)
    
    Net of deferred issuance cost write-offs of $603 and $1,301 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $1,144 for the
Senior Toggle Notes. 6. DERIVATIVES AND HEDGING ACTIVITIES
      69




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Amount of Gain or (Loss) Recognized in OCI onDerivativeDerivatives in Cash Flow Hedging Relationships
    
    (Effective Portion)Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Interest Rate Swaps
    
    $
    7,587
    
    
    $
    9,437
    
    
    $
    1,375
 Amount of Gain or (Loss) Reclassified fromLocation of Gain or (Loss) Reclassified from
    
    Accumulated OCI into IncomeAccumulated OCI into Income (Effective Portion)
    
    (Effective Portion)(1)Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Interest expense, net
    
    $
    (9,630
    )
    
    $
    (19,011
    )
    
    $
    (8,440
    )
 
 (1)
    
    Represents reclassification of amounts from accumulated other comprehensive income (loss) into
earnings as interest expense is recognized on the senior secured term loan facility. No
ineffectiveness is associated with these interest rate cash flow hedges.  70




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7. COMMITMENTS AND CONTINGENCIES
 Leases
 Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Minimum store rentals
    
    $
    199,304
    
    
    $
    199,908
    
    
    $
    205,807Store rentals based on net sales
    
    
    2,990
    
    
    
    1,454
    
    
    
    2,398Other rental expense
    
    
    11,751
    
    
    
    13,181
    
    
    
    16,745Total rental expense
    
    $
    214,045
    
    
    $
    214,543
    
    
    $
    224,950
  2011
    
    $
    202,1972012
    
    
    180,7342013
    
    
    157,9692014
    
    
    135,3642015
    
    
    111,560Thereafter
    
    
    266,064Total
    
    $
    1,053,888
  Asset Retirement and Environmental Obligations,
 Legal
  Employment Agreements
 71




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Other
 8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  ForeignCurrency
    
    
    DerivativeTranslation
    
    
    Instruments
    
    
    TotalBalance as of February 2, 2008
    
    $
    17,191
    
    
    $
    (13,833
    )
    
    $
    3,358Foreign currency translation adjustment, net of tax of $0
    
    
    (27,052
    )
    
    
    
    
    
    
    (27,052
    )Unrealized
gain on interest rate swaps, net of tax of $1,531
    
    
    
    
    
    
    1,375
    
    
    
    1,375Balance as of January 31, 2009
    
    
    (9,861
    )
    
    
    (12,458
    )
    
    
    (22,319
    )Foreign currency translation adjustment, net of tax of $0
    
    
    15,507
    
    
    
    
    
    
    
    15,507Unrealized
gain on interest rate swaps, net of tax of $1,546
    
    
    
    
    
    
    9,437
    
    
    
    9,437Balance as of January 30, 2010
    
    
    5,646
    
    
    
    (3,021
    )
    
    
    2,625Foreign currency translation adjustment, net of tax of $0
    
    
    776
    
    
    
    
    
    
    
    776Unrealized gain on interest rate swaps, net of tax of $0
    
    
    
    
    
    
    7,587
    
    
    
    7,587Reclassification of foreign currency translation
adjustments
into net income, net of tax of $0
    
    
    (9,572
    )
    
    
    
    
    
    
    (9,572
    )Balance as of January 29, 2011
    
    $
    (3,150
    )
    
    $
    4,566
    
    
    $
    1,416
 9. STOCK OPTIONS AND STOCK-BASED COMPENSATION
     72




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.
   WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    ContractualShares
    
    
    Price
    
    
    Term (Years)Outstanding as of January 30, 2010
    
    
    6,279,360
    
    
    $
    10.00Options granted
    
    
    1,000,750
    
    
    $
    10.00Options exercised
    
    
    
    
    
    
    Options forfeited or expired
    
    
    (420,096
    )
    
    $
    10.00Outstanding as of January 29, 2011
    
    
    6,860,014
    
    
    $
    10.00
    
    
    
    4.4Options vested and expected to
vest at January 29, 2011
    
    
    6,703,258
    
    
    $
    10.00
    
    
    
    4.3Exercisable at end of period
    
    
    2,195,119
    
    
    $
    10.00
    
    
    
    3.8
   73




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Time Options and BOGO Options (Black-Scholes)
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Weighted average expected stock price volatility
    
    
    59.25
    %
    
    
    55.53
    %
    
    
    45.26
    %Weighted average risk-free interest rate
    
    
    2.04
    %
    
    
    2.15
    %
    
    
    3.18
    %Range of risk-free interest rate
    
    
    1.05% - 2.54
    %
    
    
    1.38% - 2.98
    %
    
    
    2.50% - 3.44
    %Weighted average expected term (years)
    
    
    4.74
    
    
    
    4.39
    
    
    
    4.75
 Performance Options (Monte Carlo)
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Weighted average expected stock price volatility
    
    
    58.66
    %
    
    
    53.50
    %
    
    
    48.00
    %Weighted average risk-free interest rate
    
    
    2.45
    %
    
    
    2.05
    %
    
    
    3.21
    %Range of risk-free interest rate
    
    
    1.42% - 2.93
    %
    
    
    0.18% - 4.25
    %
    
    
    1.56% - 4.38
    %Weighted average expected term (years)
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 Share-Based Payment
  Time-Vested Restricted Stock Awards
  74




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##### Table of Contents



Weighted AverageShares
    
    
    Grant Date Fair ValueNonvested as of January 30, 2010
    
    
    50,000
    
    
    $
    10.00Granted
    
    
    
    
    
    
    Vested
    
    
    (25,000
    )
    
    $
    10.00Forfeited
    
    
    
    
    
    
    Nonvested as of January 29, 2011
    
    
    25,000
    
    
    $
    10.00
 10. EMPLOYEE BENEFIT PLANS
  11. INCOME TAXES
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008U.S.
    
    $
    (34,663
    )
    
    $
    (76,154
    )
    
    $
    (501,248
    )Foreign
    
    
    48,777
    
    
    
    77,262
    
    
    
    (140,835
    )Total income (loss) before income taxes
    
    $
    14,114
    
    
    $
    1,108
    
    
    $
    (642,083
    )
  Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Federal:Current
    
    $
    22
    
    
    $
    378
    
    
    $
    509Deferred
    
    
    1,098
    
    
    
    3,541
    
    
    
    12,4401,120
    
    
    
    3,919
    
    
    
    12,949StateCurrent
    
    
    1,622
    
    
    
    437
    
    
    
    225Deferred
    
    
    (779
    )
    
    
    63
    
    
    
    (11,413
    )843
    
    
    
    500
    
    
    
    (11,188
    )ForeignCurrent
    
    
    8,737
    
    
    
    5,552
    
    
    
    5,532Deferred
    
    
    (909
    )
    
    
    1,539
    
    
    
    (5,784
    )7,828
    
    
    
    7,091
    
    
    
    (252
    )Total income tax expense
    
    $
    9,791
    
    
    $
    11,510
    
    
    $
    1,509
 75




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##### Table of Contents



Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008U.S. income taxes at statutory federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Valuation allowance
    
    
    90.1
    
    
    
    1,577.1
    
    
    
    (15.6
    )Nondeductible impairment charges
    
    
    
    
    
    
    
    
    
    
    (17.6
    )Foreign rate differential
    
    
    (82.5
    )
    
    
    (1,927.8
    )
    
    
    (0.4
    )State and local income taxes, net of federal tax benefit
    
    
    (2.5
    )
    
    
    (92.1
    )
    
    
    1.1Repatriation of foreign earnings
    
    
    3.0
    
    
    
    1,674.7
    
    
    
