10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended August 4, 2018

OR

☐ 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, 333-148108 and 333-175171

Claire’s Stores, Inc.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒

Explanatory Note: While registrant is not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, it has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months.

Indicate by check mark whether registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files )    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒  (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of September 1, 2018, 100 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

CLAIRE’S STORES, INC. AND SUBSIDIARIES INDEX
	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Debtor-in-Possession)		3
Unaudited Condensed Consolidated Balance Sheets as of August  4, 2018 and February 3, 2018		3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended August 4, 2018 and July 29, 2017		4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 4, 2018 and July 29, 2017		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		46
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		47
Item 6. Exhibits		47
SIGNATURES		48
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

2

PART I. FINANCIAL INFORMATION

CLAIRE’S STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	August 4, 2018			February 3, 2018
	(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash	$	69,445		$	42,446
Inventories		148,331			134,690
Prepaid expenses		36,889			32,284
Other current assets		21,737			26,858
Total current assets		276,402			236,278
Property and equipment:
Furniture, fixtures and equipment		208,288			223,644
Leasehold improvements		279,104			301,338
		487,392			524,982
Accumulated depreciation and amortization		(387,631	)		(405,284	)
		99,761			119,698
Leased property under capital lease:
Land and building		18,055			18,055
Accumulated depreciation and amortization		(7,667	)		(7,216	)
		10,388			10,839
Goodwill		1,132,575			1,132,575
Intangible assets, net of accumulated amortization of $88,005 and $87,295, respectively		450,145			457,078
Other assets		61,107			44,255
		1,643,827			1,633,908
Total assets	$	2,030,378		$	2,000,723
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current liabilities:
Current portion of long-term debt, net	$	84,732		$	1,894,039
Debtor-in-possession term loan		60,000			—
Trade accounts payable		55,272			62,965
Income taxes payable		14,096			4,049
Accrued interest payable		1,083			56,182
Accrued expenses and other current liabilities		101,216			94,934
Total current liabilities		316,399			2,112,169
Long-term debt, net		208,847			250,355
Obligation under capital lease		15,718			15,970
Deferred tax liability		29,179			32,614
Deferred rent expense		31,557			34,851
Unfavorable lease obligations and other long-term liabilities		8,646			10,040
		293,947			343,830
Liabilities subject to compromise		1,905,215			—
Commitments and contingencies
Stockholder’s deficit:
Common stock par value $0.001 per share; authorized 1,000 shares; issued and outstanding 100 shares		—			—
Additional paid-in capital		630,794			630,719
Accumulated other comprehensive loss, net of tax		(40,364	)		(25,302	)
Accumulated deficit		(1,075,613	)		(1,060,693	)
		(485,183	)		(455,276	)
Total liabilities and stockholder’s deficit	$	2,030,378		$	2,000,723

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

CLAIRE’S STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)

	Three Months Ended August 4, 2018			Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales	$	314,448		$	316,637		$	625,454		$	616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		154,723			161,583			310,371			313,371
Gross profit		159,725			155,054			315,083			302,887
Other expenses (income):
Selling, general and administrative		111,459			112,774			237,240			223,286
Depreciation and amortization		13,709			10,890			26,903			22,093
Severance and transaction-related costs		629			389			1,005			532
Other income, net		(3,348	)		(2,171	)		(7,354	)		(4,872	)
		122,449			121,882			257,794			241,039
Operating income before interest, reorganization items and income taxes		37,276			33,172			57,289			61,848
Reorganization items, net		30,453			—			40,462			—
Interest expense, net		5,072			43,394			29,961			86,974
Income (loss) before income tax expense		1,751			(10,222	)		(13,134	)		(25,126	)
Income tax expense		5,040			10,266			1,786			2,120
Net loss	$	(3,289	)	$	(20,488	)	$	(14,920	)	$	(27,246	)
Net loss	$	(3,289	)	$	(20,488	)	$	(14,920	)	$	(27,246	)
Other comprehensive (loss) income:
Foreign currency translation adjustments		(1,067	)		4,523			(3,602	)		4,567
Net (loss) gain on intra-entity foreign currency transactions, net of tax (benefit) expense of $(35), $714, $5 and $944		(4,952	)		7,593			(11,460	)		9,474
Other comprehensive (loss) income		(6,019	)		12,116			(15,062	)		14,041
Comprehensive loss	$	(9,308	)	$	(8,372	)	$	(29,982	)	$	(13,205	)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

CLAIRE’S STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Cash flows from operating activities:
Net loss	$	(14,920	)	$	(27,246	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		26,903			22,093
Reorganization items, net		40,462			—
Amortization of lease rights and other assets		2,517			1,862
Amortization of debt issuance costs		1,613			4,312
Accretion of debt premium		(360	)		(1,457	)
Non-cash pay-in-kind interest expense		2,889			750
Net unfavorable accretion of lease obligations		9			(55	)
Loss on sale/retirement of property and equipment, net		46			128
Stock-based compensation expense		75			156
(Increase) decrease in:
Inventories		(17,945	)		(22,083	)
Prepaid expenses		(7,130	)		(1,926	)
Other assets		(6,461	)		(75	)
Increase (decrease) in:
Trade accounts payable		(7,122	)		(709	)
Income taxes payable		12,249			(279	)
Accrued interest payable		17,955			(155	)
Accrued expenses and other liabilities		(6,128	)		(6,994	)
Deferred income taxes		(15,287	)		(359	)
Deferred rent expense		(2,460	)		(1,196	)
Net cash provided by (used in) operating activities		26,905			(33,233	)
Cash flows from investing activities:
Acquisition of property and equipment		(9,027	)		(8,101	)
Acquisition of intangible assets/lease rights		(100	)		(38	)
Net cash used in investing activities		(9,127	)		(8,139	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000			—
Repayments under debtor-in-possession credit facility		(57,000	)		—
Proceeds from debtor-in-possession term loans		60,000			—
Debt issuance costs related to debtor-in-possession financing		(4,470	)		—
Proceeds from revolving credit facilities		43,000			81,000
Payments on revolving credit facilities		(74,000	)		(41,200	)
Payment on current portion of long-term debt		(6,000	)		(18,420	)
Payments of unamortized interest related to long-term debt		(5,321	)		(4,272	)
Payment of debt issuance costs		(2	)		(386	)
Principal payments on capital lease		(200	)		(156	)
Net cash provided by financing activities		13,007			16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents		(3,786	)		203
Net increase (decrease) in cash and cash equivalents		26,999			(24,603	)
Cash and cash equivalents, at beginning of period		42,446			55,792
Cash and cash equivalents, at end of period	$	69,445		$	31,189
Supplemental disclosure of cash flow information:
Interest paid	$	13,002		$	87,454
Income taxes paid		2,112			3,927
Non-cash supplemental financing activities:
Increase in term loans due 2021 from pay-in-kind interest	$	2,976		$	2,207
Decrease in adjustment to carrying value		2,976			2,207

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

CLAIRE’S STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of Claire’s Stores, Inc. (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods presented have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended February 3, 2018 filed with the Securities and Exchange Commission, including Note 2 to the Consolidated Financial Statements included therein, which discusses principles of consolidation and summary of significant accounting policies.

The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures regarding contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include, but are not limited to, the value of inventories, goodwill, intangible assets and other long-lived assets, legal contingencies and assumptions used in the calculation of income taxes, stock-based compensation, residual values and other items. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates will be reflected in the financial statements in those future periods when the changes occur.

Due to the seasonal nature of the retail industry and the Company’s business, the results of operations for interim periods of the year are not necessarily indicative of the results of operations for future quarters or on an annualized basis.    

As discussed further in Note 2 entitled “Bankruptcy Filing,” on March 19, 2018 (the “Commencement Date”), the Company and certain of its domestic subsidiaries (collectively with the Company, the “Debtors”) commenced chapter 11 cases (the “Chapter 11 Cases”) by filing voluntary petitions for reorganization under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).    The Debtors are authorized to continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

Ability to Continue as a Going Concern - The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in the debtor-in-possession credit facility (the “DIP Facility”) described in Note 2 – Bankruptcy Filing, the Bankruptcy Court’s approval of its Chapter 11 plan of reorganization, and its ability to successfully implement a restructuring plan and obtain new financing, among other factors. The Company has significant indebtedness. The Company’s

6

level of indebtedness has adversely impacted and is continuing to adversely impact its financial condition. The Company’s financial condition, the defaults under its debt agreements, and the risks and uncertainties surrounding the Chapter 11 Cases, raise substantial doubt as to the Company’s ability to continue as a going concern.

As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The commencement of the Chapter 11 Cases constituted an event of default with respect to certain of the Company’s existing debt obligations. While operating as debtors in possession under Chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business under the Bankruptcy Code and subject to restrictions contained in the DIP Credit Agreement (see Note – 5 Debt) and applicable orders of the Bankruptcy Court, for amounts other than those reflected in the accompanying Unaudited Condensed Consolidated Financial Statements. Further, the Company’s restructuring plan, to the extent confirmed by the Bankruptcy Court, could materially impact the amounts and classifications of assets and liabilities reported in its Unaudited Condensed Consolidated Financial Statements.

