15. SUPPLEMENTAL FINANCIAL INFORMATION

On May 29, 2007, Claire’s Stores, Inc. (the “Issuer”), issued the Senior Subordinated Notes, (collectively, the “2007 Notes”). On March 4, 2011, the Issuer issued the Senior Secured Second Lien Notes, (collectively, the “2011 Notes”). On February 28, 2012, March 12, 2012 and September 20, 2012, the Issuer issued the 9.0% Senior Secured First Lien Notes (collectively, the “2012 Notes”). On March 15, 2013, the Issuer issued the 6.125% Senior Secured First Lien Notes and on May 14, 2013, the Issuer issued the 7.75% Senior Notes (collectively, 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 U.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 January 31, 2015, 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

January 31, 2015

(in thousands)


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents and restricted cash (1)	$	3,480		$	4,009		$	21,926		$	—		$	29,415
Inventories		—			82,949			62,959			—			145,908
Prepaid expenses		547			1,820			14,982			—			17,349
Other current assets		—			19,607			7,867			—			27,474

Total current assets		4,027			108,385			107,734			—			220,146

Property and equipment:
Furniture, fixtures and equipment		4,624			160,263			83,275			—			248,162
Leasehold improvements		1,335			194,571			128,400			—			324,306

		5,959			354,834			211,675			—			572,468
Accumulated depreciation and amortization		(3,629	)		(236,760	)		(124,647	)		—			(365,036	)

		2,330			118,074			87,028			—			207,432

Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(4,514	)		—			—			(4,514	)

		—			13,541			—			—			13,541

Intercompany receivables		—			157,508			46,000			(203,508	)		—
Investment in subsidiaries		2,011,504			(46,047	)		—			(1,965,457	)		—
Goodwill		—			1,112,494			314,405			—			1,426,899
Intangible assets, net		274,000			1,391			234,971			—			510,362
Deferred financing costs, net		31,696			—			829			—			32,525
Other assets		453			4,010			41,208			1			45,672

		2,317,653			1,229,356			637,413			(2,168,964	)		2,015,458

Total assets	$	2,324,010		$	1,469,356		$	832,175		$	(2,168,964	)	$	2,456,577

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	1,385		$	27,678		$	40,763		$	—		$	69,826
Income taxes payable		—			103			1,677			—			1,780
Accrued interest payable		67,765			—			25			—			67,790
Accrued expenses and other current liabilities		6,649			38,541			48,315			—			93,505

Total current liabilities		75,799			66,322			90,780			—			232,901

Intercompany payables		203,507			—			—			(203,507	)		—
Long-term debt		2,376,478			—			—			—			2,376,478
Obligation under capital lease		—			16,954			—			—			16,954
Deferred tax liability		—			102,550			10,665			—			113,215
Deferred rent expense		—			24,887			10,378			—			35,265
Unfavorable lease obligations and other long-term liabilities		—			13,454			84			—			13,538

		2,579,985			157,845			21,127			(203,507	)		2,555,450

Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		619,325			1,435,909			797,656			(2,233,565	)		619,325
Accumulated other comprehensive income (loss), net of tax		(37,698	)		(4,126	)		(34,565	)		38,691			(37,698	)
Accumulated deficit		(913,401	)		(186,961	)		(42,825	)		229,786			(913,401	)

		(331,774	)		1,245,189			720,268			(1,965,457	)		(331,774	)

Total liabilities and stockholder’s equity (deficit)	$	2,324,010		$	1,469,356		$	832,175		$	(2,168,964	)	$	2,456,577

(1)	Cash and cash equivalents include restricted cash of $2,029 for “Non-Guarantors”.