    (2.1
    )Change in accrual for estimated tax contingencies
    
    
    7.9
    
    
    
    199.6
    
    
    
    (0.4
    )Other, net
    
    
    18.4
    
    
    
    (427.7
    )
    
    
    (0.2
    )69.4
    %
    
    
    1,038.8
    %
    
    
    (0.2
    )%
    Jan. 29, 2011
    
    
    Jan. 30, 2010Deferred tax assets:Tax carryforwards
    
    $
    69,306
    
    
    $
    85,737Debt related
    
    
    19,708
    
    
    
    15,812Compensation & benefits
    
    
    15,009
    
    
    
    11,595Deferred rent
    
    
    7,415
    
    
    
    6,892Depreciation
    
    
    6,053
    
    
    
    2,874Accrued expenses
    
    
    4,802
    
    
    
    4,055Gift cards
    
    
    2,726
    
    
    
    2,064Other
    
    
    2,198
    
    
    
    4,106Inventory
    
    
    1,376
    
    
    
    1,125Total gross deferred tax assets
    
    
    128,593
    
    
    
    134,260Valuation allowance
    
    
    (120,286
    )
    
    
    (130,620
    )Total deferred tax assets, net
    
    
    8,307
    
    
    
    3,640Deferred tax liabilities:Tradename intangibles
    
    
    110,569
    
    
    
    110,359Lease rights
    
    
    8,555
    
    
    
    8,865Other
    
    
    4,169
    
    
    
    1,360Total deferred tax liabilities
    
    
    123,293
    
    
    
    120,584Net deferred tax liability
    
    $
    (114,986
    )
    
    $
    (116,944
    )
 76




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##### Table of Contents



Jan. 29, 2011
    
    
    Jan. 30, 2010Current deferred tax assets, net of valuation allowance
    
    $
    4,064
    
    
    $
    2,839Current deferred tax liabilities
    
    
    
    
    
    
    Non-current deferred tax assets
    
    
    2,726
    
    
    
    2,362Non-current deferred tax liabilities, net of
valuation allowance
    
    
    (121,776
    )
    
    
    (122,145
    )Net
    
    $
    (114,986
    )
    
    $
    (116,944
    )
  Amount
    
    
    Expiration DateU.S. federal net operating loss carryforwards
    
    $
    26,936
    
    
    
    2028  2030Non-U.S. net operating loss carryforwards
    
    
    9,810
    
    
    IndefiniteNon-U.S. net operating loss carryforwards
    
    
    7,589
    
    
    
    2015  2025State net operating loss carryforwards
    
    
    3,339
    
    
    
    2013  2030U.S. foreign tax credits
    
    
    21,632
    
    
    
    2019  2021Total
    
    $
    69,306
     77




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Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Beginning balance
    
    $
    12,243
    
    
    $
    11,043
    
    
    $
    9,617Additions based on tax positions related
to the current year
    
    
    1,694
    
    
    
    1,987
    
    
    
    2,070Additions for tax positions of prior years
    
    
    
    
    
    
    58
    
    
    
    1Reductions for tax positions of prior years
    
    
    (1,133
    )
    
    
    
    
    
    
    Statute expirations
    
    
    (134
    )
    
    
    (351
    )
    
    
    (154
    )Settlements
    
    
    
    
    
    
    (494
    )
    
    
    (491
    )Ending balance
    
    $
    12,670
    
    
    $
    12,243
    
    
    $
    11,043
     12. RELATED PARTY TRANSACTIONS
  78




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13. SELECTED QUARTERLY FINANCIAL DATA
  Fiscal 20101st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th Qtr
    
    
    Total YearNet sales
    
    $
    322,077
    
    
    $
    334,233
    
    
    $
    348,175
    
    
    $
    421,912
    
    
    $
    1,426,397Gross profit
    
    
    163,326
    
    
    
    175,013
    
    
    
    180,602
    
    
    
    222,345
    
    
    
    741,286Impairment of assets (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,262
    
    
    
    12,262Severance and transaction related costs
    
    
    102
    
    
    
    212
    
    
    
    121
    
    
    
    306
    
    
    
    741Gain on early debt extinguishment
    
    
    4,487
    
    
    
    6,249
    
    
    
    2,652
    
    
    
    
    
    
    
    13,388Impairment of equity investment (b)
    
    
    
    
    
    
    6,030
    
    
    
    
    
    
    
    
    
    
    
    6,030Interest expense, net
    
    
    42,763
    
    
    
    40,573
    
    
    
    37,132
    
    
    
    37,238
    
    
    
    157,706Income tax expense (c)
    
    
    1,633
    
    
    
    1,607
    
    
    
    3,369
    
    
    
    3,182
    
    
    
    9,791Net income (loss)
    
    
    (12,300
    )
    
    
    (8,345
    )
    
    
    3,647
    
    
    
    21,321
    
    
    
    4,323
 
 (a)
    
    Represents impairment charge related to franchise agreements. See Note 3  Impairment Charges
for detail of impairment charges.(b)
    
    Represents impairment charge related to equity investment in Claires Nippon. See Note 3 
Impairment Charges for detail of impairment charges.(c)
    
    Includes a $12.7 million charge for an increase in the valuation allowance related to deferred
tax assets. Fiscal 20091st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th Qtr
    
    
    Total YearNet sales
    
    $
    293,098
    
    
    $
    314,196
    
    
    $
    324,404
    
    
    $
    410,691
    
    
    $
    1,342,389Gross profit
    
    
    140,743
    
    
    
    155,056
    
    
    
    165,004
    
    
    
    218,317
    
    
    
    679,120Impairment of assets (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,142
    
    
    
    3,142Severance and transaction related costs
    
    
    349
    
    
    
    25
    
    
    
    32
    
    
    
    515
    
    
    
    921Gain on early debt extinguishment
    
    
    
    
    
    
    17,104
    
    
    
    16,096
    
    
    
    3,212
    
    
    
    36,412Interest expense, net
    
    
    45,234
    
    
    
    45,329
    
    
    
    43,716
    
    
    
    43,139
    
    
    
    177,418Income tax expense (benefit) (b)
    
    
    (1,679
    )
    
    
    2,797
    
    
    
    2,187
    
    
    
    8,205
    
    
    
    11,510Net income (loss)
    
    
    (29,023
    )
    
    
    (3,733
    )
    
    
    2,889
    
    
    
    19,465
    
    
    
    (10,402
    )
 
 (a)
    
    Represents impairment charges related to long-lived assets. See Note 3  Impairment Charges
for detail of impairment charges.(b)
    
    Includes a $17.5 million charge for an increase in the valuation allowance related to deferred
tax assets. 79




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14. SEGMENT REPORTING
   Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Net sales:North America
    
    $
    914,149
    
    
    $
    850,313
    
    
    $
    907,486Europe
    
    
    512,248
    
    
    
    492,076
    
    
    
    505,474Total net sales
    
    $
    1,426,397
    
    
    $
    1,342,389
    
    
    $
    1,412,960Depreciation and amortization:North America
    
    $
    42,169
    
    
    $
    47,574
    
    
    $
    57,516Europe
    
    
    23,029
    
    
    
    23,897
    
    
    
    27,577Total depreciation and amortization
    
    $
    65,198
    
    
    $
    71,471
    
    
    $
    85,093Segment operating income:North America
    
    $
    124,606
    
    
    $
    88,890
    
    
    $
    63,490Europe
    
    
    52,859
    
    
    
    57,287
    
    
    
    30,292Total segment operating income
    
    $
    177,465
    
    
    $
    146,177
    
    
    $
    93,782Impairment of assets:North America
    
    $
    
    
    
    $
    3,142
    
    
    $
    314,000Europe
    
    
    12,262
    
    
    