The Company plans to emerge from its Chapter 11 Cases after it obtains an order from the Bankruptcy Court confirming the Company’s Proposed Plan (as defined below). Among other things, confirmation of the Proposed Plan will determine the rights and satisfy the claims of the Company’s creditors and security holders in accordance with the terms of the Proposed Plan. A copy of the Debtors’ Proposed Plan is available free of charge online at https://cases.primeclerk.com/claires/.

2. Bankruptcy Filing

Chapter 11 Proceedings

On the Commencement Date, the Debtors commenced the Chapter 11 Cases by filing voluntary petitions for reorganization under Chapter 11 with the Bankruptcy Court. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the Debtors’ Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Claire’s Stores, Inc., et al., Case No. 18-10584 (MFW). Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://cases.primeclerk.com/claires/.

In connection with the commencement of the Chapter 11 Cases, the Debtors entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”), dated as of March 19, 2018, with Apollo Global Management, LLC, the Debtors’ equity sponsor (the “Sponsor”) and certain unaffiliated holders of first lien debt issued by the Company (each, an “Ad Hoc First Lien Holder” and, collectively, the “Ad Hoc First Lien Group” or the “Initial Consenting Holders”). On July 7, 2018, the Debtors and the Ad Hoc First Lien Group amended the Restructuring Support Agreement to permit the Debtors to solicit alternative proposals for (i) plans of reorganization or liquidation or (ii) the purchase of some or all of the Debtors’ assets, and to modify certain milestones with respect to the Debtors’ restructuring process.

Pursuant to the Restructuring Support Agreement, the Ad Hoc First Lien Group and Apollo agreed to support the pre-negotiated plan of reorganization that the Debtors seek to confirm. In accordance with the Restructuring Support Agreement, the Debtors filed the plan of reorganization (as amended, modified, or supplemented, the “Proposed Plan”) and related disclosure statement (as amended, modified, or supplemented the “Disclosure Statement”) with the Bankruptcy Court on April 12, 2018. The Debtors then amended the Proposed Plan on July 7, 2018 and again on July 16, 2018. On July 26, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement, finding that the Disclosure Statement contained adequate information as required by the Bankruptcy Code. Additionally, the Bankruptcy Court approved solicitation and confirmation procedures for the Proposed Plan and scheduled a hearing (the “Confirmation Hearing”) for September 17, 2018 to consider confirmation of the Proposed Plan.

7

Significant Bankruptcy Court Actions

Following the Commencement Date, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain pre-petition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical and foreign vendors, honor insurance-related obligations, and pay certain pre-petition taxes and related fees on a final basis. The Bankruptcy Court also approved the DIP Facility on a final basis.    

Global Plan Settlement

On July 15, 2018, the Debtors, the official committee of unsecured creditors appointed in the Chapter 11 Cases (the “Creditors’ Committee”), the indenture trustee under the Company’s Unsecured Notes (the “Unsecured Notes Trustee”), and the Ad Hoc First Lien Group entered into a settlement agreement (the “Global Plan Settlement”). Pursuant to the Global Plan Settlement, the Debtors resolved the formal and informal objections of the Creditors’ Committee and the Unsecured Notes Trustee with respect to the Proposed Plan and the Debtors’ restructuring, including with respect to (i) the enterprise value for the Debtors, together with their non-Debtor affiliates; (ii) value attributable to the Debtors’ unencumbered assets; (iii) junior creditor recoveries; (iv) the treatment of intercompany claims and interests; (v) the releases and exculpations contemplated by the Proposed Plan, including with respect to the Sponsor and claims or causes of action arising from or related to the exchange transaction effectuated by the Company in 2016 (the “2016 Exchange”); (vi) the terms of the new capital to be invested in the Company by the Ad Hoc First Lien Group; (vii) the allocation of assets and liabilities among the Debtors’ Estates; and (vii) prospective lien challenges, claims, or causes of action that might be brought by or on behalf of the Debtors’ Chapter 11 estates, including on account of the 2016 Exchange. The Bankruptcy Court will consider approval of the Global Plan Settlement at the Confirmation Hearing.

Settlement with FFI

On August 31, 2018, the Debtors, FFI Fund Ltd., FYI Ltd. and their affiliates (collectively, the “FFI Parties”), holders of the Company’s Unsecured Notes, and certain signatories to the Restructuring Support Agreement (the “Requisite Consenting Creditors”) entered into a Plan Support Agreement (the “PSA”), whereby the FFI Parties agreed to settle any and all potential objections they may have to the Proposed Plan and to support and vote all claims and interests held by the FFI Parties to accept the Proposed Plan and grant the releases provided for in the PSA. Pursuant to the PSA, the Debtors modified the Proposed Plan to increase the recoveries of holders of the Company’s Unsecured Notes. The PSA became effective and binding on each of the Parties upon the execution and delivery of the PSA by each of (a) the Debtors, (b) the Requisite Consenting Creditors, and (c) the FFI Parties; provided that the PSA shall not be effective as to the Debtors until approved by the Bankruptcy Court upon confirmation of the Proposed Plan.

Oaktree’s Standing Motion

On July 19, 2018, Oaktree Capital Management, L.P. (“Oaktree”), the majority holder of the Company’s Second Lien Notes, filed a motion in the Chapter 11 Cases seeking derivative standing to pursue certain avoidance actions with respect to the 2016 Exchange (the “Standing Motion”). The Debtors object to Oaktree’s Standing Motion on the grounds that, among other things, Oaktree is prohibited from bringing such avoidance actions by virtue of its intercreditor obligations, Oaktree’s Standing Motion is a premature objection to the approval of the Global Plan Settlement, and Oaktree cannot assert colorable claims with respect to such avoidance actions. The Bankruptcy Court will hold a hearing on Oaktree’s Standing Motion on September 17, 2018.

8

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach.

The Debtors have filed motions and received Bankruptcy Court approval for the rejection of 140 leases. As of August 4, 2018, the Debtors have rejected 83 leases. On August 24, 2018, the Debtors filed with the Bankruptcy Court a Rejected Executory Contracts and Unexpired Leases Schedule and Assumed Executory Contracts and Unexpired Leases Schedule with respect to those executory contracts and unexpired leases that either will be assumed or rejected pursuant to the Proposed Plan. Copies of these schedules are available free of charge online at https://cases.primeclerk.com/claires/.

Key Employee Incentive and Retention Programs

On May 5, 2018, the Debtors filed with the Bankruptcy Court a motion (the “KEIP/KERP Motion”) seeking authority to implement a key employee incentive plan (the “KEIP”) and a key employee retention program (the “KERP”).    The KEIP provides performance metrics for senior members of the Debtors’ management team to achieve in furtherance of the Debtors’ business goals and, upon the achievement of those performance metrics, provides for maximum payments of up to approximately $1.5 million in the aggregate per quarter through the end of the fourth quarter of Fiscal 2018. The KERP identifies valuable, hard-to-replace non-senior members of the Debtors’ management team that play important roles in the Debtors’ restructuring efforts, each performing crucial tasks to ensure a seamless transition into and an efficient emergence from Chapter 11. The KERP provides for payments of up to approximately $1.5 million in the aggregate. The KERP participants would receive awards on the earlier of thirty days following the effective date of a Chapter 11 plan of reorganization and December 31, 2018, with the payment of such awards conditioned on the KERP participants’ continued employment with the Company. The KEIP/KERP Motion was approved by the Bankruptcy Court on June 13, 2018.

Debtor-In-Possession Facility

See Note – 5 Debt for further discussion of the DIP Facility, which provides up to $135.0 million in senior secured super-priority financing under a $75.0 million DIP ABL Loan and a $60.0 million DIP Term Loan.

Marketing Process

On June 22, 2018, the Bankruptcy Court entered an order requiring the Debtors to solicit bids with respect to a sale or disposition by the Debtors of the Company’s assets or an investment and/or sponsorship of a Chapter 11 plan of reorganization or liquidation. Additionally, the Bankruptcy Court established certain procedures (the “Bid Procedures”) regarding the submission of certain bids (each, a “Qualified Bid” as defined in the Bid Procedures) with respect to some, all, or substantially all of the Company’s assets or an investment in, and/or sponsorship of, a Chapter 11 plan of reorganization or liquidation. The deadline for the submission of Qualified Bids was August 31, 2018. The Debtors, in consultation with the Creditors’ Committee, have determined that the Debtors have not received any Qualified Bids.

9

Financial Reporting in Reorganization

Effective on March 19, 2018, the Company began to apply ASC, No. 852, “Reorganizations,” which is applicable to companies under Chapter 11 bankruptcy protection. It requires the financial statements for periods subsequent to the Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. In addition, the balance sheet must distinguish debtor pre-petition liabilities subject to compromise (“LSTC”) from liabilities of non-Debtor entities, pre-petition liabilities that are not subject to compromise and from post-petition liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheet. LSTC are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, the Company has classified the entire amount of the claim as a LSTC.