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	9,911		$	4,055		$	44,377		$	—		$	58,343
Inventories		—			100,292			78,590			—			178,882
Prepaid expenses		443			2,023			17,005			—			19,471
Other current assets		644			16,953			8,708			—			26,305

Total current assets		10,998			123,323			148,680			—			283,001

Property and equipment:
Furniture, fixtures and equipment		6,956			164,901			88,852			—			260,709
Leasehold improvements		1,471			189,407			144,980			—			335,858

		8,427			354,308			233,832			—			596,567
Accumulated depreciation and amortization		(4,625	)		(220,617	)		(122,166	)		—			(347,408	)

		3,802			133,691			111,666			—			249,159

Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(3,611	)		—			—			(3,611	)

		—			14,444			—			—			14,444

Intercompany receivables		—			158,450			—			(158,450	)		—
Investment in subsidiaries		2,199,771			(49,924	)		—			(2,149,847	)		—
Goodwill		—			1,235,651			314,405			—			1,550,056
Intangible assets, net		286,000			2,471			252,624			—			541,095
Deferred financing costs, net		39,481			—			—			—			39,481
Other assets		74			3,890			50,433			(1	)		54,396

		2,525,326			1,350,538			617,462			(2,308,298	)		2,185,028

Total assets	$	2,540,126		$	1,621,996		$	877,808		$	(2,308,298	)	$	2,731,632

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable	$	10,630		$	33,800		$	39,934		$	—		$	84,364
Income taxes payable		—			33			3,696			—			3,729
Accrued interest payable		68,338			—			—			—			68,338
Accrued expenses and other current liabilities		7,405			36,669			50,653			—			94,727

Total current liabilities		86,373			70,502			94,283			—			251,158

Intercompany payables		158,000			—			451			(158,451	)		—
Long-term debt		2,378,786			—			—			—			2,378,786
Obligation under capital lease		—			17,124			—			—			17,124
Deferred tax liability		—			106,890			12,674			—			119,564
Deferred rent expense		—			20,609			11,391			—			32,000
Unfavorable lease obligations and other long-term liabilities		—			15,812			221			—			16,033

		2,536,786			160,435			24,737			(158,451	)		2,563,507

Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		619,499			1,435,909			797,836			(2,233,745	)		619,499
Accumulated other comprehensive income (loss), net of tax		(1,109	)		205			(4,779	)		4,574			(1,109	)
Accumulated deficit		(701,423	)		(45,422	)		(34,271	)		79,693			(701,423	)

		(83,033	)		1,391,059			758,788			(2,149,847	)		(83,033	)

Total liabilities and stockholder’s equity (deficit)	$	2,540,126		$	1,621,996		$	877,808		$	(2,308,298	)	$	2,731,632

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Fiscal 2014

(in thousands)


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	821,971		$	672,280		$	—		$	1,494,251
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		752			423,502			343,205			—			767,459

Gross profit (deficit)		(752	)		398,469			329,075			—			726,792

Other expenses:
Selling, general and administrative		15,594			254,711			235,183			—			505,488
Depreciation and amortization		2,377			39,342			31,864			—			73,583
Impairment of assets		12,000			123,157			—			—			135,157
Severance and transaction-related costs		3,254			1			4,981			—			8,236
Other (income) expense		(9,171	)		1,121			918			—			(7,132	)

		24,054			418,332			272,946			—			715,332

Operating income (loss)		(24,806	)		(19,863	)		56,129			—			11,460
Loss on early debt extinguishment		—			—			—			—			—
Interest expense, net		214,604			2,204			371			—			217,179

Income (loss) before income taxes		(239,410	)		(22,067	)		55,758			—			(205,719	)
Income tax expense (benefit)		—			(3,654	)		9,913			—			6,259

Income (loss) from continuing operations		(239,410	)		(18,413			45,845			—			(211,978	)
Equity in earnings (loss) of subsidiaries		27,432			1,410			—			(28,842	)		—

Net income (loss)		(211,978	)		(17,003	)		45,845			(28,842	)		(211,978	)
Foreign currency translation adjustments		(7,400	)		(1,025	)		(461	)		1,486			(7,400	)
Net (loss) gain on intra-entity foreign currency transactions, net of tax		(29,189	)		(3,306	)		(29,325	)		32,631			(29,189	)

Other comprehensive income (loss)		(36,589	)		(4,331	)		(29,786	)		34,117			(36,589	)

Comprehensive income (loss)	$	(248,567	)	$	(21,334	)	$	16,059		$	5,275		$	(248,567	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Fiscal 2013

(in thousands)


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	840,186		$	672,991		$	—		$	1,513,177
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		541			415,753			337,337			—			753,631

