Debt

6 Months Ended

Jul. 30, 2011

Debt [Abstract]

Debt

4. Debt

Debt as of July 30, 2011 and January 29, 2011 included the following components (in thousands):

	July 30, 2011		January 29, 2011
Short-term debt and current portion of long-term debt:
Note payable to bank due 2012	$	61,042	$	57,703
Current portion of long-term debt		—		18,451
Total short-term debt and current portion of long-term debt	$	61,042	$	76,154
Long-term debt:
Senior secured term loan facility due 2014	$	1,154,310	$	1,399,250
Senior notes due 2015		223,000		236,000
Senior toggle notes due 2015		338,667		360,431
Senior subordinated notes due 2017		259,612		259,612
Senior secured second lien notes due 2019		450,000		—
		2,425,589		2,255,293
Less: current portion of long-term debt		—		(18,451	)
Long-term debt	$	2,425,589	$	2,236,842
Senior secured revolving credit facility due 2013	$	—	$	194,000
Obligations under capital leases	$	17,290	$	17,290

See Note 3 for related fair value disclosure on debt.

Short-term Debt

In January 2011, we entered into a Euro (“€”) denominated loan (the “Euro Loan”) in the amount of €42.4 million that is due on January 24, 2012. The Euro Loan bears interest at the three month Euro Interbank Offered Rate (“EURIBOR”) rate plus 8.00% per year and is payable quarterly. As of July 30, 2011, there was €42.4 million, or the equivalent of $61.0 million, outstanding under the Euro Loan. The net proceeds of the borrowing were used for general corporate purposes.

The obligations under the Euro Loan are secured by a cash deposit in the amount of €15.1 million, or the equivalent of $21.7 million at July 30, 2011, and a perfected first lien security interest in all of the issued and outstanding equity interest of one of our international subsidiaries, Claire’s Holdings S.a.r.l. The cash deposit is classified as “Cash and cash equivalents and restricted cash” in our Unaudited Condensed Consolidated Balance Sheets.

Senior Secured Second Lien Notes

On March 4, 2011, the Company issued $450.0 million aggregate principal amount of 8.875% senior secured second lien notes that mature on March 15, 2019 (the “Senior Secured Second Lien Notes”). Interest on the Senior Secured Second Lien Notes is payable semi-annually to holders of record at the close of business on March 1 or September 1 immediately preceding the interest payment date on March 15 and September 15 of each year, commencing on September 15, 2011. The Senior Secured Second Lien Notes are guaranteed on a second-priority senior secured basis by all of the Company’s existing and future direct or indirect wholly-owned domestic subsidiaries that guarantee the Company’s senior secured credit facility. The Senior Secured Second Lien Notes and related guarantees are secured by a second-priority lien on substantially all of the assets that secure the Company’s and its subsidiary guarantors’ obligations under the Company’s senior secured credit facility. The Company used the proceeds of the offering of the Senior Secured Second Lien Notes to reduce the entire $194.0 million outstanding under the Company’s revolving credit facility (without terminating the commitment), to repay $244.9 million of indebtedness under the Company’s senior secured term loan, and to pay $10.4 million in financing costs which have been recorded as Deferred Financing Costs, Net in the accompanying Unaudited Condensed Consolidated Balance Sheets. As a result of our prepayment under the senior secured term loan facility, we are no longer required to make any quarterly payments and have a final payment due May 29, 2014.

Note Repurchases

The following is a summary of the Company’s debt repurchase activity for the three and six months ended July 30, 2011 and July 31, 2010 (in thousands):

	Three Months Ended July 30, 2011						Six Months Ended July 30, 2011
	Principal		Repurchases		Recognized		Principal		Repurchase		Recognized
Notes Repurchased	Amount		Price		Gain (1)		Amount		Price		Gain (Loss) (2)
Senior Notes	$	3,000	$	2,940	$	12	$	13,000	$	12,870	$	(86	)
Senior Toggle Notes		18,986		18,543		221		33,140		32,627		568
	$	21,986	$	21,483	$	233	$	46,140	$	45,497	$	482

(1)	Net of deferred issuance cost write-offs of $48 for the Senior Notes and $222 for the Senior Toggle Notes.
(2)	Net of deferred issuance cost write-offs of $216 for the Senior Notes and $400 for the Senior Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes.

	Three Months Ended July 31, 2010						Six Months Ended July 31, 2010
	Principal		Repurchases		Recognized		Principal		Repurchase		Recognized
Notes Repurchased	Amount		Price		Gain (1)		Amount		Price		Gain (2)
Senior Toggle Notes	$	41,623	$	36,328	$	5,340	$	47,623	$	41,313	$	6,427
Senior Subordinated Notes		7,000		5,935		909		22,625		17,799		4,309
	$	48,623	$	42,263	$	6,249	$	70,248	$	59,112	$	10,736

(1)	Net of deferred issuance cost write-offs of $673 for the Senior Toggle Notes and $156 for the Senior Subordinated Notes, and accrued interest write-off of $718 for the Senior Toggle Notes.
(2)	Net of deferred issuance cost write-offs of $777 for the Senior Toggle Notes and $517 for the Senior Subordinated Notes, and accrued interest write-off of $894 for the Senior Toggle Notes.

The Company elected to pay interest in kind on its Senior Toggle Notes for the interest periods beginning June 2, 2008 through June 1, 2011. This election, net of reductions for note repurchases, increased the principal amount on the Senior Toggle Notes by $109.5 million and $98.1 million as of July 30, 2011 and January 29, 2011, respectively. The accrued payment in kind interest is included in “Long-term debt” in the Unaudited Condensed Consolidated Balance Sheets. Effective June 2, 2011, the Company began paying interest in cash.

Covenants

Our Senior Notes, Senior Toggle Notes, Senior Subordinated Notes and Senior Secured Second Lien Notes (collectively, the “Notes”), Credit Facility and Euro Loan contain certain covenants that, among other things, and subject to certain exceptions and other basket amounts, restrict our ability and the ability of our subsidiaries to:

• 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.

None of these covenants, however, require the Company to maintain any particular financial ratio or other measure of financial performance. As of July 30, 2011, we were in compliance with the covenants under our Credit Facility, Notes and Euro Loan.