Liabilities Subject to Compromise

As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Commencement Date liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes, and certain vendors.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for different amounts. The amounts classified as LSTC may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims or other events.

Liabilities Subject to Compromise as of August 4, 2018 included the following components (in thousands):

	August 4, 2018
Debt (1)	$	1,806,363
Accrued interest on debt subject to compromise		73,054
Accounts payable, accrued expense and other liabilities		25,798
Total liabilities subject to compromise	$	1,905,215

(1) See Note 5 – Debt for details of pre-petition debt reported as liabilities subject to compromise.

Reorganization Items, Net

Reorganization items, net represent amounts incurred after the Commencement Date as a direct result of the Bankruptcy and are comprised of the following for the three and six months ended August 4, 2018 (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
Professional fees	$	22,744	$	33,697
Rejection of leases and other		7,277		7,277
Debtor-in-possession financing costs		432		4,470
Write-off of pre-petition debt issuance costs, debt premium, and adjustment in carrying value		—		(4,982	)
Total reorganization items, net	$	30,453	$	40,462

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3. Recent Accounting Pronouncements

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The update eliminates the exception for an intra-entity transfer of an asset other than inventory, which aligns the recognition of income tax consequences for inter-entity transfers of assets other than inventory by requiring the recognition of current and deferred income taxes resulting from an intra-entity transfer of such an asset when the transfer occurs rather than when it is sold to an external party. The Company adopted ASU 2016-16 as of the first day of Fiscal 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flow.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in this update address how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The Company adopted ASU 2016-15 as of the first day of Fiscal 2018 and it did not have a material impact on the Company’s cash flows.

In March 2016, the FASB issued ASU 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20), Recognition of Breakage for Certain Prepaid Stored-Value Products. The new guidance addresses diversity in practice related to the derecognition of a prepaid stored-value product liability. ASU 2016-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-04 as of the first day of Fiscal 2018 in connection with ASU 2014-09 and it did not have a material impact on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for substantially all leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The new standard is effective for years beginning after December 15, 2018, including interim periods within those years. In July 2018, the FASB issued ASU 2018-11 which provided additional transition methods. The Company is currently quantifying the amount of lease assets and lease liabilities that it will recognize on its balance sheet. The Company’s review of the requirements of Topic 842 is ongoing, and believes that the impact on its balance sheet, while not currently calculated, will be significant.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in evaluating whether it controls the good or the service before it is transferred to the customer. The new revenue recognition standard was effective for public entities for annual reporting periods beginning after December 15, 2017, and interim periods therein, that is, the first quarter of 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company adopted ASU 2014-09 as of the first day of Fiscal 2018 using the modified retrospective method. There were no changes to the consolidated financial position, results of operations, or cash flows as a result of the adoption and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance. The Company has included additional disclosures in Note 11 – Segment Information showing disaggregation by revenue channel.

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Accounting policies as a result of recently adopted accounting pronouncements

Revenue Recognition – Net sales is comprised of company-operated store sales, and other sales, which includes sales from concession, e-commerce and franchise. The Company excludes sales taxes collected from customers from “Net sales” in its Consolidated Statements of Operations and Comprehensive Income (Loss). Net Sales is presented net of an allowance for estimated returns, which is based on historic experience. The estimated liability for sales returns is based on the historical return levels, which is included in “Accrued expenses and other current liabilities.”

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue from company-operated stores is recognized as the customer takes possession of the merchandise. Revenue from concessions is recognized as the customer takes possession of the merchandise. Revenue from e-commerce is recognized when merchandise is shipped to the customer. Revenue from franchisees is recognized when merchandise is shipped from the Company to the franchisee. The Company accounts for the merchandise it sells to third parties under franchising and licensing agreements within “Net Sales” and “Cost of sales, occupancy and buying expenses” in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). The franchise fees the Company charges under the franchising agreements are reported in “Other income, net” in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).    

Shipping fees billed to customers are recorded as revenue, and shipping costs are recognized within cost of sales in the same period the related revenue is recognized.

Upon purchase of a gift card or gift certificate, a liability is established for the cash value. The liability is included in “Accrued expenses and other current liabilities.” Revenue from gift card and gift certificate sales is recognized at the time of redemption. Unredeemed gift card and gift certificate breakage income is recorded as a reduction of “Selling, general and administrative” expenses. The Company records breakage income when the probability of redemption, based upon historical redemption patterns, is remote as there is currently no basis for estimating breakage income.

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Disclosures of the fair value of certain financial instruments are required, whether or not recognized in the Unaudited Condensed Consolidated Balance Sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. There is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company does not have any assets (liabilities) measured at fair value on a recurring basis.

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Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

The Company’s non-financial assets, which include goodwill, intangible assets, and long-lived tangible assets, are not adjusted to fair value on a recurring basis. Fair value measures of non-financial assets are primarily used in the impairment analysis of these assets. Any resulting asset impairment would require that the non-financial asset be recorded at its fair value. The Company reviews goodwill and indefinite-lived intangible assets for impairment annually, during the fourth quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The Company monitors the carrying value of definite-lived intangible assets and long-lived tangible assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable.

Financial Instruments Not Measured at Fair Value

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, short-term debt, current liabilities and long-term debt. Cash and cash equivalents, accounts receivable, short-term debt, and current liabilities approximate fair market value due to the relatively short maturity of these financial instruments.

The Company considers all investments with a maturity of three months or less when acquired to be cash equivalents. The Company’s cash equivalent instruments are valued using quoted market prices and are primarily U.S. Treasury securities. The revolving credit facilities approximate fair value due to the variable component of the interest rate. Excluding unamortized debt issuance costs, the estimated fair value of the Company’s long-term debt (including current portion) was approximately $1.12 billion as of August 4, 2018, compared to a carrying value of $2.10 billion at that date. Excluding unamortized debt issuance costs, the estimated fair value of the Company’s long-term debt (including current portion) was approximately $1.28 billion as of February 3, 2018, compared to a carrying value of $2.12 billion at that date. For publicly-traded debt, the fair value (estimated market value) is based on quoted market prices in less active markets. For non-publicly traded debt, fair value is estimated based on quoted prices for similar instruments. If measured at fair value in the financial statements, long-term debt excluding term loans would be classified as Level 2 in the fair value hierarchy, while term loans would be classified as Level 3 in the fair value hierarchy.

5. Debt

Debt as of August 4, 2018 and February 3, 2018 included the following components (in thousands):

	August 4, 2018			February 3, 2018
Short-term borrowings:
Debtor-in-possession facility	$	60,000		$	—
Current portion of long-term debt:
Claire’s Gibraltar Intermediate secured term loan due 2019	$	51,500		$	51,500
Claire’s Gibraltar unsecured term loan due 2019		34,000			—
9.0% Senior secured first lien notes due 2019		—			1,125,000
8.875% Senior secured second lien notes due 2019		—			222,300
6.125% Senior secured first lien notes due 2020		—			210,000
7.75% Senior notes due 2020		—			216,742
9.0% Claire’s Stores term loan due 2021		—			31,804
U.S. asset based lending credit facility due 2019		—			31,000
Unamortized premium (1)		—			3,642
Adjustment to carrying value (1)		—			12,483
Unamortized debt issuance cost (1)		(768	)		(10,432	)
Total current portion of long-term debt, net (1)	$	84,732		$	1,894,039

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	August 4, 2018		February 3, 2018
Debt subject to compromise:
9.0% Senior secured first lien notes due 2019	$	1,125,000	$	—
8.875% Senior secured second lien notes due 2019		222,300		—
6.125% Senior secured first lien notes due 2020		210,000		—
7.75% Senior notes due 2020		216,742		—
9.0% Claire’s Stores term loan due 2021		32,321		—
Total debt subject to compromise	$	1,806,363	$	—
Long-term debt:
Claire’s Gibraltar unsecured term loan due 2019	$	—	$	40,000
11.0% CLSIP term loan due 2021 (2)		107,926		103,356
9.0% Claire’s Gibraltar term loans due 2021		48,477		47,701
Adjustment to carrying value		52,444		59,298
Total long-term debt, net	$	208,847	$	250,355
Obligation under capital lease (including current portion)	$	16,188	$	16,388

(1) LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 – Bankruptcy Filing for additional details.

(2) See CLSIP Forbearance Agreement below for discussion of increased interest rate.