Gross profit (deficit)		(541	)		424,433			335,654			—			759,546

Other expenses:
Selling, general and administrative		18,596			259,887			234,770			—			513,253
Depreciation and amortization		1,639			36,549			35,783			—			73,971
Severance and transaction-related costs		3,104			—			2,014			—			5,118
Other (income) expense		(10,241	)		2,527			3,146			—			(4,568	)

		13,098			298,963			275,713			—			587,774

Operating income (loss)		(13,639	)		125,470			59,941			—			171,772
Loss on early debt extinguishment		(4,795	)		—			—			—			(4,795	)
Interest expense, net		220,976			2,385			—			—			223,361

Income (loss) before income taxes		(239,410	)		123,085			59,941			—			(56,384	)
Income tax expense (benefit)		—			(987	)		9,910			—			8,923

Income (loss) from continuing operations		(239,410	)		124,072			50,031			—			(65,307	)
Equity in earnings (loss) of subsidiaries		174,103			3,823			—			(177,926	)		—

Net income (loss)		(65,307	)		127,895			50,031			(177,926	)		(65,307	)
Foreign currency translation adjustments		(940	)		(674	)		5,561			(4,887	)		(940	)
Net (loss) gain on intra-entity foreign currency transactions, net of tax		(3,442	)		(3,030	)		(3,609	)		6,639			(3,442	)

Other comprehensive income (loss)		(4,382	)		(3,704	)		1,952			1,752			(4,382	)

Comprehensive income (loss)	$	(69,689	)	$	124,191		$	51,983		$	(176,174	)	$	(69,689	)



							Non-
	Issuer			Guarantors			Guarantors		Eliminations			Consolidated
Net sales	$	—		$	897,434		$	659,586	$	—		$	1,557,020
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		2,288			424,812			328,896		—			755,996

Gross profit (deficit)		(2,288	)		472,622			330,690		—			801,024

Other expenses:
Selling, general and administrative		22,092			258,978			222,184		—			503,254
Depreciation and amortization		1,098			35,273			28,508		—			64,879
Severance and transaction-related costs		2,192			—			636		—			2,828
Other (income) expense		(10,883	)		(129	)		4,907		—			(6,105	)

		14,499			294,122			256,235		—			564,856

Operating income (loss)		(16,787	)		178,500			74,455		—			236,168
Loss on early debt extinguishment		(9,707	)		—			—		—			(9,707	)
Interest expense, net		208,081			2,199			517		—			210,797

Income (loss) before income taxes		(234,575	)		176,301			73,938		—			15,664
Income tax expense (benefit)		—			(41	)		14,423		—			14,382

Income (loss) from continuing operations		(234,575	)		176,342			59,515		—			1,282
Equity in earnings (loss) of subsidiaries		235,857			2,648			—		(238,505	)		—

Net income (loss)		1,282			178,990			59,515		(238,505	)		1,282
Foreign currency translation adjustments		1,182			(127	)		968		(841	)		1,182
Net (loss) gain on intra-entity foreign currency transactions, net of tax		4,283			361			4,081		(4,442	)		4,283
Unrealized gain on interest rate swap, net of tax		375			—			—		—			375
Reclassification adjustment of unrealized loss on termination of interest rate swap into net income		1,784			—			—		—			1,784

Other comprehensive income (loss)		7,624			234			5,049		(5,283	)		7,624

Comprehensive income (loss)	$	8,906		$	179,224		$	64,564	$	(243,788	)	$	8,906

Condensed Consolidating Statement of Cash Flows

Fiscal 2014

(in thousands)


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	(211,978	)	$	(17,003	)	$	45,845		$	(28,842	)	$	(211,978	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(27,432	)		(1,410	)		—			28,842			—
Depreciation and amortization		2,377			39,342			31,864			—			73,583
Impairment of assets		12,000			123,157			—			—			135,157
Amortization of lease rights and other assets		—			—			3,888			—			3,888
Amortization of debt issuance costs		7,950			—			75			—			8,025
Accretion of debt premium		(2,308	)		—			—			—			(2,308	)
Net accretion of favorable (unfavorable) lease obligations		—			(478	)		(32	)		—			(510	)
Loss on sale/retirement of property and equipment, net		52			214			6			—			272
Loss on early debt extinguishment		—			—			—			—			—
Gain on sale of intangible assets/lease rights		—			—			277			—			277
Stock compensation benefit		(571	)		175			222			—			(174	)
(Increase) decrease in:
Inventories		—			17,343			5,781			—			23,124
Prepaid expenses		(105	)		203			(1,318	)		—			(1,220	)
Other assets		264			(2,655	)		(171	)		—			(2,562	)
Increase (decrease) in:
Trade accounts payable		(9,245	)		(94	)		6,107			—			(3,232	)
Income taxes payable		—			74			(2,545	)		—			(2,471	)
Accrued interest payable		(572	)		—			29			—			(543	)
Accrued expenses and other liabilities		(757	)		983			2,264			—			2,490
Deferred income taxes		—			(3,809	)		(1,378	)		—			(5,187	)
Deferred rent expense		—			4,278			161			—			4,439