    
    
    
    
    184,490Total impairment charges
    
    $
    12,262
    
    
    $
    3,142
    
    
    $
    498,490Impairment of equity investment:North America
    
    $
    6,030
    
    
    $
    
    
    
    $
    25,500Europe
    
    
    
    
    
    
    
    
    
    
    Total impairment of equity investment
    
    $
    6,030
    
    
    $
    
    
    
    $
    25,500Interest expense (income), net:North America
    
    $
    157,595
    
    
    $
    177,496
    
    
    $
    196,732Europe
    
    
    111
    
    
    
    (78
    )
    
    
    (785
    )Total interest expense (income), net
    
    $
    157,706
    
    
    $
    177,418
    
    
    $
    195,947Income (loss) before income taxes:North America
    
    $
    (26,003
    )
    
    $
    (56,257
    )
    
    $
    (482,670
    )Europe
    
    
    40,117
    
    
    
    57,365
    
    
    
    (159,413
    )Total income (loss) before income taxes
    
    $
    14,114
    
    
    $
    1,108
    
    
    $
    (642,083
    )Income tax expense (benefit):North America
    
    $
    2,694
    
    
    $
    4,559
    
    
    $
    1,613Europe
    
    
    7,097
    
    
    
    6,951
    
    
    
    (104
    )Total income tax expense
    
    $
    9,791
    
    
    $
    11,510
    
    
    $
    1,509Net income (loss):North America
    
    $
    (28,697
    )
    
    $
    (60,816
    )
    
    $
    (484,283
    )Europe
    
    
    33,020
    
    
    
    50,414
    
    
    
    (159,309
    )Net income (loss)
    
    $
    4,323
    
    
    $
    (10,402
    )
    
    $
    (643,592
    )
 80




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##### Table of Contents



Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Goodwill:North America
    
    $
    1,235,651
    
    
    $
    1,235,651
    
    
    $
    1,229,941Europe
    
    
    314,405
    
    
    
    314,405
    
    
    
    314,405Total goodwill
    
    $
    1,550,056
    
    
    $
    1,550,056
    
    
    $
    1,544,346Long-lived assets:North America
    
    $
    142,090
    
    
    $
    161,648
    
    
    $
    197,839Europe
    
    
    76,095
    
    
    
    66,336
    
    
    
    68,232Total long lived assets
    
    $
    218,185
    
    
    $
    227,984
    
    
    $
    266,071Total assets:North America
    
    $
    1,493,210
    
    
    $
    1,505,727
    
    
    $
    1,687,952Europe
    
    
    1,373,239
    
    
    
    1,328,378
    
    
    
    1,193,143Total assets
    
    $
    2,866,449
    
    
    $
    2,834,105
    
    
    $
    2,881,095Capital ExpendituresNorth America
    
    $
    20,353
    
    
    $
    13,731
    
    
    $
    42,623Europe
    
    
    28,358
    
    
    
    11,221
    
    
    
    16,782Total capital expenditures
    
    $
    48,711
    
    
    $
    24,952
    
    
    $
    59,405
  Fiscal 2010
    
    Fiscal 2009
    
    Fiscal 2008Total segment operating income
    
    $
    177,465
    
    
    $
    146,177
    
    
    $
    93,782Impairment of assets
    
    
    12,262
    
    
    
    3,142
    
    
    
    498,490Severance and transaction-related costs
    
    
    741
    
    
    
    921
    
    
    
    15,928Consolidated operating income
    
    $
    164,462
    
    
    $
    142,114
    
    
    $
    (420,636
    )
    Percentage of TotalProduct Category
    
    Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Accessories:North America
    
    
    31.8
    
    
    
    30.5
    
    
    
    27.6Europe
    
    
    22.7
    
    
    
    23.1
    
    
    
    20.854.5
    
    
    
    53.6
    
    
    
    48.4Jewelry:North America
    
    
    32.0
    
    
    
    32.3
    
    
    
    36.0Europe
    
    
    13.5
    
    
    
    14.1
    
    
    
    15.645.5
    
    
    
    46.4
    
    
    
    51.6100.0
    
    
    
    100.0
    
    
    
    100.0
 81




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##### Table of Contents



Percentage of Total Net SalesNet Sales:
    
    Fiscal 2010
    
    Fiscal 2009
    
    Fiscal 2008United Kingdom
    
    
    15.0
    
    
    
    16.9
    
    
    
    18.1France
    
    
    9.1
    
    
    
    8.7
    
    
    
    8.1Percentage of Total Long-lived AssetsLong-lived Assets:
    
    January 29, 2011
    
    January 30, 2010United Kingdom
    
    
    10.4
    
    
    
    12.1France
    
    
    5.7
    
    
    
    7.3
 15. SUPPLEMENTAL FINANCIAL INFORMATION
   82




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##### Table of Contents



Condensed Consolidating Balance Sheet
January 29, 2011
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents and restricted cash (1)
    
    $
    179,529
    
    
    $
    3,587
    
    
    $
    96,650
    
    
    $
    
    
    
    $
    279,766Inventories
    
    
    
    
    
    
    84,868
    
    
    
    51,280
    
    
    
    
    
    
    
    136,148Prepaid expenses
    
    
    851
    
    
    
    1,680
    
    
    
    18,918
    
    
    
    
    
    
    
    21,449Other current assets
    
    
    
    
    
    
    16,547
    
    
    
    8,111
    
    
    
    
    
    
    
    24,658Total current assets
    
    
    180,380
    
    
    
    106,682
    
    
    
    174,959
    
    
    
    
    
    
    
    462,021Property and equipment:Land and building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Furniture, fixtures and equipment
    
    
    3,276
    
    
    
    119,228
    
    
    
    64,010
    
    
    
    
    
    
    
    186,514Leasehold improvements
    
    
    1,052
    
    
    
    143,072
    
    
    
    103,906
    
    
    
    
    
    
    
    248,0304,328
    
    
    
    262,300
    
    
    
    167,916
    
    
    
    
    
    
    
    434,544Less accumulated depreciation and amortization
    
    
    (2,205
    )
    
    
    (147,857
    )
    
    
    (83,449
    )
    
    
    
    
    
    
    (233,511
    )2,123
    
    
    
    114,443
    
    
    
    84,467
    
    
    
    
    
    
    
    201,033Leased property under capital lease:Land and building
    
    
    
    
    
    
    18,055
    
    
    
    
    
    
    
    
    
    
    
    18,055Less accumulated depreciation and amortization
    
    
    
    
    
    
    (903
    )
    
    
    
    
    
    
    
    
    
    
    (903
    )
    
    
    
    17,152
    
    
    
    
    
    
    
    
    
    
    
    17,152Intercompany receivables
    
    
    
    
    
    
    366,929
    
    
    
    
    
    
    
    (366,929
    )
    
    
    Investment in subsidiaries
    
    
    2,303,333
    
    
    
    (63,535
    )
    
    
    
    
    
    
    (2,239,798
    )
    
    
    Goodwill
    
    
    
    
    
    
    1,235,651
    
    
    
    314,405
    
    
    
    
    
    
    
    1,550,056Intangible assets, net
    
    
    286,000
    
    
    
    9,294
    
    
    
    262,172
    
    
    
    
    
    
    
    557,466Deferred financing costs, net
    
    
    35,973
    
    
    
    
    
    
    
    461
    
    
    
    
    
    
    
    36,434Other assets
    
    
    130
    
    
    
    3,842
    
    
    
    38,315
    
    
    
    
    
    
    
    42,2872,625,436
    
    
    
    1,552,181
    
    
    
    615,353
    
    
    
    (2,606,727
    )
    