Debtor-In-Possession Facility

On March 22, 2018, the Company, pursuant to a commitment letter dated as of March 11, 2018 and previously disclosed on the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 19, 2018, and in connection with the Chapter 11 Cases and as a debtor in possession pursuant to the Bankruptcy Code, entered into a Credit Agreement (the “DIP Credit Agreement”) among the Company, Claire’s Inc., a Delaware corporation (“Parent”), certain of the Company’s subsidiaries (as described below), the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent and collateral agent for the Lenders (in such capacities, the “Administrative Agent”), pursuant to which, among other things, the Lenders have provided (i) a senior secured superpriority non-amortizing asset-based revolving facility in an aggregate principal amount of $75,000,000 (the “DIP ABL Loan”), with up to $10,000,000 of such DIP ABL Loan available for the issuance of standby letters of credit and (ii) a superpriority senior secured last-out term facility in an aggregate principal amount of $60,000,000 (the “DIP Term Loan” and together with the DIP ABL Loan, the “DIP Facility”). The DIP Facility is guaranteed on a joint and several basis by Parent, and certain of the Company’s subsidiaries, including BMS Distributing Corp., a Delaware corporation, CBI Distributing Corp., a Delaware corporation, Claire’s Boutiques, Inc., a Colorado corporation, Claire’s Canada Corp., a Delaware corporation, Claire’s Puerto Rico Corp., a Delaware corporation and CSI Canada LLC, a Delaware limited liability company.

The proceeds of the DIP ABL Loan extended on the DIP Closing Date were used to refinance all outstanding obligations and replace commitments under the ABL Credit Facility (described below), including cash collateralization of certain letters of credit previously issued, outstanding and undrawn as of March 22, 2018, the closing date of the DIP Facility (the “DIP Closing Date”), and to pay fees, costs and expenses incurred in connection with the DIP Facility. The proceeds of the DIP Facility will also be used for working capital and general corporate purposes and to fund certain fees payable to professional service providers in connection with the Chapter 11 Cases.

The DIP Facility will mature, subject to the satisfaction of certain conditions, on the earliest of (i) the one year anniversary of the DIP Closing Date, (ii) the effective date of a plan of reorganization, (iii) the date of closing of a sale of all or substantially all of the Company’s assets pursuant to Section 363 of the Bankruptcy Code, (iv) the date on which acceleration of the outstanding loans, and the terminations of the commitments, occurs under the DIP Facility and (v) certain dates specified in connection with the Chapter 11 Cases and orders issued in connection therewith.

As of August 4, 2018, the Company had $65.6 million of availability under the DIP ABL Loan, net of applicable reserves.

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Contractual interest on debt subject to compromise

Effective as of the Commencement Date, the Company ceased recording interest expense on outstanding pre-petition debt subject to compromise. Contractual interest expense represents amounts due under the contractual terms of outstanding pre-petition debt classified as LSTC. For the quarter ended August 4, 2018, contractual interest expense of $58.5 million related to LSTC has not been recorded in the financial statements.

ABL Credit Facility

In March 2018, the Company paid an aggregate amount of $71.0 million and, in addition, the related accrued interest associated with the extinguishment of the ABL Credit Facility.

CLSIP Forbearance Agreement

CLSIP Holdings, CLSIP, Wilmington Trust, N.A., as Administrative Agent and Collateral Agent under the CLSIP Term Loan Agreement, and certain of the lenders constituting Required Lenders (as that term is defined by the CLSIP Term Loan Agreement) under the CLSIP Term Loan entered into a forbearance agreement dated as of April 19, 2018 (the “CLSIP Forbearance”) providing that, among other things, such lenders will forbear from causing the CLSIP Term Loan to become immediately due and payable and from exercising remedies arising from such event of default or other events of default that may arise on account of the commencement of the Chapter 11 Cases and/or any other transaction and/or agreement contemplated by the Restructuring Support Agreement. The CLSIP Forbearance also increased the interest rate of the CLSIP Term Loan to bear 11.0% per annum. As a result of the CLSIP Forbearance, the CLSIP Term Loan is classified as long-term debt.

Debt Covenants

The Company’s debt agreements contain certain covenants that, among other things, subject to certain exceptions and other basket amounts, restrict its ability and the ability of its subsidiaries to:

• incur additional indebtedness;

• pay dividends or distributions on its capital stock, repurchase or retire its 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 the Company’s 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.

Certain of these covenants in the indentures governing the Company’s note indebtedness, such as limitations on the Company’s ability to make certain payments such as dividends, or incur debt, will no longer apply if the notes have investment grade ratings from both of the rating agencies of Moody’s Investor Services, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) and no event of default has occurred. Since the date of issuance of the notes, the notes have not received investment grade ratings from Moody’s or S&P. Accordingly, all of the covenants under the notes currently apply to the Company. None of the covenants under the notes, however, require the Company to maintain any particular financial ratio or other measure of financial performance.

See Note 4 – Fair Value Measurements for related fair value disclosure on debt.

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Europe Bank Credit Facilities

The Company’s non-U.S. subsidiaries have bank credit facilities totaling approximately $1.9 million. The facilities are used for working capital requirements, letters of credit and various guarantees. These credit facilities have been arranged in accordance with customary lending practices in the respective country of operation. As of August 4, 2018, there was a reduction of $1.7 million for outstanding bank guarantees, which reduces the borrowing availability to $0.2 million as of that date.

6. Commitments and Contingencies

The Company is, from time to time, involved in litigation incidental to the conduct of its business, including personal injury litigation, litigation regarding merchandise sold, including product and safety concerns regarding heavy metal and chemical content in merchandise, litigation with respect to various employment matters, including litigation with present and former employees, wage and hour litigation and litigation regarding intellectual property rights.

The Company believes that current pending litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

7. Accumulated Other Comprehensive Loss

The following summary sets forth the components of accumulated other comprehensive loss, net of tax as follows (in thousands, net of tax):

	Total (1)
Balance as of February 3, 2018	$	(25,302	)
Other comprehensive loss		(15,062	)
Balance as of August 4, 2018	$	(40,364	)

(1) Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

8. Stock Options and Stock-Based Compensation

The following is a summary of activity in the Company’s stock option plan for the six months ended August 4, 2018:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding as of February 3, 2018		3,224,326		$	5.18
Options granted		—
Options exercised		—
Options forfeited		(17,511	)	$	2.83
Options expired		(154,887	)	$	9.48
Outstanding as of August 4, 2018		3,051,928		$	4.98		3.6
Options vested and expected to vest as of August 4, 2018		2,938,253		$	5.10		3.5
Exercisable as of August 4, 2018		1,892,324		$	6.09		3.1

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There were no options granted during the six months ended August 4, 2018. The weighted average grant date fair value of options granted during the six months ended July 29, 2017 was $0.39.

Stock-based compensation benefit is recorded in “Selling, general and administrative” expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

9. Income Taxes

The effective income tax rate was 287.8% and (13.6)% for the three and six months ended August 4, 2018. This effective income tax rate differed from the statutory federal income tax rate of 21.0% primarily due to foreign losses with no associated income tax benefit and changes in valuation allowances.

The effective income tax rate was (100.4)% and (8.4)% for the three and six months ended July 29, 2017. This effective income tax rate differed from the statutory federal income tax rate of 35.0% primarily due to foreign tax rate differentials as compared to the U.S. statutory rate, changes in the valuation allowance and the correction of an immaterial error in the three months ended July 29, 2017.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act instituted fundamental changes to the US tax system. Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, Management calculated their best estimate of the impact of the Tax Act in the 2017 year-end income tax provision in accordance with their understanding of the Tax Act and available guidance. Also pursuant to SAB 118, certain additional impacts of the Tax Act remain open during the measurement period to include other indirect correlative impacts of the Tax Act, the Company’s position with regards to the one-time mandatory transition tax and the state tax impacts of the Tax Act. As of the close of the second quarter, the Company continues to analyze the Tax Act in its entirety and refine its calculations, which could potentially impact the measurement of recorded tax balances. Any subsequent adjustment to the tax balances resulting from the analysis of the Tax Act, will be recorded to income tax expense in the fiscal quarter of 2018 when the analysis is completed.

10. Related Party Transactions

Indebtedness

As of August 4, 2018 and February 3, 2018, Parent and affiliates held $68.6 million and $65.6 million of the Company’s indebtedness and the Company had no accrued interest payable associated with the indebtedness. For the three and six months ended August 4, 2018 and July 29, 2017, the Company recognized no interest expense related to the indebtedness held by Parent and affiliates as a result of the 2016 debt exchange whereby all future interest to be paid through maturity date was recorded at the time of the exchange.

Management Services Agreement

On June 6, 2017, the Company and Parent entered into an Amended and Restated Management Services Agreement (the “Management Services Agreement”) with Apollo Management VI, L.P. (“Apollo”), Cowen & Co., LLC, as successor to Tri-Artisan Capital Partners, LLC (“TACP”), (“Cowen”, and together with Apollo, the “Managers”) and TACP Investments – Claire’s LLC (“TACPI”). The Management Services Agreement supersedes, amends and entirely restates the Management Services Agreement, dated as of May 29, 2007 by and among the Company, Parent, Apollo, TACP and TACPI (“the Original Agreement”). Under the Management Service Agreement, the Managers have agreed to provide to the Company certain investment banking, management, consulting and financial planning services on an ongoing basis. The Managers will receive no fee for these services, but will be reimbursed by the Company for their out-of-pocket expenses. In the prior Management Services Agreement, the Managers were paid a $3.0 million fee annually. In addition, under the Management Services Agreement, the Managers have agreed to provide to the Company certain financial advisory and investment banking

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services from time-to-time in connection with major financial transactions that may be undertaken by the Company or its subsidiaries in exchange for normal and customary fees as agreed by the Managers (or their affiliates) and the Company and Parent, taking into consideration all relevant factors. Under the Management Services Agreement, the Company and Parent have also agreed to provide the Managers (and their affiliates) with customary indemnification. The Management Services Agreement will terminate upon the earliest to occur of May 29, 2025 or the occurrence of certain termination events specified therein.    The Company has not made any payments on account of the Management Services Agreement since commencing the Chapter 11 Cases.