Net cash (used in) provided by operating activities		(230,325	)		160,320			91,075			—			21,070

Cash flows from investing activities:
Acquisition of property and equipment, net		(956	)		(29,597	)		(17,862	)		—			(48,415	)
Acquisition of intangible assets/lease rights		—			(94	)		(475	)		—			(569	)
Proceeds from sale of intangible assets/lease rights		—			—			—			—			—

Net cash used in investing activities		(956	)		(29,691	)		(18,337	)		—			(48,984	)

Cash flows from financing activities:
Proceeds from revolving credit facilities		271,000			—			40,180			—			311,180
Payments on revolving credit facilities		(271,000	)		—			(40,180	)		—			(311,180	)
Proceeds from notes		—			—			—			—			—
Repurchases of notes, including tender premiums and fees		—			—			—			—			—
Payment of debt issuance costs		(165	)		—			(519	)		—			(684	)
Principal payments of capital lease		—			(108	)		—			—			(108	)
Intercompany activity, net		225,015			(123,728	)		(101,287	)		—			—

Net cash provided by (used in) financing activities		224,850			(123,836	)		(101,806	)		—			(792	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		—			(6,839	)		4,588			—			(2,251	)

Net (decrease) increase in cash and cash equivalents		(6,431	)		(46	)		(24,480	)		—			(30,957	)
Cash and cash equivalents at beginning of period		9,911			4,055			44,377			—			58,343

Cash and cash equivalents at end of period		3,480			4,009			19,897			—			27,386
Restricted cash, at end of period		—			—			2,029			—			2,029

Cash and cash equivalents and restricted cash at end of period	$	3,480		$	4,009		$	21,926		$	—		$	29,415


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	(65,307	)	$	127,895		$	50,031		$	(177,926	)	$	(65,307	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(174,103	)		(3,823	)		—			177,926			—
Depreciation and amortization		1,639			36,549			35,783			—			73,971
Amortization of lease rights and other assets		—			—			3,675			—			3,675
Amortization of debt issuance costs		8,166			—			—			—			8,166
Accretion of debt premium		(2,120	)		—			—			—			(2,120	)
Net accretion of favorable (unfavorable) lease obligations		—			(646	)		(45	)		—			(691	)
Loss on sale/retirement of property and equipment, net		—			1,363			118			—			1,481
Loss on early debt extinguishment		4,795			—			—			—			4,795
Gain on sale of intangible assets/lease rights		—			—			(172	)		—			(172	)
Stock compensation benefit		529			206			361			—			1,096
(Increase) decrease in:
Inventories		36			(12,165	)		(8,950	)		—			(21,079	)
Prepaid expenses		149			366			220			—			735
Other assets		(327	)		1,622			(4,259	)		—			(2,964	)
Increase (decrease) in:
Trade accounts payable		9,637			(192	)		(351	)		—			9,094
Income taxes payable		—			77			(6,512	)		—			(6,435	)
Accrued interest payable		83			—			—			—			83
Accrued expenses and other liabilities		(4,014	)		(4,672	)		2,094			—			(6,592	)
Deferred income taxes		—			65			(2,476	)		—			(2,411	)
Deferred rent expense		—			2,128			(606	)		—			1,522

Net cash (used in) provided by operating activities		(220,837	)		148,773			68,911			—			(3,153	)

Cash flows from investing activities:
Acquisition of property and equipment, net		(1,871	)		(57,146	)		(33,106	)		—			(92,123	)
Acquisition of construction-in-process		—			(4,115	)		—			—			(4,115	)
Acquisition of intangible assets/lease rights		—			(154	)		(2,602	)		—			(2,756	)
Proceeds from sale of intangible assets/lease rights		—			—			203			—			203

