Supplemental Financial Information

9 Months Ended

Nov. 02, 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 November 2, 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

November 2, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	149		$	4,779		$	16,450		$	—		$	21,378
Inventories		—			118,734			90,717			—			209,451
Prepaid expenses		883			2,705			19,154			—			22,742
Other current assets		646			18,103			11,174			—			29,923
Total current assets		1,678			144,321			137,495			—			283,494
Property and equipment:
Furniture, fixtures and equipment		7,381			158,079			89,329			—			254,789
Leasehold improvements		1,471			185,065			157,309			—			343,845
		8,852			343,144			246,638			—			598,634
Less accumulated depreciation and amortization		(4,691	)		(217,667	)		(130,776	)		—			(353,134	)
		4,161			125,477			115,862			—			245,500
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Less accumulated depreciation and amortization		—			(3,385	)		—			—			(3,385	)
		—			14,670			—			—			14,670
Intercompany receivables		—			278,076			—			(278,076	)		—
Investment in subsidiaries		2,304,668			(54,695	)		—			(2,249,973	)		—
Goodwill		—			1,235,650			314,406			—			1,550,056
Intangible assets, net		286,000			2,854			253,516			—			542,370
Deferred financing costs, net		41,446			—			—			—			41,446
Other assets		164			4,235			48,350			2			52,751
		2,632,278			1,466,120			616,272			(2,528,047	)		2,186,623
Total assets	$	2,638,117		$	1,750,588		$	869,629		$	(2,528,047	)	$	2,730,287
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Revolving credit facility	$	33,000		$	—		$	—		$	—		$	33,000
Trade accounts payable		1,112			38,208			47,796			—			87,116
Income taxes payable		—			(174	)		2,624			—			2,450
Accrued interest payable		44,397			—			—			—			44,397
Accrued expenses and other current liabilities		5,373			36,318			46,384			—			88,075
Total current liabilities		83,882			74,352			96,804			—			255,038
Intercompany payables		264,222			—			13,851			(278,073	)		—
Long-term debt		2,379,333			—			—			—			2,379,333
Obligation under capital lease		—			17,155			—			—			17,155
Deferred tax liability		—			106,950			12,846			—			119,796
Deferred rent expense		—			19,758			10,852			—			30,610
Unfavorable lease obligations and other long-term liabilities		—			17,391			284			—			17,675
		2,643,555			161,254			37,833			(278,073	)		2,564,569
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		619,542			1,435,909			797,832			(2,233,741	)		619,542
Accumulated other comprehensive income (loss), net of tax		(24	)		2,416			(7,367	)		4,951			(24	)
(Accumulated deficit) retained earnings		(708,838	)		76,290			(55,475	)		(20,815	)		(708,838	)
		(89,320	)		1,514,982			734,992			(2,249,974	)		(89,320	)
Total liabilities and stockholder’s equity (deficit)	$	2,638,117		$	1,750,588		$	869,629		$	(2,528,047	)	$	2,730,287