In addition, on June 6, 2017, the Company and Cowen entered into a letter agreement (the “Cowen Management Agreement”) pursuant to which Cowen agreed to provide the Company with certain financial advisory and investment banking services on a month-to-month basis. In return for such services, the Company agreed to pay Cowen a monthly cash fee of $32,000, payable at the beginning of each month, and in addition, to reimburse Cowen for all reasonable out-of-pocket expenses. The Company also agreed to provide Cowen (and its affiliates) with customary indemnification. Both Cowen and the Company had the right to terminate the Cowen Management Agreement at any time during its term on 30 days prior written notice. While in effect, the terms of the Cowen Management Agreement were to govern in the event of any conflict between the Cowen Management Agreement and the terms of the Management Services Agreement referred to above. On September 1, 2017, the Company elected to terminate the Cowen Management Agreement effective as of September 30, 2017.

11. Segment Information

The Company is organized based on the geographic markets in which it operates. Under this structure, the Company currently has two reportable segments: North America and Europe. The Company accounts for the goods it sells to third parties under franchising and licensing agreements within “Net sales” and “Cost of sales, occupancy and buying expenses” in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income within its North America segment. The franchise fees the Company charges under the franchising agreements are reported in “Other income, net” in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income within its Europe segment. Substantially all of the interest expense on the Company’s outstanding debt and all of Reorganization Items, net is recorded in the Company’s North America segment.

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Net sales, depreciation and amortization and operating income for the three and six months ended August 4, 2018 and July 29, 2017 are as follows (in thousands):

	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales:
North America	$	199,454	$	196,033		$	406,388		$	391,993
Europe		114,994		120,604			219,066			224,265
Total net sales		314,448		316,637			625,454			616,258
Depreciation and amortization:
North America		9,623		7,028			18,276			14,130
Europe		4,086		3,862			8,627			7,963
Total depreciation and amortization		13,709		10,890			26,903			22,093
Operating income for reportable segments:
North America		28,511		16,306			55,139			42,016
Europe		9,394		17,255			3,155			20,364
Total operating income for reportable segments		37,905		33,561			58,294			62,380
Severance and transaction-related costs		629		389			1,005			532
Consolidated operating income		37,276		33,172			57,289			61,848
Reorganization items, net		30,453		—			40,462			—
Interest expense, net		5,072		43,394			29,961			86,974
Consolidated income (loss) before income tax expense	$	1,751	$	(10,222	)	$	(13,134	)	$	(25,126	)

Excluded from operating income for the North America segment are severance and transaction-related costs of approximately $0.3 million and $0.3 million for the three months ended August 4, 2018 and July 29, 2017, respectively, and $0.4 million and $0.3 million for the six months ended August 4, 2018 and July 29, 2017, respectively.

Excluded from operating income for the Europe segment are severance and transaction-related costs of approximately $0.3 million and $0.1 million for the three months ended August 4, 2018 and July 29, 2017, respectively and $0.6 million and $0.2 million for the six months ended August 4, 2018 and July 29, 2017, respectively.

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Net sales by channel type and by segment for the three and six months ended August 4, 2018 are as follows (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
North America:
Company-operated net sales	$	186,518	$	376,453
Other net sales		12,936		29,935
Total net sales		199,454		406,388
Europe:
Company-operated net sales		108,419		205,089
Other net sales		6,575		13,977
Total net sales		114,994		219,066
Consolidated:
Company-operated net sales		294,937		581,542
Other net sales		19,511		43,912
Total net sales	$	314,448	$	625,454

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12. Condensed Combined Debtor-In-Possession Financial Information

The financial statements below represent the unaudited condensed combined financial statements of the Debtors. As of and for the three and six months ended August 4, 2018, the results of the Company’s subsidiaries that are not part of the Chapter 11 Cases, are not included in these condensed combined financial statements.

Intercompany transactions among the Debtors have been eliminated in the financial statements contained herein. Intercompany transactions among the Debtors and the subsidiaries that are not part of the Chapter 11 Cases have not been eliminated in the Debtors’ financial statements.

Debtors Unaudited Condensed Combined Balance Sheet

August 4, 2018

(in thousands)

ASSETS
Current assets:
Cash	$	27,825
Inventories		88,422
Prepaid expenses		20,935
Other current assets		13,400
Total current assets		150,582
Property and equipment:
Furniture, fixtures and equipment		128,307
Leasehold improvements		167,133
		295,440
Accumulated depreciation and amortization		(240,023	)
		55,417
Leased property under capital lease:
Land and building		18,055
Accumulated depreciation and amortization		(7,667	)
		10,388
Investment in non-filing entities		409,863
Goodwill		987,517
Intangible assets, net		188,223
Other assets		14,169
		1,599,772
Total assets	$	1,816,159
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current liabilities:
Debtor-in-possession term loan	$	60,000
Trade accounts payable		18,549
Income taxes payable		7,849
Accrued interest payable		140
Accrued expenses and other current liabilities		61,907
Total current liabilities		148,445
Intercompany payables		174,547
Obligation under capital lease		15,718
Deferred tax liability		24,795
Deferred rent expense		20,692
Other long-term liabilities		8,646
		244,398
Liabilities subject to compromise		1,905,215
Stockholder’s deficit:
Common stock		—
Additional paid in capital		630,794
Accumulated other comprehensive loss, net of tax		(40,364	)
Accumulated deficit		(1,072,329	)
		(481,899	)
Total liabilities and stockholder’s deficit	$	1,816,159

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Debtors Unaudited Condensed Combined Statement of Operations and Comprehensive Income

(in thousands)

	Three Months Ended August 4, 2018			Six Months Ended August 4, 2018
Net sales	$	184,157		$	376,611
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		89,654			179,919
Gross profit		94,503			196,692
Other expenses:
Selling, general and administrative		62,921			136,553
Depreciation and amortization		9,202			17,389
Severance and transaction-related costs		264			348
Other income		(4,351	)		(10,764	)
		68,036			143,526
Operating income		26,467			53,166
Reorganization items, net		30,453			40,462
Interest expense, net		1,940			21,472
Loss before income taxes		(5,926	)		(8,768	)
Income tax expense		2,945			7,872
Loss from continuing operations		(8,871	)		(16,640	)
Equity in earnings of subsidiaries		24,836			51,928
Equity in earnings of non-filing entities		5,977			5,004
Net income		21,942			40,292
Foreign currency translation adjustments		(1,207	)		(4,168	)
Net loss on intra-entity foreign currency transactions, net of tax		(5,214	)		(12,522	)
Other comprehensive loss		(6,421	)		(16,690	)
Comprehensive income	$	15,521		$	23,602

22

Debtors Unaudited Condensed Combined Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

Cash flows from operating activities:
Net income	$	40,292
Adjustments to reconcile net income to net cash used in operating activities:
Equity in earnings of subsidiaries		(51,928	)
Equity in earnings of non-filing entities		(5,004	)
Depreciation and amortization		17,389
Reorganization items, net		40,462
Amortization of debt issuance costs		898
Accretion of debt premium		(360	)
Net accretion of unfavorable lease obligations		7
Loss on sale/retirement of property and equipment, net		44
Stock-based compensation expense		70
(Increase) decrease in:
Inventories		(11,953	)
Prepaid expenses		(4,557	)
Other assets		(6,947	)
Increase (decrease) in:
Trade accounts payable		(8,076	)
Income taxes payable		7,340
Accrued interest payable		17,386
Accrued expenses and other liabilities		(5,802	)
Deferred income taxes		(2,586	)
Deferred rent expense		(2,142	)
Net cash provided by operating activities		24,533
Cash flows from investing activities:
Acquisition of property and equipment		(6,553	)
Acquisition of intangible assets/lease rights		(20	)
Net cash used in investing activities		(6,573	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000
Repayments under debtor-in-possession credit facility		(57,000	)
Proceeds from debtor-in-possession term loans		60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)
Proceeds from revolving credit facilities		43,000
Payments on revolving credit facilities		(74,000	)
Payments of unamortized interest related to long-term debt		(925	)
Principal payments on capital lease		(200	)
Intercompany activity, net		(18,680	)
Net cash provided by financing activities		4,725
Effect of foreign currency exchange rate changes on cash and cash equivalents		(2,207	)
Net increase in cash and cash equivalents		20,478
Cash and cash equivalents, at beginning of period		7,347
Cash and cash equivalents, at end of period		27,825

23

13. Supplemental Financial Information

On March 4, 2011, Claire’s Stores, Inc. (referred to in this Note 13 as the “Issuer”), issued the Second Lien Notes. On February 28, 2012, March 12, 2012 and September 20, 2012, the Issuer issued the 9.0% Senior Secured First Lien 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 Unsecured Notes. The Second Lien 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 ABL Credit Facility and U.S. Credit Facility. The First Lien Notes are unconditionally guaranteed, jointly and severally, by all wholly-owned domestic current and future subsidiaries of Claire’s Stores, Inc. (subject to certain exceptions, including CLSIP LLC and CLSIP Holdings LLC). As of August 4, 2018, Claire’s Stores, Inc. owned 100% of its domestic subsidiaries that guarantee the 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 unaudited 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.

