Supplemental Financial Information

6 Months Ended

Aug. 03, 2013

Supplemental Financial Information

12. Supplemental Financial Information

On May 29, 2007, Claire’s Stores, Inc. (the “Issuer”), issued $935.0 million in Senior Fixed Rate Notes, Senior Toggle Notes and Senior Subordinated Notes, (collectively, the “2007 Notes”). On March 4, 2011, the Issuer issued $450.0 million aggregate principal amount of Senior Secured Second Lien Notes, (collectively, the “2011 Notes”). On February 28, 2012, March 12, 2012 and September 20, 2012, the Issuer issued $400.0 million, $100.0 million and $625.0 million, respectively, aggregate principal amount of the same series of 9.0% Senior Secured First Lien Notes (collectively, the “2012 Notes”). On March 15, 2013, the Issuer issued $210.0 million aggregate principal amount of 6.125% Senior Secured First Lien Notes and on May 14, 2013, the Issuer issued $320.0 million aggregate principal amount of 7.75% Senior Notes (the “2013 Notes”). The 2007 Notes and the 2011 Notes are irrevocably and unconditionally guaranteed, jointly and severally, by all wholly-owned domestic current and future subsidiaries of Claire’s Stores, Inc. that guarantee the Company’s Credit Facility. The 2012 Notes and the 2013 Notes are unconditionally guaranteed, jointly and severally, by all wholly-owned domestic current and future subsidiaries of Claire’s Stores, Inc. As of August 3, 2013, Claire’s Stores, Inc. owned 100% of its domestic subsidiaries that guarantee the 2007 Notes, 2011 Notes, 2012 Notes, and 2013 Notes. All guarantors are collectively referred to as the “Guarantors.” The Company’s other subsidiaries, principally its international subsidiaries including its European, Canadian and Asian subsidiaries (the “Non-Guarantors”), are not guarantors of these Notes.

The tables in the following pages present the condensed consolidating financial information for the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial position, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities.

Condensed Consolidating Balance Sheet

August 3, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents		(105	)	$	6,447		$	67,456		$	—		$	73,798
Inventories		—			95,627			78,620			—			174,247
Prepaid expenses		893			2,263			17,894			—			21,050
Other current assets		478			18,745			7,886			—			27,109
Total current assets		1,266			123,082			171,856			—			296,204
Property and equipment:
Furniture, fixtures and equipment		6,979			150,645			89,142			—			246,766
Leasehold improvements		1,471			174,950			151,615			—			328,036
		8,450			325,595			240,757			—			574,802
Less accumulated depreciation and amortization		(4,338	)		(211,644	)		(129,369	)		—			(345,351	)
		4,112			113,951			111,388			—			229,451
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Less accumulated depreciation and amortization		—			(3,160	)		—			—			(3,160	)
		—			14,895			—			—			14,895
Intercompany receivables		—			282,453			—			(282,453	)		—
Investment in subsidiaries		2,270,463			(54,613	)		—			(2,215,850	)		—
Goodwill		—			1,235,650			314,406			—			1,550,056
Intangible assets, net		286,000			3,223			253,654			—			542,877
Deferred financing costs, net		43,402			—			—			—			43,402
Other assets		149			4,045			46,298			(17	)		50,475
		2,600,014			1,470,758			614,358			(2,498,320	)		2,186,810
Total assets	$	2,605,392		$	1,722,686		$	897,602		$	(2,498,320	)	$	2,727,360
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	669		$	30,511		$	41,792		$	—		$	72,972
Income taxes payable		—			(252	)		2,386			—			2,134
Accrued interest payable		70,631			—			—			—			70,631
Accrued expenses and other current liabilities		9,541			33,641			42,173			—			85,355
Total current liabilities		80,841			63,900			86,351			—			231,092
Intercompany payables		212,899			—			69,572			(282,471	)		—
Long-term debt		2,379,869			—			—			—			2,379,869
Obligation under capital lease		—			17,181			—			—			17,181
Deferred tax liability		—			106,950			12,845			—			119,795
Deferred rent expense		—			19,269			10,727			—			29,996
Unfavorable lease obligations and other long-term liabilities		—			17,309			335			—			17,644
		2,592,768			160,709			93,479			(282,471	)		2,564,485
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		618,939			1,435,909			797,830			(2,233,739	)		618,939
Accumulated other comprehensive income (loss), net of tax		(3,784	)		2,550			(11,346	)		8,796			(3,784	)
(Accumulated deficit) retained earnings		(683,372	)		59,251			(68,714	)		9,463			(683,372	)
		(68,217	)		1,498,077			717,772			(2,215,849	)		(68,217	)
Total liabilities and stockholder’s equity (deficit)	$	2,605,392		$	1,722,686		$	897,602		$	(2,498,320	)	$	2,727,360