    
    2,186,243Total assets
    
    $
    2,807,939
    
    
    $
    1,790,458
    
    
    $
    874,779
    
    
    $
    (2,606,727
    )
    
    $
    2,866,449LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Short-term debt and current portion of long-term
debt
    
    $
    18,451
    
    
    $
    
    
    
    $
    57,703
    
    
    $
    
    
    
    $
    76,154Trade accounts payable
    
    
    1,199
    
    
    
    24,545
    
    
    
    28,611
    
    
    
    
    
    
    
    54,355Income taxes payable
    
    
    
    
    
    
    644
    
    
    
    11,100
    
    
    
    
    
    
    
    11,744Accrued interest payable
    
    
    16,696
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    16,783Accrued expenses and other current liabilities
    
    
    20,630
    
    
    
    37,910
    
    
    
    48,575
    
    
    
    
    
    
    
    107,115Total current liabilities
    
    
    56,976
    
    
    
    63,099
    
    
    
    146,076
    
    
    
    
    
    
    
    266,151Intercompany payables
    
    
    346,636
    
    
    
    
    
    
    
    20,293
    
    
    
    (366,929
    )
    
    
    Long-term debt
    
    
    2,236,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,236,842Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Obligation under capital lease
    
    
    
    
    
    
    17,290
    
    
    
    
    
    
    
    
    
    
    
    17,290Deferred tax liability
    
    
    
    
    
    
    106,797
    
    
    
    14,979
    
    
    
    
    
    
    
    121,776Deferred rent expense
    
    
    
    
    
    
    17,230
    
    
    
    9,407
    
    
    
    
    
    
    
    26,637Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    28,889
    
    
    
    1,379
    
    
    
    
    
    
    
    30,2682,777,478
    
    
    
    170,206
    
    
    
    46,058
    
    
    
    (366,929
    )
    
    
    2,626,813Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    621,099
    
    
    
    1,435,909
    
    
    
    815,866
    
    
    
    (2,251,775
    )
    
    
    621,099Accumulated other comprehensive income (loss),
net of tax
    
    
    1,416
    
    
    
    3,663
    
    
    
    (7,080
    )
    
    
    3,417
    
    
    
    1,416Retained earnings (accumulated deficit)
    
    
    (649,030
    )
    
    
    117,214
    
    
    
    (126,143
    )
    
    
    8,929
    
    
    
    (649,030
    )(26,515
    )
    
    
    1,557,153
    
    
    
    682,645
    
    
    
    (2,239,798
    )
    
    
    (26,515
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,807,939
    
    
    $
    1,790,458
    
    
    $
    874,779
    
    
    $
    (2,606,727
    )
    
    $
    2,866,449
 
 (1)
    
    Cash and cash equivalents includes restricted cash of $3,450 for Issuer and $20,414 for
Non-Guarantors 83




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##### Table of Contents



Condensed Consolidating Balance Sheet
January 30, 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    109,138
    
    
    $
    (10,604
    )
    
    $
    100,174
    
    
    $
    
    
    
    $
    198,708Inventories
    
    
    
    
    
    
    73,902
    
    
    
    36,436
    
    
    
    
    
    
    
    110,338Prepaid expenses
    
    
    509
    
    
    
    14,217
    
    
    
    18,147
    
    
    
    
    
    
    
    32,873Other current assets
    
    
    1,030
    
    
    
    19,527
    
    
    
    7,679
    
    
    
    
    
    
    
    28,236Total current assets
    
    
    110,677
    
    
    
    97,042
    
    
    
    162,436
    
    
    
    
    
    
    
    370,155Property and equipment:Land and building
    
    
    
    
    
    
    19,318
    
    
    
    
    
    
    
    
    
    
    
    19,318Furniture, fixtures and equipment
    
    
    2,137
    
    
    
    109,405
    
    
    
    51,060
    
    
    
    
    
    
    
    162,602Leasehold improvements
    
    
    1,113
    
    
    
    138,706
    
    
    
    88,684
    
    
    
    
    
    
    
    228,5033,250
    
    
    
    267,429
    
    
    
    139,744
    
    
    
    
    
    
    
    410,423Less accumulated depreciation and amortization
    
    
    (1,746
    )
    
    
    (117,101
    )
    
    
    (63,592
    )
    
    
    
    
    
    
    (182,439
    )1,504
    
    
    
    150,328
    
    
    
    76,152
    
    
    
    
    
    
    
    227,984Intercompany receivables
    
    
    
    
    
    
    148,072
    
    
    
    
    
    
    
    (148,072
    )
    
    
    Investment in subsidiaries
    
    
    2,200,694
    
    
    
    (7,069
    )
    
    
    
    
    
    
    (2,193,625
    )
    
    
    Goodwill
    
    
    
    
    
    
    1,235,651
    
    
    
    314,405
    
    
    
    
    
    
    
    1,550,056Intangible assets, net
    
    
    286,000
    
    
    
    13,017
    
    
    
    281,010
    
    
    
    
    
    
    
    580,027Deferred financing costs, net
    
    
    47,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,641Other assets
    
    
    18,099
    
    
    
    3,230
    
    
    
    36,913
    
    
    
    
    
    
    
    58,2422,552,434
    
    
    
    1,392,901
    
    
    
    632,328
    
    
    
    (2,341,697
    )
    
    
    2,235,966Total assets
    
    $
    2,664,615
    
    
    $
    1,640,271
    
    
    $
    870,916
    
    
    $
    (2,341,697
    )
    
    $
    2,834,105LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of long-term debt
    
    $
    14,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,500Trade accounts payable
    
    
    1,327
    
    
    
    16,750
    
    
    
    24,086
    
    
    
    
    
    
    
    42,163Income taxes payable
    
    
    
    
    
    
    101
    
    
    
    10,171
    
    
    
    
    
    
    
    10,272Accrued interest payable
    
    
    14,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,644Accrued expenses and other current liabilities
    
    
    23,388
    
    
    
    36,011
    
    
    
    40,534
    
    
    
    
    
    
    
    99,933Total current liabilities
    
    
    53,859
    
    
    
    52,862
    
    
    
    74,791
    
    
    
    
    
    
    
    181,512Intercompany payables
    
    
    137,913
    
    
    
    
    
    
    
    10,159
    
    
    
    (148,072
    )
    
    
    Long-term debt
    
    
    2,313,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,313,378Revolving credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Deferred tax liability
    
    
    
    
    
    
    106,386
    
    
    
    15,759
    
    
    
    
    
    
    
    122,145Deferred rent expense
    
    
    107
    
    
    
    14,957
    
    
    
    7,018
    
    
    
    
    
    
    
    22,082Unfavorable lease obligations and other long-term
liabilities
    
    
    
    
    
    
    33,347
    
    
    
    2,283
    
    
    
    
    
    
    
    35,6302,645,398
    
    
    
    154,690
    
    
    
    35,219
    
    
    
    (148,072
    )
    
    
    2,687,235Stockholders equity (deficit):Common stock
    
    
    
    
    
    
    367
    
    
    
    2
    
    
    
    (369
    )
    
    
    Additional paid in capital
    
    
    616,086
    
    
    
    1,445,795
    
    
    
    876,798
    
    
    
    (2,322,593
    )
    
    
    616,086Accumulated other comprehensive income (loss),
net of tax
    
    
    2,625
    
    
    
    2,101
    
    
    
    (4,134
    )
    
    
    2,033
    
    
    
    2,625Accumulated deficit
    
    
    (653,353
    )
    
    
    (15,544
    )
    
    
    (111,760
    )
    
    
    127,304
    
    
    
    (653,353
    )(34,642
    )
    
    
    1,432,719
    
    
    
    760,906
    
    
    
    (2,193,625
    )
    