24

Unaudited Condensed Consolidating Balance Sheet

August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash	$	23,551		$	10,774		$	35,120		$	—		$	69,445
Inventories		—			88,422			59,909			—			148,331
Prepaid expenses		8,300			12,635			15,954			—			36,889
Other current assets		418			12,982			8,337			—			21,737
Total current assets		32,269			124,813			119,320			—			276,402
Property and equipment:
Furniture, fixtures and equipment		3,239			125,068			79,981			—			208,288
Leasehold improvements		1,315			165,818			111,971			—			279,104
		4,554			290,886			191,952			—			487,392
Accumulated depreciation and amortization		(3,834	)		(236,189	)		(147,608	)		—			(387,631	)
		720			54,697			44,344			—			99,761
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,667	)		—			—			(7,667	)
		—			10,388			—			—			10,388
Intercompany receivables		—			368,135			105,026			(473,161	)		—
Investment in subsidiaries		1,729,045			(40,870	)		—			(1,688,175	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,657			197,022			(84,634	)		450,145
Other assets		8,000			6,169			46,938			—			61,107
		1,925,145			1,470,608			494,044			(2,245,970	)		1,643,827
Total assets	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	—		$	—		$	84,732		$	—		$	84,732
Debtor-in-possession term loan		60,000			—			—			—			60,000
Trade accounts payable		2,323			16,226			36,723			—			55,272
Income taxes payable		—			7,849			6,247			—			14,096
Accrued interest payable		140			395			548			—			1,083
Accrued expenses and other current liabilities		27,113			34,794			39,309			—			101,216
Total current liabilities		89,576			59,264			167,559			—			316,399
Intercompany payables		473,161			—			—			(473,161	)		—
Long-term debt, net		—			143,810			65,037			—			208,847
Revolving credit facility, net		—			—			—			—			—
Obligation under capital lease		—			15,718			—			—			15,718
Deferred tax liability		—			24,795			4,384			—			29,179
Deferred rent expense		—			20,692			10,865			—			31,557
Other long-term liabilities		—			8,646			—			—			8,646
		473,161			213,661			80,286			(473,161	)		293,947
Liabilities subject to compromise		1,880,580			24,635			—			—			1,905,215
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,794			1,520,543			766,993			(2,287,536	)		630,794
Accumulated other comprehensive income (loss), net of tax		(40,364	)		(4,784	)		(36,187	)		40,971			(40,364	)
Accumulated deficit		(1,075,613	)		(153,180	)		(320,945	)		474,125			(1,075,613	)
		(485,183	)		1,362,946			409,863			(1,772,809	)		(485,183	)
Total liabilities and stockholder’s equity (deficit)	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378

25

Unaudited Condensed Consolidating Balance Sheet

February 3, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	4,203		$	9,644		$	28,599		$	—		$	42,446
Inventories		—			76,469			58,221			—			134,690
Prepaid expenses		2,638			13,740			15,906			—			32,284
Other current assets		1,281			13,111			12,466			—			26,858
Total current assets		8,122			112,964			115,192			—			236,278
Property and equipment:
Furniture, fixtures and equipment		3,075			133,664			86,905			—			223,644
Leasehold improvements		1,315			177,520			122,503			—			301,338
		4,390			311,184			209,408			—			524,982
Accumulated depreciation and amortization		(3,640	)		(245,778	)		(155,866	)		—			(405,284	)
		750			65,406			53,542			—			119,698
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,216	)		—			—			(7,216	)
		—			10,839			—			—			10,839
Intercompany receivables		—			299,768			121,143			(420,911	)		—
Investment in subsidiaries		1,688,098			(42,369	)		—			(1,645,729	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,678			203,934			(84,634	)		457,078
Other assets		1,140			3,647			39,468			—			44,255
		1,877,338			1,398,241			509,603			(2,151,274	)		1,633,908
Total assets	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	1,843,582		$	—		$	50,457		$	—		$	1,894,039
Trade accounts payable		3,231			21,090			38,644			—			62,965
Income taxes payable		—			484			3,565			—			4,049
Accrued interest payable		55,808			—			374			—			56,182
Accrued expenses and other current liabilities		17,954			34,494			42,486			—			94,934
Total current liabilities		1,920,575			56,068			135,526			—			2,112,169
Intercompany payables		420,911			—			—			(420,911	)		—
Long-term debt, net		—			143,929			106,426			—			250,355
Obligation under capital lease		—			15,970			—			—			15,970
Deferred tax liability		—			25,963			6,651			—			32,614
Deferred rent expense		—			22,834			12,017			—			34,851
Unfavorable lease obligations and other long-term liabilities		—			10,040			—			—			10,040
		420,911			218,736			125,094			(420,911	)		343,830
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,719			1,520,543			766,993			(2,287,536	)		630,719
Accumulated other comprehensive income (loss), net of tax		(25,302	)		(3,156	)		(23,326	)		26,482			(25,302	)
Accumulated deficit		(1,060,693	)		(205,108	)		(325,952	)		531,060			(1,060,693	)
		(455,276	)		1,312,646			417,717			(1,730,363	)		(455,276	)
Total liabilities and stockholder’s equity (deficit)	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723

26

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	184,157		$	130,291		$	—		$	314,448
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		2,828			86,826			65,069			—			154,723
Gross profit (deficit)		(2,828	)		97,331			65,222			—			159,725
Other expenses:
Selling, general and administrative		5,536			57,385			48,538			—			111,459
Depreciation and amortization		96			9,106			4,507			—			13,709
Severance and transaction-related costs		209			55			365			—			629
Other (income) expense		(1,541	)		(2,810	)		1,003			—			(3,348	)
		4,300			63,736			54,413			—			122,449
Operating income (loss)		(7,128	)		33,595			10,809			—			37,276
Reorganization items, net		24,832			5,621			—			—			30,453
Interest expense, net		1,406			929			2,737			—			5,072
Income (loss) before income taxes		(33,366	)		27,045			8,072			—			1,751
Income tax expense		—			2,945			2,095			—			5,040
Income (loss) from continuing operations		(33,366	)		24,100			5,977			—			(3,289	)
Equity in earnings (loss) of subsidiaries		30,077			736			—			(30,813	)		—
Net income (loss)		(3,289	)		24,836			5,977			(30,813	)		(3,289	)
Foreign currency translation adjustments		(1,067	)		(140	)		(520	)		660			(1,067	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(4,952	)		(262	)		(4,952	)		5,214			(4,952	)
Other comprehensive income (loss)		(6,019	)		(402	)		(5,472	)		5,874			(6,019	)
Comprehensive income (loss)	$	(9,308	)	$	24,434		$	505		$	(24,939	)	$	(9,308	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	180,868		$	135,769		$	—		$	316,637
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		3,017			89,864			68,702			—			161,583
Gross (deficit) profit		(3,017	)		91,004			67,067			—			155,054
Other expenses:
Selling, general and administrative		5,967			58,717			48,090			—			112,774
Depreciation and amortization		181			6,379			4,330			—			10,890
Severance and transaction-related costs		234			16			139			—			389
Other income, net		(918	)		(112	)		(1,141	)		—			(2,171	)
		5,464			65,000			51,418			—			121,882
Operating (loss) income		(8,481	)		26,004			15,649			—			33,172
Interest expense, net		40,071			535			2,788			—			43,394
(Loss) income before income taxes		(48,552	)		25,469			12,861			—			(10,222	)
Income tax expense		—			121			10,145			—			10,266
(Loss) income from continuing operations		(48,552	)		25,348			2,716			—			(20,488	)
Equity in earnings (loss) of subsidiaries		28,064			(2,203	)		—			(25,861	)		—
Net (loss) income		(20,488	)		23,145			2,716			(25,861	)		(20,488	)
Foreign currency translation adjustments		4,523			1,080			(196	)		(884	)		4,523
Net gain (loss) on intra-entity foreign currency transactions, net of tax		7,593			2,199			7,588			(9,787	)		7,593
Other comprehensive income (loss)		12,116			3,279			7,392			(10,671	)		12,116
Comprehensive (loss) income	$	(8,372	)	$	26,424		$	10,108		$	(36,532	)	$	(8,372	)