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 November 2, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	191,907		$	165,031		$	—		$	356,938
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		195			100,253			81,999			—			182,447
Gross profit (deficit)		(195	)		91,654			83,032			—			174,491
Other expenses:
Selling, general and administrative		5,249			62,818			57,900			—			125,967
Depreciation and amortization		354			9,128			8,896			—			18,378
Severance and transaction-related costs		146			—			832			—			978
Other (income) expense		(2,691	)		1,189			53			—			(1,449	)
		3,058			73,135			67,681			—			143,874
Operating income (loss)		(3,253	)		18,519			15,351			—			30,617
Interest expense, net		52,661			554			(5	)		—			53,210
Income (loss) before income taxes		(55,914	)		17,965			15,356			—			(22,593	)
Income tax expense		—			758			2,115			—			2,873
Income (loss) from continuing operations		(55,914	)		17,207			13,241			—			(25,466	)
Equity in earnings of subsidiaries		30,448			(167	)		—			(30,281	)		—
Net income (loss)		(25,466	)		17,040			13,241			(30,281	)		(25,466	)
Foreign currency translation adjustments		929			(11	)		1,118			(1,107	)		929
Net gain (loss) on intra-entity foreign currency transactions, net of tax		2,831			(123	)		2,861			(2,738	)		2,831
Other comprehensive income (loss)		3,760			(134	)		3,979			(3,845	)		3,760
Comprehensive income (loss)	$	(21,706	)	$	16,906		$	17,220		$	(34,126	)	$	(21,706	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Three Months Ended October 27, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	207,010		$	156,378		$	—		$	363,388
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		446			101,828			77,309			—			179,583
Gross profit (deficit)		(446	)		105,182			79,069			—			183,805
Other expenses:
Selling, general and administrative		7,135			61,992			52,084			—			121,211
Depreciation and amortization		268			8,702			7,072			—			16,042
Severance and transaction-related costs		45			—			(74	)		—			(29	)
Other (income) expense		(2,847	)		(1,532	)		1,145			—			(3,234	)
		4,601			69,162			60,227			—			133,990
Operating income (loss)		(5,047	)		36,020			18,842			—			49,815
Loss on early debt extinguishment		5,105			—			—			—			5,105
Interest expense, net		53,489			557			(4	)		—			54,042
Income (loss) before income taxes		(63,641	)		35,463			18,846			—			(9,332	)
Income tax expense		—			635			3,763			—			4,398
Income (loss) from continuing operations		(63,641	)		34,828			15,083			—			(13,730	)
Equity in earnings of subsidiaries		49,911			1,129			—			(51,040	)		—
Net income (loss)		(13,730	)		35,957			15,083			(51,040	)		(13,730	)
Foreign currency translation adjustments		2,165			(36	)		1,838			(1,802	)		2,165
Net gain on intra-entity foreign currency transactions, net of tax		6,499			57			6,630			(6,687	)		6,499
Unrealized loss on interest rate swap, net of tax		(153	)		—			—			—			(153	)
Reclassification adjustment of unrealized loss on termination of interest rate swap into net loss		1,784			—			—			—			1,784
Other comprehensive income (loss)		10,295			21			8,468			(8,489	)		10,295
Comprehensive income (loss)	$	(3,435	)	$	35,978		$	23,551		$	(59,529	)	$	(3,435	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Nine Months Ended November 2, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	600,749		$	476,898		$	—		$	1,077,647
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		302			298,573			243,111			—			541,986
Gross profit (deficit)		(302	)		302,176			233,787			—			535,661
Other expenses:
Selling, general and administrative		14,343			191,332			172,127			—			377,802
Depreciation and amortization		1,005			26,028			23,123			—			50,156
Severance and transaction-related costs		1,317			—			1,465			—			2,782
Other (income) expense		(7,769	)		3,596			1,566			—			(2,607	)
		8,896			220,956			198,281			—			428,133
Operating income (loss)		(9,198	)		81,220			35,506			—			107,528
Loss on early debt extinguishment		4,795			—			—			—			4,795
Interest expense, net		167,555			1,657			(28	)		—			169,184
Income (loss) before income taxes		(181,548	)		79,563			35,534			—			(66,451	)
Income tax expense (benefit)		—			(436	)		6,707			—			6,271
Income (loss) from continuing operations		(181,548	)		79,999			28,827			—			(72,722	)
Equity in earnings of subsidiaries		108,826			508			—			(109,334	)		—
Net income (loss)		(72,722	)		80,507			28,827			(109,334	)		(72,722	)
Foreign currency translation adjustments		(882	)		(188	)		1,812			(1,624	)		(882	)
Net loss on intra-entity foreign currency transactions, net of tax		(2,415	)		(1,305	)		(2,448	)		3,753			(2,415	)
Other comprehensive income (loss)		(3,297	)		(1,493	)		(636	)		2,129			(3,297	)
Comprehensive income (loss)	$	(76,019	)	$	79,014		$	28,191		$	(107,205	)	$	(76,019	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For The Nine months ended October 27, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Net sales	$	—		$	614,581		$	449,041		$	—		$	1,063,622
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		2,071			297,879			231,502			—			531,452
Gross profit (deficit)		(2,071	)		316,702			217,539			—			532,170
Other expenses:
Selling, general and administrative		15,497			185,654			158,971			—			360,122
Depreciation and amortization		769			26,549			20,914			—			48,232
Severance and transaction-related costs		1,376			—			(208	)		—			1,168
Other (income) expense		(7,824	)		(2,578	)		7,748			—			(2,654	)
		9,818			209,625			187,425			—			406,868
Operating income (loss)		(11,889	)		107,077			30,114			—			125,302
Loss on early debt extinguishment		9,707			—			—			—			9,707
Interest expense, net		147,693			1,650			600			—			149,943
Income (loss) before income taxes		(169,289	)		105,427			29,514			—			(34,348	)
Income tax expense (benefit)		—			(276	)		6,852			—			6,576
Income (loss) from continuing operations		(169,289	)		105,703			22,662			—			(40,924	)
Equity in earnings (loss) of subsidiaries		128,365			(231	)		—			(128,134	)		—
Net income (loss)		(40,924	)		105,472			22,662			(128,134	)		(40,924	)
Foreign currency translation adjustments		(632	)		(102	)		(799	)		901			(632	)
Net (loss) gain on intra-entity foreign currency transactions, net of tax		(1,841	)		181			(1,878	)		1,697			(1,841	)
Unrealized gain on interest rate swap, net of tax		375			—			—			—			375
Reclassification adjustment of unrealized loss on termination of interest rate swap into net loss		1,784			—			—			—			1,784
Other comprehensive income (loss)		(314	)		79			(2,677	)		2,598			(314	)
Comprehensive income (loss)	$	(41,238	)	$	105,551		$	19,985		$	(125,536	)	$	(41,238	)