Condensed Consolidating Balance Sheet

February 2, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	56,392		$	4,299		$	106,265		$	—		$	166,956
Inventories		36			88,127			69,386			—			157,549
Prepaid expenses		592			2,390			16,719			—			19,701
Other current assets		262			19,422			9,937			—			29,621
Total current assets		57,282			114,238			202,307			—			373,827
Property and equipment:
Furniture, fixtures and equipment		6,079			141,232			86,898			—			234,209
Leasehold improvements		1,177			165,075			146,537			—			312,789
		7,256			306,307			233,435			—			546,998
Less accumulated depreciation and amortization		(3,686	)		(199,402	)		(122,530	)		—			(325,618	)
		3,570			106,905			110,905			—			221,380
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Less accumulated depreciation and amortization		—			(2,708	)		—			—			(2,708	)
		—			15,347			—			—			15,347
Intercompany receivables		—			252,709			—			(252,709	)		—
Investment in subsidiaries		2,205,303			(56,381	)		—			(2,148,922	)		—
Goodwill		—			1,235,650			314,406			—			1,550,056
Intangible assets, net		286,000			4,054			257,379			—			547,433
Deferred financing costs, net		41,381			—			—			—			41,381
Other assets		129			3,867			45,845			7			49,848
		2,532,813			1,439,899			617,630			(2,401,624	)		2,188,718
Total assets	$	2,593,665		$	1,676,389		$	930,842		$	(2,401,624	)	$	2,799,272
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	993		$	31,584		$	40,868		$	—		$	73,445
Income taxes payable		—			(12	)		10,520			—			10,508
Accrued interest payable		68,254			—			—			—			68,254
Accrued expenses and other current liabilities		11,420			39,274			48,835			—			99,529
Total current liabilities		80,667			70,846			100,223			—			251,736
Intercompany payables		154,072			—			98,631			(252,703	)		—
Long-term debt		2,373,366			—			—			—			2,373,366
Obligation under capital lease		—			17,232			—			—			17,232
Deferred tax liability		—			107,618			13,350			—			120,968
Deferred rent expense		—			18,481			11,378			—			29,859
Unfavorable lease obligations and other long-term liabilities		—			20,080			471			—			20,551
		2,527,438			163,411			123,830			(252,703	)		2,561,976
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		618,403			1,435,909			797,819			(2,233,728	)		618,403
Accumulated other comprehensive income (loss), net of tax		3,273			3,909			(6,731	)		2,822			3,273
(Accumulated deficit) retained earnings		(636,116	)		1,947			(84,301	)		82,354			(636,116	)
		(14,440	)		1,442,132			706,789			(2,148,921	)		(14,440	)
Total liabilities and stockholder’s equity (deficit)	$	2,593,665		$	1,676,389		$	930,842		$	(2,401,624	)	$	2,799,272