27

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	376,611		$	248,843		$	—		$	625,454
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,642			173,277			130,452			—			310,371
Gross profit (deficit)		(6,642	)		203,334			118,391			—			315,083
Other expenses:
Selling, general and administrative		20,936			115,617			100,687			—			237,240
Depreciation and amortization		194			17,195			9,514			—			26,903
Severance and transaction-related costs		209			139			657			—			1,005
Other (income) expense		(12,321	)		1,557			3,410			—			(7,354	)
		9,018			134,508			114,268			—			257,794
Operating income (loss)		(15,660	)		68,826			4,123			—			57,289
Reorganization items, net		34,841			5,621			—			—			40,462
Interest expense, net		20,430			4,326			5,205			—			29,961
Income (loss) before income taxes		(70,931	)		58,879			(1,082	)		—			(13,134	)
Income tax benefit		—			7,872			(6,086	)		—			1,786
Income (loss) from continuing operations		(70,931	)		51,007			5,004			—			(14,920	)
Equity in earnings (loss) of subsidiaries		56,011			921			—			(56,932	)		—
Net income (loss)		(14,920	)		51,928			5,004			(56,932	)		(14,920	)
Foreign currency translation adjustments		(3,602	)		(566	)		(1,404	)		1,970			(3,602	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(11,460	)		(1,062	)		(11,457	)		12,519			(11,460	)
Other comprehensive income (loss)		(15,062	)		(1,628	)		(12,861	)		14,489			(15,062	)
Comprehensive income (loss)	$	(29,982	)	$	50,300		$	(7,857	)	$	(42,443	)	$	(29,982	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	362,938		$	253,320		$	—		$	616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,179			176,063			131,129			—			313,371
Gross profit (deficit)		(6,179	)		186,875			122,191			—			302,887
Other expenses:
Selling, general and administrative		11,720			116,002			95,564			—			223,286
Depreciation and amortization		372			12,705			9,016			—			22,093
Severance and transaction-related costs		234			73			225			—			532
Other income, net		(2,855	)		(304	)		(1,713	)		—			(4,872	)
		9,471			128,476			103,092			—			241,039
Operating income (loss)		(15,650	)		58,399			19,099			—			61,848
Interest expense, net		80,341			1,061			5,572			—			86,974
Income (loss) before income taxes		(95,991	)		57,338			13,527			—			(25,126	)
Income tax expense (benefit)		—			(943	)		3,063			—			2,120
Income (loss) from continuing operations		(95,991	)		58,281			10,464			—			(27,246	)
Equity in earnings (loss) of subsidiaries		68,745			(2,157	)		—			(66,588	)		—
Net income (loss)		(27,246	)		56,124			10,464			(66,588	)		(27,246	)
Foreign currency translation adjustments		4,567			668			1,641			(2,309	)		4,567
Net gain (loss) on intra-entity foreign currency transactions, net of tax		9,474			1,343			9,471			(10,814	)		9,474
Other comprehensive income (loss)		14,041			2,011			11,112			(13,123	)		14,041
Comprehensive income (loss)	$	(13,205	)	$	58,135		$	21,576		$	(79,711	)	$	(13,205	)

28

Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(14,920	)	$	51,928		$	5,004		$	(56,932	)	$	(14,920	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(56,011	)		(921	)		—			56,932			—
Depreciation and amortization		194			17,195			9,514			—			26,903
Reorganization items, net		34,841			5,621			—			—			40,462
Amortization of lease rights and other assets		—			—			2,517			—			2,517
Amortization of debt issuance costs		898			—			715			—			1,613
Accretion of debt premium		(360	)		—			—			—			(360	)
Non-cash pay-in-kind interest expense		—			2,889			—			—			2,889
Net accretion of unfavorable lease obligations		—			7			2			—			9
Loss on sale/retirement of property and equipment, net		—			44			2			—			46
Stock-based compensation expense		70			—			5			—			75
(Increase) decrease in:
Inventories		—			(11,953	)		(5,992	)		—			(17,945	)
Prepaid expenses		(5,662	)		1,105			(2,573	)		—			(7,130	)
Other assets		(5,998	)		(949	)		486			—			(6,461	)
Increase (decrease) in:
Trade accounts payable		(19,578	)		11,502			954			—			(7,122	)
Income taxes payable		—			7,340			4,909			—			12,249
Accrued interest payable		17,386			395			174			—			17,955
Accrued expenses and other liabilities		(7,648	)		1,846			(326	)		—			(6,128	)
Deferred income taxes		—			(2,586	)		(12,701	)		—			(15,287	)
Deferred rent expense		—			(2,142	)		(318	)		—			(2,460	)
Net cash provided by (used in) operating activities		(56,788	)		81,321			2,372			—			26,905
Cash flows from investing activities:
Acquisition of property and equipment		(164	)		(6,389	)		(2,474	)		—			(9,027	)
Acquisition of intangible assets/lease rights		—			(20	)		(80	)		—			(100	)
Net cash used in investing activities		(164	)		(6,409	)		(2,544	)		—			(9,127	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000			—			—			—			57,000
Repayments under debtor-in-possession credit facility		(57,000	)		—			—			—			(57,000	)
Proceeds from debtor-in-possession term loans		60,000			—			—			—			60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)		—			—			—			(4,470	)
Proceeds from revolving credit facilities		43,000			—			—			—			43,000
Payments on revolving credit facilities		(74,000	)		—			—			—			(74,000	)
Payment on current portion of long-term debt		—			—			(6,000	)		—			(6,000	)
Payments of unamortized interest related to long-term debt		(925	)		(3,008	)		(1,388	)		—			(5,321	)
Payment of debt issuance costs		—			—			(2	)		—			(2	)
Principal payments on capital lease		—			(200	)		—			—			(200	)
Intercompany activity, net		52,695			(68,367	)		15,672			—			—
Net cash provided by (used in) financing activities		76,300			(71,575	)		8,282			—			13,007
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			(2,207	)		(1,579	)		—			(3,786	)
Net increase (decrease) in cash and cash equivalents		19,348			1,130			6,521			—			26,999
Cash and cash equivalents, at beginning of period		4,203			9,644			28,599			—			42,446
Cash and cash equivalents, at end of period		23,551			10,774			35,120			—			69,445

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Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(27,246	)	$	56,124		$	10,464		$	(66,588	)	$	(27,246	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(68,745	)		2,157			—			66,588			—
Depreciation and amortization		372			12,705			9,016			—			22,093
Amortization of lease rights and other assets		—			—			1,862			—			1,862
Amortization of debt issuance costs		3,781			—			531			—			4,312
Accretion of debt premium		(1,457	)		—			—			—			(1,457	)
Non-cash pay-in-kind interest expense		—			—			750			—			750
Net accretion of unfavorable lease obligations		—			(56	)		1			—			(55	)
Loss on sale/retirement of property and equipment, net		—			126			2			—			128
Stock-based compensation expense		139			—			17			—			156
(Increase) decrease in:
Inventories		—			(12,077	)		(10,006	)		—			(22,083	)
Prepaid expenses		(675	)		(84	)		(1,167	)		—			(1,926	)
Other assets		(268	)		(23	)		216			—			(75	)
Increase (decrease) in:
Trade accounts payable		(912	)		2,811			(2,608	)		—			(709	)
Income taxes payable		—			(967	)		688			—			(279	)
Accrued interest payable		73			—			(228	)		—			(155	)
Accrued expenses and other liabilities		(2,683	)		(365	)		(3,946	)		—			(6,994	)
Deferred income taxes		—			—			(359	)		—			(359	)
Deferred rent expense		—			(712	)		(484	)		—			(1,196	)
Net cash provided by (used in) operating activities		(97,621	)		59,639			4,749			—			(33,233	)
Cash flows from investing activities:
Acquisition of property and equipment		—			(5,111	)		(2,990	)		—			(8,101	)
Acquisition of intangible assets/lease rights		—			(38	)		—			—			(38	)
Net cash used in investing activities		—			(5,149	)		(2,990	)		—			(8,139	)
Cash flows from financing activities:
Proceeds from revolving credit facilities		81,000			—			—			—			81,000
Payments on revolving credit facilities		(41,200	)		—			—			—			(41,200	)
Payment on current portion of long-term debt		(18,420	)		—			—			—			(18,420	)
Payments of unamortized interest related to long-term debt		(743	)		(2,415	)		(1,114	)		—			(4,272	)
Payment of debt issuance costs		—			—			(386	)		—			(386	)
Principal payments on capital lease		—			(156	)		—			—			(156	)
Intercompany activity, net		79,605			(53,034	)		(26,571	)		—			—
Net cash provided by (used in) financing activities		100,242			(55,605	)		(28,071	)		—			16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			2,928			(2,725	)		—			203
Net increase (decrease) in cash and cash equivalents		2,621			1,813			(29,037	)		—			(24,603	)
Cash and cash equivalents, at beginning of period		3,038			3,005			49,749			—			55,792
Cash and cash equivalents, at end of period	$	5,659		$	4,818		$	20,712		$	—		$	31,189

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide the reader of the financial statements with a narrative on our results of operations, financial position and liquidity, risk management activities, and significant accounting policies and critical estimates. Management’s Discussion and Analysis should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes thereto contained elsewhere in this document.