    
    (34,642
    )Total liabilities and stockholders equity (deficit)
    
    $
    2,664,615
    
    
    $
    1,640,271
    
    
    $
    870,916
    
    
    $
    (2,341,697
    )
    
    $
    2,834,105
 84




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##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Fiscal 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    847,048
    
    
    $
    579,349
    
    
    $
    
    
    
    $
    1,426,397Cost of sales, occupancy and buying expenses
    
    
    5,222
    
    
    
    408,851
    
    
    
    271,038
    
    
    
    
    
    
    
    685,111Gross (deficit) profit
    
    
    (5,222
    )
    
    
    438,197
    
    
    
    308,311
    
    
    
    
    
    
    
    741,286Other expenses:Selling, general and administrative
    
    
    35,895
    
    
    
    252,629
    
    
    
    209,688
    
    
    
    
    
    
    
    498,212Depreciation and amortization
    
    
    631
    
    
    
    38,700
    
    
    
    25,867
    
    
    
    
    
    
    
    65,198Impairment of assets
    
    
    
    
    
    
    
    
    
    
    12,262
    
    
    
    
    
    
    
    12,262Severance and transaction-related costs
    
    
    372
    
    
    
    
    
    
    
    369
    
    
    
    
    
    
    
    741Other expense (income), net
    
    
    (21,067
    )
    
    
    10,218
    
    
    
    11,260
    
    
    
    
    
    
    
    41115,831
    
    
    
    301,547
    
    
    
    259,446
    
    
    
    
    
    
    
    576,824Operating income (loss)
    
    
    (21,053
    )
    
    
    136,650
    
    
    
    48,865
    
    
    
    
    
    
    
    164,462Gain on early debt extinguishment
    
    
    13,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,388Impairment of equity investment
    
    
    
    
    
    
    6,030
    
    
    
    
    
    
    
    
    
    
    
    6,030Interest expense, net
    
    
    156,427
    
    
    
    1,190
    
    
    
    89
    
    
    
    
    
    
    
    157,706Income (loss) before income taxes
    
    
    (164,092
    )
    
    
    129,430
    
    
    
    48,776
    
    
    
    
    
    
    
    14,114Income tax expense
    
    
    23
    
    
    
    1,939
    
    
    
    7,829
    
    
    
    
    
    
    
    9,791Income (loss) from continuing operations
    
    
    (164,115
    )
    
    
    127,491
    
    
    
    40,947
    
    
    
    
    
    
    
    4,323Equity in earnings of subsidiaries
    
    
    168,438
    
    
    
    4,847
    
    
    
    
    
    
    
    (173,285
    )
    
    
    Net income
    
    
    4,323
    
    
    
    132,338
    
    
    
    40,947
    
    
    
    (173,285
    )
    
    
    4,323Foreign currency translation and interest rate swap
adjustments, net of tax
    
    
    8,363
    
    
    
    1,562
    
    
    
    (2,946
    )
    
    
    1,384
    
    
    
    8,363Reclassification of foreign currency translation
adjustments into net income (loss)
    
    
    (9,572
    )
    
    
    (9,572
    )
    
    
    
    
    
    
    9,572
    
    
    
    (9,572
    )Comprehensive income
    
    $
    3,114
    
    
    $
    124,328
    
    
    $
    38,001
    
    
    $
    (162,329
    )
    
    $
    3,114
 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Fiscal 2009
(in thousands)
 Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedNet sales
    
    $
    
    
    
    $
    792,190
    
    
    $
    550,199
    
    
    $
    
    
    
    $
    1,342,389Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    402,594
    
    
    
    260,675
    
    
    
    
    
    
    
    663,269Gross profit
    
    
    
    
    
    
    389,596
    
    
    
    289,524
    
    
    
    
    
    
    
    679,120Other expenses:Selling, general and administrative
    
    
    31,786
    
    
    
    241,226
    
    
    
    192,694
    
    
    
    
    
    
    
    465,706Depreciation and amortization
    
    
    1,439
    
    
    
    43,182
    
    
    
    26,850
    
    
    
    
    
    
    
    71,471Impairment of assets
    
    
    
    
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    3,142Severance and transaction-related costs
    
    
    921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    921Other expense (income), net
    
    
    (16,756
    )
    
    
    19,714
    
    
    
    (7,192
    )
    
    
    
    
    
    
    (4,234
    )17,390
    
    
    
    307,264
    
    
    
    212,352
    
    
    
    
    
    
    
    537,006Operating income (loss)
    
    
    (17,390
    )
    
    
    82,332
    
    
    
    77,172
    
    
    
    
    
    
    
    142,114Gain on early debt extinguishment
    
    
    36,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,412Interest expense (income), net
    
    
    177,518
    
    
    
    (11
    )
    
    
    (89
    )
    
    
    
    
    
    
    177,418Income (loss) before income taxes
    
    
    (158,496
    )
    
    
    82,343
    
    
    
    77,261
    
    
    
    
    
    
    
    1,108Income tax expense
    
    
    2,503
    
    
    
    1,916
    
    
    
    7,091
    
    
    
    
    
    
    
    11,510Income (loss) from continuing operations
    
    
    (160,999
    )
    
    
    80,427
    
    
    
    70,170
    
    
    
    
    
    
    
    (10,402
    )Equity in earnings of subsidiaries
    
    
    150,597
    
    
    
    7,101
    
    
    
    
    
    
    
    (157,698
    )
    
    
    Net income (loss)
    
    
    (10,402
    )
    
    
    87,528
    
    
    
    70,170
    
    
    
    (157,698
    )
    
    
    (10,402
    )Foreign currency translation and interest
rate swap adjustments, net of tax
    
    
    24,944
    
    
    
    4,426
    
    
    
    16,457
    
    
    
    (20,883
    )
    
    
    24,944Comprehensive income
    
    $
    14,542
    
    
    $
    91,954
    
    
    $
    86,627
    
    
    $
    (178,581
    )
    
    $
    14,542
 85




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##### Table of Contents



Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Fiscal 2008
(in thousands)
 Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    CombinedNet sales
    
    $
    
    
    
    $
    845,430
    
    
    $
    567,530
    
    
    $
    
    
    
    $
    1,412,960Cost of sales, occupancy and buying expenses
    
    
    
    
    
    
    445,307
    
    
    
    279,525
    
    
    
    
    
    
    
    724,832Gross profit
    
    
    
    
    
    
    400,123
    
    
    
    288,005
    
    
    
    
    
    
    
    688,128Other expenses:Selling, general and administrative
    
    
    32,720
    
    
    
    266,838
    
    
    
    214,194
    
    
    
    
    
    
    
    513,752Depreciation and amortization
    
    
    3,013
    
    
    
    50,584
    
    
    
    31,496
    
    
    
    
    
    
    
    85,093Impairment of assets
    
    
    134,000
    
    
    
    180,000
    
    
    
    184,490
    
    
    
    
    
    
    
    498,490Severance and transaction-related costs
    
    
    2,374
    
    
    
    7,553
    
    
    
    6,001
    
    
    
    
    
    
    
    15,928Other expense (income), net
    
    
    (19,778
    )
    
    
    21,740
    
    
    
    (6,461
    )
    
    
    
    
    
    
    (4,499
    )152,329
    
    
    
    526,715
    
    
    
    429,720
    
    
    
    
    
    
    
    1,108,764Operating loss
    
    
    (152,329
    )
    
    
    (126,592
    )
    
    
    (141,715
    )
    
    
    
    
    
    
    (420,636
    )Impairment of equity investment
    
    
    25,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,500Interest expense (income), net
    
    
    197,089
    
    
    
    (261
    )
    
    
    (881
    )
    
    
    