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Three Months Ended August 3, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	200,481		$	166,222		$	—		$	366,703
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		65			97,124			83,784			—			180,973
Gross profit (deficit)		(65	)		103,357			82,438			—			185,730
Other expenses:
Selling, general and administrative		4,567			65,044			56,837			—			126,448
Depreciation and amortization		335			8,603			7,215			—			16,153
Severance and transaction-related costs		643			—			246			—			889
Other (income) expense		(2,989	)		1,242			(335	)		—			(2,082	)
		2,556			74,889			63,963			—			141,408
Operating income (loss)		(2,621	)		28,468			18,475			—			44,322
Loss on early debt extinguishment		3,121			—			—			—			3,121
Interest expense, net		57,207			555			(7	)		—			57,755
Income (loss) before income taxes		(62,949	)		27,913			18,482			—			(16,554	)
Income tax expense		—			654			3,464			—			4,118
Income (loss) from continuing operations		(62,949	)		27,259			15,018			—			(20,672	)
Equity in earnings of subsidiaries		42,277			342			—			(42,619	)		—
Net income (loss)		(20,672	)		27,601			15,018			(42,619	)		(20,672	)
Foreign currency translation adjustments		(36	)		(48	)		1,690			(1,642	)		(36	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		205			(906	)		208			698			205
Other comprehensive income (loss)		169			(954	)		1,898			(944	)		169
Comprehensive income (loss)	$	(20,503	)	$	26,647		$	16,916		$	(43,563	)	$	(20,503	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Three Months Ended July 28, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	201,681		$	157,936		$	—		$	359,617
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		334			98,348			79,184			—			177,866
Gross profit (deficit)		(334	)		103,333			78,752			—			181,751
Other expenses:
Selling, general and administrative		3,975			62,787			53,567			—			120,329
Depreciation and amortization		249			9,104			6,122			—			15,475
Severance and transaction-related costs		1,326			—			(182	)		—			1,144
Other (income) expense		(2,643	)		463			2,329			—			149
		2,907			72,354			61,836			—			137,097
Operating income (loss)		(3,241	)		30,979			16,916			—			44,654
Interest expense, net		48,299			551			29			—			48,879
Income (loss) before income taxes		(51,540	)		30,428			16,887			—			(4,225	)
Income tax expense		—			741			2,307			—			3,048
Income (loss) from continuing operations		(51,540	)		29,687			14,580			—			(7,273	)
Equity in earnings (loss) of subsidiaries		44,267			(187	)		—			(44,080	)		—
Net income (loss)		(7,273	)		29,500			14,580			(44,080	)		(7,273	)
Foreign currency translation adjustments		(3,297	)		(210	)		(1,690	)		1,900			(3,297	)
Net loss on intra-entity foreign currency transactions, net of tax		(10,092	)		(485	)		(10,310	)		10,795			(10,092	)
Unrealized gain on interest rate swap, net of tax		169			—			—			—			169
Other comprehensive income (loss)		(13,220	)		(695	)		(12,000	)		12,695			(13,220	)
Comprehensive income (loss)	$	(20,493	)	$	28,805		$	2,580		$	(31,385	)	$	(20,493	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Six Months Ended August 3, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	408,842		$	311,867		$	—		$	720,709
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		107			198,320			161,112			—			359,539
Gross profit (deficit)		(107	)		210,522			150,755			—			361,170
Other expenses:
Selling, general and administrative		9,094			128,514			114,227			—			251,835
Depreciation and amortization		651			16,900			14,227			—			31,778
Severance and transaction-related costs		1,171			—			633			—			1,804
Other (income) expense		(5,078	)		2,407			1,513			—			(1,158	)
		5,838			147,821			130,600			—			284,259
Operating income (loss)		(5,945	)		62,701			20,155			—			76,911
Loss on early debt extinguishment		4,795			—			—			—			4,795
Interest expense, net		114,894			1,103			(23	)		—			115,974
Income (loss) before income taxes		(125,634	)		61,598			20,178			—			(43,858	)
Income tax expense (benefit)		—			(1,194	)		4,592			—			3,398
Income (loss) from continuing operations		(125,634	)		62,792			15,586			—			(47,256	)
Equity in earnings of subsidiaries		78,378			675			—			(79,053	)		—
Net income (loss)		(47,256	)		63,467			15,586			(79,053	)		(47,256	)
Foreign currency translation adjustments		(1,811	)		(177	)		694			(517	)		(1,811	)
Net loss on intra-entity foreign currency transactions, net of tax		(5,246	)		(1,182	)		(5,309	)		6,491			(5,246	)
Other comprehensive income (loss)		(7,057	)		(1,359	)		(4,615	)		5,974			(7,057	)
Comprehensive income (loss)	$	(54,313	)	$	62,108		$	10,971		$	(73,079	)	$	(54,313	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Six Months Ended July 28, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	407,571		$	292,663		$	—		$	700,234
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		1,625			196,051			154,193			—			351,869
Gross profit (deficit)		(1,625	)		211,520			138,470			—			348,365
Other expenses:
Selling, general and administrative		8,362			123,662			106,887			—			238,911
Depreciation and amortization		501			17,847			13,842			—			32,190
Severance and transaction-related costs		1,331			—			(134	)		—			1,197
Other (income) expense		(4,977	)		(1,046	)		6,603			—			580
		5,217			140,463			127,198			—			272,878
Operating income (loss)		(6,842	)		71,057			11,272			—			75,487
Loss on early debt extinguishment		4,602			—			—			—			4,602
Interest expense, net		94,204			1,093			604			—			95,901
Income (loss) before income taxes		(105,648	)		69,964			10,668			—			(25,016	)
Income tax expense (benefit)		—			(911	)		3,089			—			2,178
Income (loss) from continuing operations		(105,648	)		70,875			7,579			—			(27,194	)
Equity in earnings (loss) of subsidiaries		78,454			(1,360	)		—			(77,094	)		—
Net income (loss)		(27,194	)		69,515			7,579			(77,094	)		(27,194	)
Foreign currency translation adjustments		(2,797	)		(66	)		(2,652	)		2,718			(2,797	)
Net (loss) gain on intra-entity foreign currency transactions, net of tax		(8,340	)		124			(8,506	)		8,382			(8,340	)
Unrealized gain on interest rate swap, net of tax		528			—			—			—			528
Other comprehensive income (loss)		(10,609	)		58			(11,158	)		11,100			(10,609	)
Comprehensive income (loss)	$	(37,803	)	$	69,573		$	(3,579	)	$	(65,994	)	$	(37,803	)