Condensed Consolidating Statement of Cash Flows

Nine Months Ended November 2, 2013

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(72,722	)	$	80,507		$	28,827		$	(109,334	)	$	(72,722	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(108,826	)		(508	)		—			109,334			—
Depreciation and amortization		1,005			26,028			23,123			—			50,156
Amortization of lease rights and other assets		—			—			3,001			—			3,001
Amortization of debt issuance costs		6,197			—			—			—			6,197
Accretion of debt premium		(1,573	)		—			—			—			(1,573	)
Net accretion of unfavorable lease obligations		—			(521	)		(38	)		—			(559	)
Loss on sale/retirement of property and equipment, net		—			49			110			—			159
Loss on early debt extinguishment		4,795			—			—			—			4,795
Stock-based compensation expense		623			113			403			—			1,139
(Increase) decrease in:
Inventories		36			(30,607	)		(21,473	)		—			(52,044	)
Prepaid expenses		(291	)		(315	)		(2,234	)		—			(2,840	)
Other assets		(419	)		281			(4,554	)		—			(4,692	)
Increase (decrease) in:
Trade accounts payable		119			6,037			4,985			—			11,141
Income taxes payable		—			(160	)		(7,556	)		—			(7,716	)
Accrued interest payable		(23,858	)		—			—			—			(23,858	)
Accrued expenses and other liabilities		(6,047	)		(2,996	)		(2,083	)		—			(11,126	)
Deferred income taxes		—			(929	)		(1,930	)		—			(2,859	)
Deferred rent expense		—			1,276			(464	)		—			812
Net cash provided by (used in) operating activities		(200,961	)		78,255			20,117			—			(102,589	)
Cash flows from investing activities:
Acquisition of property and equipment		(1,596	)		(43,288	)		(23,766	)		—			(68,650	)
Acquisition of intangible assets/lease rights		—			(137	)		(1,950	)		—			(2,087	)
Net cash used in investing activities		(1,596	)		(43,425	)		(25,716	)		—			(70,737	)
Cash flows from financing activities:
Proceeds from revolving credit facility		51,700			—			—			—			51,700
Payments on revolving credit facility		(18,700	)		—			—			—			(18,700	)
Proceeds from notes		530,000			—			—			—			530,000
Repurchases of notes, including tender premium and fees		(523,660	)		—			—			—			(523,660	)
Payment of debt issuance costs		(9,857	)		—			—			—			(9,857	)
Principal payments on capital lease		—			(37	)		—			—			(37	)
Intercompany activity, net		116,829			(31,644	)		(85,185	)		—			—
Net cash provided by (used in) financing activities		146,312			(31,681	)		(85,185	)		—			29,446
Effect of foreign currency exchange rate changes on cash and cash equivalents		2			(2,669	)		969			—			(1,698	)
Net increase (decrease) in cash and cash equivalents		(56,243	)		480			(89,815	)		—			(145,578	)
Cash and cash equivalents, at beginning of period		56,392			4,299			106,265			—			166,956
Cash and cash equivalents, at end of period		149			4,779			16,450			—			21,378