    
    
    
    195,947Loss before income taxes
    
    
    (374,918
    )
    
    
    (126,331
    )
    
    
    (140,834
    )
    
    
    
    
    
    
    (642,083
    )Income tax expense (benefit)
    
    
    (18,143
    )
    
    
    19,904
    
    
    
    (252
    )
    
    
    
    
    
    
    1,509Loss from continuing operations
    
    
    (356,775
    )
    
    
    (146,235
    )
    
    
    (140,582
    )
    
    
    
    
    
    
    (643,592
    )Equity in earnings (loss) of subsidiaries
    
    
    (286,817
    )
    
    
    7,706
    
    
    
    
    
    
    
    279,111
    
    
    
    Net loss
    
    
    (643,592
    )
    
    
    (138,529
    )
    
    
    (140,582
    )
    
    
    279,111
    
    
    
    (643,592
    )Foreign currency translation and interest
rate swap adjustments, net of tax
    
    
    (25,677
    )
    
    
    (5,285
    )
    
    
    (38,137
    )
    
    
    43,422
    
    
    
    (25,677
    )Comprehensive loss
    
    $
    (669,269
    )
    
    $
    (143,814
    )
    
    $
    (178,719
    )
    
    $
    322,533
    
    
    $
    (669,269
    )
 86




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
Fiscal 2010
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income
    
    $
    4,323
    
    
    $
    132,338
    
    
    $
    40,947
    
    
    $
    (173,285
    )
    
    $
    4,323Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Equity in earnings of subsidiaries
    
    
    (168,438
    )
    
    
    (4,847
    )
    
    
    
    
    
    
    173,285
    
    
    
    Depreciation and amortization
    
    
    631
    
    
    
    38,700
    
    
    
    25,867
    
    
    
    
    
    
    
    65,198Impairment
    
    
    
    
    
    
    6,030
    
    
    
    12,262
    
    
    
    
    
    
    
    18,292Amortization of lease rights and other assets
    
    
    
    
    
    
    29
    
    
    
    3,175
    
    
    
    
    
    
    
    3,204Amortization of debt issuance costs
    
    
    9,963
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    10,005Payment of in kind interest expense
    
    
    36,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,872Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (2,054
    )
    
    
    564
    
    
    
    
    
    
    
    (1,490
    )Loss on sale/retirement of property and equipment, net
    
    
    
    
    
    
    668
    
    
    
    4
    
    
    
    
    
    
    
    672Gain on early debt extinguishment
    
    
    (13,388
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,388
    )Stock compensation expense
    
    
    3,863
    
    
    
    
    
    
    
    1,150
    
    
    
    
    
    
    
    5,013(Increase) decrease in:Inventories
    
    
    
    
    
    
    (10,966
    )
    
    
    (14,408
    )
    
    
    
    
    
    
    (25,374
    )Prepaid expenses
    
    
    (342
    )
    
    
    12,536
    
    
    
    464
    
    
    
    
    
    
    
    12,658Other assets
    
    
    1,243
    
    
    
    4,335
    
    
    
    (4,827
    )
    
    
    
    
    
    
    751Increase (decrease) in:Trade accounts payable
    
    
    (128
    )
    
    
    6,682
    
    
    
    3,760
    
    
    
    
    
    
    
    10,314Income taxes payable
    
    
    
    
    
    
    2,320
    
    
    
    1,347
    
    
    
    
    
    
    
    3,667Accrued interest payable
    
    
    2,053
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    2,139Accrued expenses and other liabilities
    
    
    4,828
    
    
    
    1,800
    
    
    
    7,947
    
    
    
    
    
    
    
    14,575Deferred income taxes
    
    
    
    
    
    
    318
    
    
    
    (913
    )
    
    
    
    
    
    
    (595
    )Deferred rent expense
    
    
    (107
    )
    
    
    2,273
    
    
    
    2,257
    
    
    
    
    
    
    
    4,423Net cash provided by (used in) operating activities
    
    
    (118,627
    )
    
    
    190,162
    
    
    
    79,724
    
    
    
    
    
    
    
    151,259Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (1,248
    )
    
    
    (18,310
    )
    
    
    (29,153
    )
    
    
    
    
    
    
    (48,711
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    16,765
    
    
    
    
    
    
    
    
    
    
    
    16,765Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (126
    )
    
    
    (978
    )
    
    
    
    
    
    
    (1,104
    )Changes in restricted cash
    
    
    (3,450
    )
    
    
    
    
    
    
    (20,452
    )
    
    
    
    
    
    
    (23,902
    )Net cash provided by (used in) investing activities
    
    
    (4,698
    )
    
    
    (1,671
    )
    
    
    (50,583
    )
    
    
    
    
    
    
    (56,952
    )Cash flows from financing activities:Payments from Credit facility
    
    
    (14,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,500
    )Proceeds from Short-term debt
    
    
    
    
    
    
    
    
    
    
    57,494
    
    
    
    
    
    
    
    57,494Repurchase of Notes
    
    
    (79,865
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,865
    )Payment of debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (503
    )
    
    
    
    
    
    
    (503
    )Principal payments of capital leases
    
    
    
    
    
    
    (765
    )
    
    
    
    
    
    
    
    
    
    
    (765
    )Intercompany activity, net
    
    
    284,631
    
    
    
    (176,753
    )
    
    
    (107,878
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    190,266
    
    
    
    (177,518
    )
    
    
    (50,887
    )
    
    
    
    
    
    
    (38,139
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    3,218
    
    
    
    (2,192
    )
    
    
    
    
    
    
    1,026Net increase (decrease) in cash and cash equivalents
    
    
    66,941
    
    
    
    14,191
    
    
    
    (23,938
    )
    
    
    
    
    
    
    57,194Cash and cash equivalents at beginning of period
    
    
    109,138
    
    
    
    (10,604
    )
    
    
    100,174
    
    
    
    
    
    
    
    198,708Cash and cash equivalents at end of period
    
    
    176,079
    
    
    
    3,587
    
    
    
    76,236
    
    
    
    
    
    
    
    255,902Restricted cash at end of period
    
    
    3,450
    
    
    
    
    
    
    
    20,414
    
    
    
    
    
    
    
    23,864Cash and cash equivalents and restricted cash at end of period
    
    $
    179,529
    
    
    $
    3,587
    
    
    $
    96,650
    
    
    $
    
    
    
    $
    279,766
 87




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
Fiscal 2009
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (10,402
    )
    
    $
    87,528
    
    
    $
    70,170
    
    
    $
    (157,698
    )
    
    $
    (10,402
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in (earnings) loss of subsidiaries
    
    
    (150,597
    )
    
    
    (7,101
    )
    
    
    
    
    
    
    157,698
    
    
    
    Depreciation and amortization
    
    
    1,439
    
    
    
    43,182
    
    
    
    26,850
    
    
    
    
    
    
    
    71,471Impairment of assets
    
    
    
    
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    3,142Amortization of lease rights and other assets
    
    
    
    
    
    
    49
    
    
    
    2,150
    
    
    
    
    
    
    
    2,199Amortization of debt issuance costs
    
    
    10,398
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,398Payment of in kind interest expense
    
    
    39,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,013Net accretion of favorable (unfavorable) lease obligations
    
    
    
    
    
    
    (2,550
    )
    
    
    399
    
    
    
    
    
    
    
    (2,151
    )(Gain) loss on sale/retirement of property and equipment,
net
    
    
    (1,430
    )
    
    
    20
    
    
    
    21
    
    
    
    
    
    
    
    (1,389
    )Gain on early debt extinguishment
    
    
    (36,412
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,412
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (506
    )
    
    
    
    
    