Condensed Consolidating Statement of Cash Flows

Six Months Ended August 3, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(47,256	)	$	63,467		$	15,586		$	(79,053	)	$	(47,256	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(78,378	)		(675	)		—			79,053			—
Depreciation and amortization		651			16,900			14,227			—			31,778
Amortization of lease rights and other assets		—			—			1,950			—			1,950
Amortization of debt issuance costs		4,228			—			—			—			4,228
Accretion of debt premium		(1,037	)		—			—			—			(1,037	)
Net accretion of unfavorable lease obligations		—			(396	)		(27	)		—			(423	)
Loss on sale/retirement of property and equipment, net		—			32			1			—			33
Loss on early debt extinguishment		4,795			—			—			—			4,795
Stock compensation expense		353			(82	)		265			—			536
(Increase) decrease in:
Inventories		36			(7,499	)		(11,071	)		—			(18,534	)
Prepaid expenses		(301	)		127			(1,996	)		—			(2,170	)
Other assets		(235	)		(170	)		(1,036	)		—			(1,441	)
Increase (decrease) in:
Trade accounts payable		(364	)		913			300			—			849
Income taxes payable		—			(239	)		(7,801	)		—			(8,040	)
Accrued interest payable		2,376			—			—			—			2,376
Accrued expenses and other liabilities		(1,879	)		(5,659	)		(5,366	)		—			(12,904	)
Deferred income taxes		—			(1,503	)		(120	)		—			(1,623	)
Deferred rent expense		—			788			(328	)		—			460
Net cash provided by (used in) operating activities		(117,011	)		66,004			4,584			—			(46,423	)
Cash flows from investing activities:
Acquisition of property and equipment		(1,153	)		(25,449	)		(14,116	)		—			(40,718	)
Acquisition of intangible assets/lease rights		—			(105	)		(1,512	)		—			(1,617	)
Net cash used in investing activities		(1,153	)		(25,554	)		(15,628	)		—			(42,335	)
Cash flows from financing activities:
Proceeds from notes		530,000			—			—			—			530,000
Repurchases of notes, including tender premium and fees		(523,660	)		—			—			—			(523,660	)
Payment of debt issuance costs		(9,845	)		—			—			—			(9,845	)
Principal payments on capital lease		—			(24	)		—			—			(24	)
Intercompany activity, net		65,173			(35,826	)		(29,347	)		—			—
Net cash provided by (used in) financing activities		61,668			(35,850	)		(29,347	)		—			(3,529	)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(1	)		(2,452	)		1,582			—			(871	)
Net increase (decrease) in cash and cash equivalents		(56,497	)		2,148			(38,809	)		—			(93,158	)
Cash and cash equivalents, at beginning of period		56,392			4,299			106,265			—			166,956
Cash and cash equivalents, at end of period		(105	)		6,447			67,456			—			73,798