Condensed Consolidating Statement of Cash Flows

Nine months ended October 27, 2012

(in thousands)

	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(40,924	)	$	105,472		$	22,662		$	(128,134	)	$	(40,924	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) loss of subsidiaries		(128,365	)		231			—			128,134			—
Depreciation and amortization		769			26,549			20,914			—			48,232
Amortization of lease rights and other assets		—			—			2,390			—			2,390
Amortization of debt issuance costs		7,085			—			594			—			7,679
Accretion of debt premium		(290	)		—			—			—			(290	)
Net accretion of favorable (unfavorable) lease obligations		—			(633	)		97			—			(536	)
Loss on sale/retirement of property and equipment, net		—			71			2			—			73
Loss on early debt extinguishment		9,707			—			—			—			9,707
Loss on sale of intangible asset/lease rights		—			—			117						117
Stock-based compensation expense (benefit)		(886	)		(576	)		59			—			(1,403	)
(Increase) decrease in:
Inventories		2			(27,247	)		(23,185	)		—			(50,430	)
Prepaid expenses		(305	)		(989	)		2,210			—			916
Other assets		(128	)		(4,444	)		(5,751	)		—			(10,323	)
Increase (decrease) in:
Trade accounts payable		(82	)		6,615			1,748			—			8,281
Income taxes payable		(43	)		(1,013	)		(3,774	)		—			(4,830	)
Accrued interest payable		16,290			—			—			—			16,290
Accrued expenses and other liabilities		(2,048	)		(4,419	)		(1,608	)		—			(8,075	)
Deferred income taxes		—			(690	)		(209	)		—			(899	)
Deferred rent expense		—			409			414			—			823
Net cash provided by (used in) operating activities		(139,218	)		99,336			16,680			—			(23,202	)
Cash flows from investing activities:
Acquisition of property and equipment, net		(1,101	)		(23,226	)		(22,069	)		—			(46,396	)
Acquisition of intangible assets/lease rights		—			(70	)		(2,007	)		—			(2,077	)
Changes in restricted cash		4,350			—			—			—			4,350
Net cash provided by (used in) investing activities		3,249			(23,296	)		(24,076	)		—			(44,123	)
Cash flows from financing activities:
Payments on former credit facility		(1,154,310	)		—			—			—			(1,154,310	)
Proceeds from notes		1,142,125			—			—			—			1,142,125
Payment of debt issuance costs		(27,610	)		—			—			—			(27,610	)
Intercompany activity, net		88,094			(75,633	)		(12,461	)		—			—
Net cash provided by (used in) financing activities		48,299			(75,633	)		(12,461	)		—			(39,795	)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(2	)		231			(460	)		—			(231	)
Net increase (decrease) in cash and cash equivalents		(87,672	)		638			(20,317	)		—			(107,351	)
Cash and cash equivalents, at beginning of period		102,915			4,908			62,201			—			170,024
Cash and cash equivalents, at end of period	$	15,243		$	5,546		$	41,884		$	—		$	62,673