    
    (506
    )Stock compensation expense
    
    
    4,942
    
    
    
    
    
    
    
    1,717
    
    
    
    
    
    
    
    6,659(Increase) decrease in:Inventories
    
    
    
    
    
    
    (457
    )
    
    
    (3,624
    )
    
    
    
    
    
    
    (4,081
    )Prepaid expenses
    
    
    (76
    )
    
    
    425
    
    
    
    1,448
    
    
    
    
    
    
    
    1,797Other assets
    
    
    134
    
    
    
    (4,926
    )
    
    
    (727
    )
    
    
    
    
    
    
    (5,519
    )Increase (decrease) in:Trade accounts payable
    
    
    (1,016
    )
    
    
    (3,389
    )
    
    
    (8,339
    )
    
    
    
    
    
    
    (12,744
    )Income taxes payable
    
    
    
    
    
    
    248
    
    
    
    5,262
    
    
    
    
    
    
    
    5,510Accrued interest payable
    
    
    1,331
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    1,328Accrued expenses and other current liabilities
    
    
    (1,424
    )
    
    
    229
    
    
    
    1,066
    
    
    
    
    
    
    
    (129
    )Deferred income taxes
    
    
    2,483
    
    
    
    13
    
    
    
    1,618
    
    
    
    
    
    
    
    4,114Deferred rent expense
    
    
    (591
    )
    
    
    2,425
    
    
    
    1,344
    
    
    
    
    
    
    
    3,178Net cash provided by (used in) operating activities
    
    
    (142,208
    )
    
    
    118,838
    
    
    
    98,846
    
    
    
    
    
    
    
    75,476Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (120
    )
    
    
    (12,209
    )
    
    
    (12,623
    )
    
    
    
    
    
    
    (24,952
    )Proceeds from sale of property and equipment
    
    
    1,830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,830Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (111
    )
    
    
    (435
    )
    
    
    
    
    
    
    (546
    )Proceeds from sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    2,409
    
    
    
    
    
    
    
    2,409Net cash provided by (used in) investing activities
    
    
    1,710
    
    
    
    (12,320
    )
    
    
    (10,649
    )
    
    
    
    
    
    
    (21,259
    )Cash flows from financing activities:Payments of Credit facility
    
    
    (14,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,500
    )Repurchase of Notes
    
    
    (46,091
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,091
    )Intercompany activity, net
    
    
    155,813
    
    
    
    (117,125
    )
    
    
    (38,688
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    95,222
    
    
    
    (117,125
    )
    
    
    (38,688
    )
    
    
    
    
    
    
    (60,591
    )Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (208
    )
    
    
    716
    
    
    
    
    
    
    
    508Net increase (decrease) in cash and cash equivalents
    
    
    (45,276
    )
    
    
    (10,815
    )
    
    
    50,225
    
    
    
    
    
    
    
    (5,866
    )Cash and cash equivalents at beginning of period
    
    
    154,414
    
    
    
    211
    
    
    
    49,949
    
    
    
    
    
    
    
    204,574Cash and cash equivalents at end of period
    
    $
    109,138
    
    
    $
    (10,604
    )
    
    $
    100,174
    
    
    $
    
    
    
    $
    198,708
 88




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
Fiscal 2008
(in thousands)
 Non-Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (643,592
    )
    
    $
    (138,529
    )
    
    $
    (140,582
    )
    
    $
    279,111
    
    
    $
    (643,592
    )Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:Equity in (earnings) loss of subsidiaries
    
    
    286,817
    
    
    
    (7,706
    )
    
    
    
    
    
    
    (279,111
    )
    
    
    Depreciation and amortization
    
    
    3,013
    
    
    
    50,584
    
    
    
    31,496
    
    
    
    
    
    
    
    85,093Impairment of assets
    
    
    159,500
    
    
    
    180,000
    
    
    
    184,490
    
    
    
    
    
    
    
    523,990Amortization of lease rights and other assets
    
    
    
    
    
    
    54
    
    
    
    2,005
    
    
    
    
    
    
    
    2,059Amortization of debt issuance costs
    
    
    10,567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,567Payment of in kind interest expense
    
    
    24,522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,522Net accretion of favorable (unfavorable) lease
obligations
    
    
    
    
    
    
    (2,424
    )
    
    
    568
    
    
    
    
    
    
    
    (1,856
    )Gain on sale/retirement of property and equipment, net
    
    
    (23
    )
    
    
    (55
    )
    
    
    (105
    )
    
    
    
    
    
    
    (183
    )Gain on sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    (1,372
    )
    
    
    
    
    
    
    (1,372
    )Stock compensation expense
    
    
    6,203
    
    
    
    
    
    
    
    2,023
    
    
    
    
    
    
    
    8,226(Increase) decrease in:Inventories
    
    
    
    
    
    
    11,506
    
    
    
    (5,024
    )
    
    
    
    
    
    
    6,482Prepaid expenses
    
    
    (31
    )
    
    
    624
    
    
    
    (1,680
    )
    
    
    
    
    
    
    (1,087
    )Other assets
    
    
    (358
    )
    
    
    (822
    )
    
    
    (7,905
    )
    
    
    
    
    
    
    (9,085
    )Increase (decrease) in:Trade accounts payable
    
    
    1,582
    
    
    
    3,225
    
    
    
    2,565
    
    
    
    
    
    
    
    7,372Income taxes payable
    
    
    8,383
    
    
    
    (16,239
    )
    
    
    (2,854
    )
    
    
    
    
    
    
    (10,710
    )Accrued interest payable
    
    
    (6,222
    )
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (6,219
    )Accrued expenses and other current liabilities
    
    
    4,507
    
    
    
    (3,271
    )
    
    
    1,796
    
    
    
    
    
    
    
    3,032Deferred income taxes
    
    
    
    
    
    
    716
    
    
    
    (5,525
    )
    
    
    
    
    
    
    (4,809
    )Deferred rent expense
    
    
    (558
    )
    
    
    7,182
    
    
    
    2,319
    
    
    
    
    
    
    
    8,943Net cash provided by (used in) operating activities
    
    
    (145,690
    )
    
    
    84,845
    
    
    
    62,218
    
    
    
    
    
    
    
    1,373Cash flows from investing activities:Acquisition of property and equipment, net
    
    
    (248
    )
    
    
    (41,013
    )
    
    
    (18,144
    )
    
    
    
    
    
    
    (59,405
    )Proceeds from sale of property and equipment
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Acquisition of intangible assets/lease rights
    
    
    
    
    
    
    (177
    )
    
    
    (1,794
    )
    
    
    
    
    
    
    (1,971
    )Proceeds from sale of intangible assets/lease rights
    
    
    
    
    
    
    
    
    
    
    516
    
    
    
    
    
    
    
    516Net cash used in investing activities
    
    
    (144
    )
    
    
    (41,190
    )
    
    
    (19,422
    )
    
    
    
    
    
    
    (60,756
    )Cash flows from financing activities:Proceeds from Credit facility
    
    
    194,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,000Payments of Credit facility
    
    
    (14,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,500
    )Intercompany activity, net
    
    
    94,913
    
    
    
    (45,557
    )
    
    
    (49,356
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    274,413
    
    
    
    (45,557
    )
    
    
    (49,356
    )
    
    
    
    
    
    
    179,500Effect of foreign currency exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    221
    
    
    
    (1,738
    )
    
    
    
    
    
    
    (1,517
    )Net increase (decrease) in cash and cash equivalents
    
    
    128,579
    
    
    
    (1,681
    )
    
    
    (8,298
    )
    
    
    
    
    
    
    118,600Cash and cash equivalents at beginning of period
    
    
    25,835
    
    
    
    1,892
    
    
    
    58,247
    
    
    
    
    
    
    
    85,974Cash and cash equivalents at end of period
    
    $
    154,414
    
    
    $
    211
    
    
    $
    49,949
    
    
    $
    
    
    
    $
    204,574
 89




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##### Table of Contents



16. SUBSEQUENT EVENTS
    90




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
 Internal
Control  Integrated Framework Internal Control  Integrated
Framework
  Changes in Internal Controls over Financial Reporting
  
 Item 9B. Other Information
  
 PART III.
  91




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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
    
    
    46Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010
    
    
    47Consolidated Statements of Operations and Comprehensive Income
(Loss) for the fiscal years ended January 29, 2011, January
30, 2010 and January 31, 2009
    
    
    48Consolidated Statements of Changes in Stockholders Equity
(Deficit) for the fiscal years ending January 29, 2011,
January 30, 2010 and January 31, 2009
    
    
    49Consolidated Statements of Cash Flows for the fiscal years
ending January 29, 2011, January 30, 2010 and January 31,
2009
    
    
    50Notes to Consolidated Financial Statements
    
    
    51
 2.
    