Net cash used in investing activities		(1,871	)		(61,415	)		(35,505	)		—			(98,791	)

Cash flows from financing activities:
Proceeds from revolving credit facility		137,800			—			—			—			137,800
Payments on revolving credit facility		(137,800	)		—			—			—			(137,800	)
Proceeds from notes		530,000			—			—			—			530,000
Repurchases of notes, including tender premiums and fees		(523,660	)		—			—			—			(523,660	)
Payment of debt issuance costs		(9,861	)		—			—			—			(9,861	)
Principal payments of capital lease		—			(54	)		—			—			(54	)
Intercompany activity, net		179,748			(81,211	)		(98,537	)		—			—

Net cash provided by (used in) financing activities		176,227			(81,265	)		(98,537	)		—			(3,575	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		—			(6,337	)		3,243			—			(3,094	)

Net (decrease) increase in cash and cash equivalents		(46,481	)		(244	)		(61,888	)		—			(108,613	)
Cash and cash equivalents at beginning of period		56,392			4,299			106,265			—			166,956

Cash and cash equivalents at end of period	$	9,911		$	4,055		$	44,377		$	—		$	58,343


							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	1,282		$	178,990		$	59,515		$	(238,505	)	$	1,282
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(235,857	)		(2,648	)		—			238,505			—
Depreciation and amortization		1,098			35,273			28,508			—			64,879
Amortization of lease rights and other assets		—			—			3,279			—			3,279
Amortization of debt issuance costs		9,319			—			608			—			9,927
Accretion of debt premium		(831	)		—			—			—			(831	)
Net accretion of favorable (unfavorable) lease obligations		—			(901	)		75			—			(826	)
Loss on sale/retirement of property and equipment, net		—			91			5			—			96
Gain on early debt extinguishment		9,707			—			—			—			9,707
Gain on sale of intangible assets/lease rights		—			—			(493	)		—			(493	)
Stock compensation benefit		(737	)		(476	)		163			—			(1,050	)
(Increase) decrease in:
Inventories		(34	)		(3,519	)		(9,865	)		—			(13,418	)
Prepaid expenses		85			(860	)		1,353			—			578
Other assets		(259	)		(2,822	)		(6,752	)		—			(9,833	)
Increase (decrease) in:
Trade accounts payable		(475	)		4,496			6,496			—			10,517
Income taxes payable		—			(747	)		1,376			—			629
Accrued interest payable		36,395			—			—			—			36,395
Accrued expenses and other liabilities		(1,322	)		(1,576	)		(1,906	)		—			(4,804	)
Deferred income taxes		—			49			(245	)		—			(196	)
Deferred rent expense		—			801			56			—			857

Net cash (used in) provided by operating activities		(181,629	)		206,151			82,173			—			106,695

Cash flows from investing activities:
Acquisition of property and equipment, net		(1,818	)		(32,897	)		(33,519	)		—			(68,234	)
Acquisition of construction-in-process		—			(570	)		—			—			(570	)
Acquisition of intangible assets/lease rights		—			(173	)		(4,876	)		—			(5,049	)
Proceeds from sale of intangible assets/lease rights		—			—			1,009			—			1,009
Changes in restricted cash		4,350			—			—			—			4,350

Net cash used in investing activities		2,532			(33,640	)		(37,386	)		—			(68,494	)

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 short-term debt		—			—			—			—			—
Repurchase of notes		—			—			—			—			—
Payment of debt issuance costs		(27,976	)		—			(14	)		—			(27,990	)
Principal payments of capital lease		—			(4	)		—			—			(4	)
Intercompany activity, net		172,707			(173,537	)		830			—			—

Net cash provided by (used in) financing activities		132,546			(173,541	)		816			—			(40,179	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		28			421			(1,539	)		—			(1,090	)

Net (decrease) increase in cash and cash equivalents		(46,523	)		(609	)		44,064			—			(3,068	)
Cash and cash equivalents at beginning of period		102,915			4,908			62,201			—			170,024

Cash and cash equivalents at end of period	$	56,392		$	4,299		$	106,265		$	—		$	166,956