Condensed Consolidating Statement of Cash Flows

Six Months Ended July 28, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(27,194	)	$	69,515		$	7,579		$	(77,094	)	$	(27,194	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) loss of subsidiaries		(78,454	)		1,360			—			77,094			—
Depreciation and amortization		501			17,847			13,842			—			32,190
Amortization of lease rights and other assets		—			—			1,585			—			1,585
Amortization of debt issuance costs		4,773			—			594			—			5,367
Net accretion of favorable (unfavorable) lease obligations		—			(401	)		115			—			(286	)
Loss on sale/retirement of property and equipment, net		—			61			3			—			64
Loss on early debt extinguishment		4,602			—			—			—			4,602
Stock compensation expense (benefit)		(1,033	)		(65	)		180			—			(918	)
(Increase) decrease in:
Inventories		—			(13,163	)		(11,928	)		—			(25,091	)
Prepaid expenses		(544	)		(913	)		1,605			—			148
Other assets		—			(3,348	)		(2,363	)		—			(5,711	)
Increase (decrease) in:
Trade accounts payable		(134	)		3,240			(1,197	)		—			1,909
Income taxes payable		—			(994	)		(6,063	)		—			(7,057	)
Accrued interest payable		16,684			—			—			—			16,684
Accrued expenses and other liabilities		(3,214	)		(1,085	)		(3,794	)		—			(8,093	)
Deferred income taxes		—			(1,307	)		10			—			(1,297	)
Deferred rent expense		—			42			197			—			239
Net cash provided by (used in) operating activities		(84,013	)		70,789			365			—			(12,859	)
Cash flows from investing activities:
Acquisition of property and equipment		(604	)		(15,017	)		(15,067	)		—			(30,688	)
Acquisition of intangible assets/lease rights		—			(12	)		(1,162	)		—			(1,174	)
Changes in restricted cash		250			—			—			—			250
Net cash used in investing activities		(354	)		(15,029	)		(16,229	)		—			(31,612	)
Cash flows from financing activities:
Payments on credit facility		(489,750	)		—			—			—			(489,750	)
Proceeds from notes		501,500			—			—			—			501,500
Payment of debt issuance costs		(11,041	)		—			—			—			(11,041	)
Intercompany activity, net		49,865			(54,678	)		4,813			—			—
Net cash provided by (used in) financing activities		50,574			(54,678	)		4,813			—			709
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			14			139			—			153
Net increase (decrease) in cash and cash equivalents		(33,793	)		1,096			(10,912	)		—			(43,609	)
Cash and cash equivalents, at beginning of period		102,915			4,908			62,201			—			170,024
Cash and cash equivalents, at end of period		69,122			6,004			51,289			—			126,415
Restricted cash, at end of period		4,100			—			—			—			4,100
Cash and cash equivalents and restricted cash, at end of period	$	73,222		$	6,004		$	51,289		$	—		$	130,515