    Financial Statement Schedules
  3.
    
    Exhibits
 3.1
    
    Articles of Incorporation of Claires Stores, Inc.(1)3.2
    
    By-laws of Claires Stores, Inc. (1)3.3
    
    Certificate of Incorporation of BMS Distributing Corp. (1)3.4
    
    By-laws of BMS Distributing Corp. (1)3.5
    
    Certificate of Incorporation of CBI Distributing Corp. (1)3.6
    
    By-laws of CBI Distributing Corp. (1)3.7
    
    Articles of Incorporation of Claires Boutiques, Inc. (1)3.8
    
    By-laws of Claires Boutiques, Inc. (1)3.9
    
    Certificate of Incorporation of Claires Canada Corp. (1)3.10
    
    By-laws of Claires Canada Corp. (1)3.11
    
    Certificate of Incorporation of Claires Puerto Rico Corp. (1)3.12
    
    By-laws of Claires Puerto Rico Corp. (1)4.1
    
    Senior Notes Indenture, dated as of May 29, 2007, between Bauble
Acquisition Sub, Inc. and The Bank of New York, as Trustee (1)
 92




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##### Table of Contents



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 (1)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 (1)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 (1)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 (1)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 (1)4.7
    
    Form of 9.25% Senior Notes due 2015 (1)4.8
    
    Form of 9.625%/10.375% Senior Toggle Notes due 2015 (1)4.9
    
    Form of 10.50% Senior Subordinated Notes due 2017 (1)4.10
    
    Indenture, dated as of March 4, 2011, by and between Claires
Escrow Corporation and The Bank of New York Mellon Trust Company, N.A., as
Trustee and Collateral Agent (8)4.11
    
    Supplemental Indenture, dated as of March 4, 2011, by and between
Claires Stores, Inc., the Guarantors and The Bank of New York Mellon Trust
Company, N.A., as Trustee and Collateral Agent (8)4.12
    
    Form of 8.875% Senior Secured Second Lien Notes due 2019 (included
in the Indenture filed as Exhibit 4.10 hereto) (8)4.13
    
    Registration Rights Agreement, dated as of March 4, 2011, by and
between Claires Stores, Inc., Claires Escrow Corporation, the Guarantors and
the Representatives (8)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 (1)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 (1)10.3
    
    Claires Inc. Amended and Restated Stock Incentive Plan, dated June
29, 2007 (1)
 93




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##### Table of Contents



10.4
    
    1st Amendment to Claires Inc. Amended and Restated
Stock Incentive Plan (2)10.5
    
    Standard Form of Option Grant Letter (Target Performance Option and
Stretch Performance Option) (1)10.6
    
    Standard Form of Option Grant Letter (Target Performance Option) (1)10.7
    
    Standard Form of Director Option Grant Letter (1)10.8
    
    Standard Form of Co-Investment Letter (9)10.9
    
    Employment Agreement with Eugene S. Kahn (1)10.10
    
    Employment Agreement with James Conroy (1)10.11
    
    Amendment to Employment Agreement with James Conroy (3)10.12
    
    2nd Amendment to Employment Agreement with James Conroy (7)10.13
    
    Employment Agreement with Kenny Wilson (4)10.14
    
    Lease Agreement, dated as of February 19, 2010, by and between
AGNL Bling, L.L.C. and Claires Boutiques, Inc. (6)10.15
    
    Guarantee and Collateral Agreement, dated and effective as of May
29, 2007, among Bauble Holdings Corp., Bauble Acquisition Sub, Inc., and Credit
Suisse, dated as of May 29, 2007 (5)10.16
    
    Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of May 29, 2007 (5)10.17
    
    Employment Agreement with Jay Friedman (9)10.18
    
    Collateral Agreement, dated March 4, 2011, by and among Claires
Stores, Inc., Claires Inc., the Guarantors and The Bank of New York Mellon Trust
Company, N.A, as Collateral Agent (8)10.19
    
    Intercreditor Agreement, dated as of March 4, 2011, by and among
Claires Stores, Inc., Claires Inc., the Guarantors, The Bank of New York Mellon
Trust Company, N.A., as Trustee and Collateral Agent and Credit Suisse AG, Cayman
Islands Branch (f/k/a Credit Suisse, Cayman Island Branch), as Credit Agreement
Agent (8)10.20
    
    Second Lien Trademark Security Agreement, dated as of March 4,
2011, by and between CBI Distributing Corp. and The Bank of New York Mellon Trust
Company, N.A., as Collateral Agent (8)21.1
    
    Subsidiaries of Claires Stores, Inc. (9)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) (10)31.2
    
    Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a) (10)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 (10)
 94




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##### Table of Contents



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 (10)
 
 (1)
    
    Filed previously as exhibit to the Registration Statement on
Form S-4 (File No. 333-148108) by the Company on December 17, 2007.(2)
    
    Filed previously as exhibit to Form 8-K by the Company on September 12, 2008.(3)
    
    Filed previously as exhibit to Form 8-K by the Company on April 22, 2009.(4)
    
    Filed previously as exhibit to Form 10-K/A by the Company on May 27, 2009.(5)
    
    Filed previously as exhibit to Form 10-Q on December 8, 2009.(6)
    
    Filed previously as exhibit to Form 8-K on February 25, 2010.(7)
    
    Filed previously as exhibit to Form 10 K/A on June 1, 2010.(8)
    
    Filed previously as exhibit to Form 8-K by the Company on March 9, 2011.(9)
    
    Filed herewith.(10)
    
    Furnished herewith. 95




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##### Table of Contents



SIGNATURES
  CLAIRES STORES, INC.April 21, 2011
    By:
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer(principal executive officer) April 21, 2011
    By:
    /s/ J. Per BrodinJ. Per Brodin, Executive Vice President and ChiefFinancial Officer (principal financial and
accounting officer) POWER OF ATTORNEY
   April 21, 2011
    
    /s/ Peter CopsesPeter Copses, Chairman of the Board of DirectorsApril 21, 2011
    
    /s/ Eugene S. KahnEugene S. Kahn, Chief Executive Officer and DirectorApril 21, 2011
    
    /s/ Lance MilkenLance Milken, DirectorApril 21, 2011
    
    /s/ George GolleherGeorge Golleher, DirectorApril 21, 2011
    
    /s/ Robert J. DiNicolaRobert J. DiNicola, DirectorApril 21, 2011
    
    /s/ Rohit ManochaRohit Manocha, DirectorApril 21, 2011
    
    /s/ Ron MarshallRon Marshall, Director
 96




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION10.17
    
    Employment Agreement with Jay Friedman21.1
    
    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.
 97