We include a store in the calculation of same store sales once it has been in operation sixty weeks after its initial opening and we include sales from e-commerce. A store which is temporarily closed, such as for remodeling, is removed from the same store sales computation if it is closed for one week or more. The removal is effective prospectively upon the completion of the first fiscal week of closure. A store which is closed permanently, such as upon termination of the lease, is immediately removed from the same store sales computation. We compute same store sales on a local currency basis, which eliminates any impact for changes in foreign currency rates. Our calculation of same store sales may not be comparable to other retailers.

Voluntary Reorganization under Chapter 11

On March 19, 2018 (the “Commencement Date”), the Company and certain of its domestic subsidiaries (collectively with the Company, the “Debtors”), commenced chapter 11 cases (the “Chapter 11 Cases”) by filing voluntary petitions for reorganization under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors are authorized to continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the Debtors’ Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Claire’s Stores, Inc., et al., Case No. 18-10584 (MFW). Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://cases.primeclerk.com/claires/.

We are currently operating our business as debtors in possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we commenced the Chapter 11 Cases, the Bankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, pay taxes and certain governmental fees and charges, continue to operate our cash management system in the ordinary course, and pay the pre-petition claims of certain of our vendors. For goods and services provided following the Commencement Date, we intend to pay vendors in full under normal terms.

Subject to certain exceptions, under the Bankruptcy Code, the commencement of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Commencement Date. Accordingly, although the filing of the commencement of the Chapter 11 Cases triggered defaults under the Debtors’ funded debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.

For the duration of the Debtors’ Chapter 11 Cases, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company’s operations, properties and liquidity and capital resources included in this quarterly report may not accurately reflect its operations, properties and liquidity and capital resources following the Debtors’ emergence from Chapter 11.

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In particular, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtor’s estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Debtor in this quarterly report, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Debtor is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.

See Note 2 – Bankruptcy Filing for further information regarding the Chapter 11 Cases.

Ability to Continue as a Going Concern

The Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The Unaudited Condensed Consolidated Financial Statements do not reflect any adjustments that might result from the outcome of our Chapter 11 Cases. We have significant indebtedness. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. Our financial condition including operating results, the defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 Cases, raise substantial doubt as to the Company’s ability to continue as a going concern.

Results of Consolidated Operations

Management Overview

We are one of the world’s leading specialty retailers of fashionable jewelry and accessories for young women, teens, tweens, and kids. Our vision is to be the emporium of choice for all girls (in age or attitude) across the world. We deliver this by offering a range of innovative, fun and affordable products and services that cater to all of her activities, as she grows up, whenever and wherever. Our broad and dynamic selection of merchandise is unique. We are organized into two operating segments: North America and Europe. We identify our operating segments by how we manage and evaluate our business activities. We operate our stores under two brand names: Claire’s^® and Icing^®. As of August 4, 2018, we operated a total of 2,471 company-operated stores of which 1,466 were located in all 50 states of the United States, Puerto Rico, Canada and the U.S. Virgin Islands (North America segment) and 1,005 stores were located in the United Kingdom, Switzerland, Austria, Germany, France, Ireland, Spain, Portugal, Netherlands, Belgium, Poland, Czech Republic, Hungary, Italy and Luxembourg (Europe segment).

As of August 4, 2018, we also had a total of 6,631 concession stores, of which 6,190 were located in the United States and Canada (North America segment) and 441 stores were located in the United Kingdom, France, Spain, Austria, Germany, Italy, Portugal, Switzerland, Hungary and Poland (Europe segment).

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As of August 4, 2018, we also franchised 687 stores in Japan, the Middle East, Greece, Guatemala, Malta, India, Dominican Republic, El Salvador, Panama, Costa Rica, Romania, Martinique, Pakistan, Thailand, Southern Africa, Russia, Ecuador, Curacao, Chile and Paraguay. We account for the goods we sell to third parties under franchising agreements within “Net sales” and “Cost of sales, occupancy and buying expenses” in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. The franchise fees we charge under the franchising agreements are reported in “Other income, net” in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

Claire’s^® is our primary global brand that we operate through company-operated, concession stores, or franchise stores. Claire’s^® offers a differentiated and fun store experience with a “treasure hunt” setting that encourages our customer to visit often to explore and find merchandise that appeals to her. We believe by maintaining a highly relevant merchandise assortment and offering a compelling value proposition, Claire’s^® has universal appeal to teens, pre-teens and kids. Claire’s^® target customer is a girl between 3-18 years old for whom we create three distinct ranges: 3 to 6, 6 to 12 and 12 to 18.

Icing^® is our second brand which we currently operate in North America through company-operated stores and in the Middle East through franchised stores. Icing^® offers an inspiring merchandise assortment of fashionable products that helps a young woman to say something about herself, whatever the occasion. Our Icing^® brand targets a young woman in the 18-35 year age group with a focus on our core 21-25 year olds who have recently entered the workforce. This customer is independent, fashion-conscious, and has enhanced spending ability.

We provide our target customer groups with a significant selection of fashionable merchandise across a wide range of categories, all with a compelling value proposition. Our major categories of business are:

• Jewelry: Includes earrings as well as our ear piercing service, necklaces, bracelets, body jewelry and rings; and

• Accessories: Includes hairgoods; beauty products; room decor; personal, fashion, and seasonal accessories, including tech accessories such as phone cases, jewelry holders, stationery, key rings, attitude glasses, headwear, legwear, armwear, and sunglasses; and handbags and small leather goods.

In North America, our company-operated stores are located primarily in shopping malls. The differentiation of our Claire’s^® and Icing^® brands allows us to operate multiple stores within a single location. In Europe, our company-operated stores are located primarily on high streets, in shopping malls and in high traffic urban areas.

Financial activity for the three and six months ended August 4, 2018 includes the following:

• Net sales decrease of 0.7% and increase of 1.5%; respectively;

• Same store sales percentages;

	Three Months Ended August 4, 2018			Six Months Ended August 4, 2018
Consolidated		0.1	%		(0.2	)%
North America		4.4	%		4.9	%
Europe		(6.3	)%		(8.1	)%

• Gross profit percentage increase of 180 basis points and 130 basis points, respectively; and

• Operating income margin of 11.9% and 10.5%, respectively; excluding $8.6 million of non-recurring pre-Chapter 11 consulting expense.

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Operational activity for the three and six months ended August 4, 2018 includes the following:

Store Activity Openings (Closings):	Three Months Ended August 4, 2018					Six Months Ended August 4, 2018
	Opened		Closed(1)			Opened		Closed(1)
Company-operated		2		(65	)		2		(125	)
Concession		1,746		(345	)		6,119		(458	)
Franchise		3		(30	)		18		(53	)
Total		1,751		(440	)		6,139		(636	)

(1) Due to underperformance or lease renewal terms of company-operated stores that did not meet our criteria and the cessation of business with certain concession and franchise partners.

A summary of our consolidated results of operations for the three and six months ended August 4, 2018 and July 29, 2017 are as follows (dollars in thousands):

	Three Months Ended August 4, 2018			Three Months Ended July 29, 2017
Net sales	$	314,448		$	316,637
Increase in same store sales		0.1	%		2.8	%
Gross profit percentage		50.8	%		49.0	%
Selling, general and administrative expenses as a percentage of net sales		35.4	%		35.6	%
Depreciation and amortization as a percentage of net sales		4.4	%		3.4	%
Operating income	$	37,276		$	33,172
Net loss	$	(3,289	)	$	(20,488	)
Number of company-operated stores at the end of the period		2,471			2,660
Number of concession stores at the end of the period		6,631			860
	Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales	$	625,454		$	616,258
(Decrease) increase in same store sales		(0.2	)%		3.6	%
Gross profit percentage		50.4	%		49.1	%
Selling, general and administrative expenses as a percentage of net sales (1)		37.9	%		36.2	%
Depreciation and amortization as a percentage of net sales		4.3	%		3.6	%
Operating income	$	57,289		$	61,848
Net loss	$	(14,920	)	$	(27,246	)
Number of company-operated stores at the end of the period		2,471			2,660
Number of concession stores at the end of the period		6,631			860

(1) Includes non-recurring pre-Chapter 11 consulting expense of $8.6 million.

Net sales

Net sales for the three months ended August 4, 2018 decreased $2.2 million, or 0.7%, as compared to the three months ended July 29, 2017. Net sales were affected by the effect of company-operated and concession store closures of $7.9 million, partially offset by a favorable foreign currency translation effect of our non-U.S. net sales of $3.8 million, an increase in new and same store company-operated sales of $1.2 million and increased franchisees sales of $0.7 million. Net sales would have decreased 1.9% excluding the impact of foreign currency exchange rate changes.

Net sales for the six months ended August 4, 2018 increased $9.2 million, or 1.5%, as compared to the six months ended July 29, 2017. Net sales were affected by a favorable foreign currency translation effect of our non-U.S. net sales of $18.2 million, an increase in new concession and company-operated store sales of $2.0 million and increased franchisees sales of $1.1 million, partially offset by the effect of store closures of $10.9 million and a decrease in same store sales of $1.2 million. Net sales would have decreased 1.4% excluding the impact of foreign currency exchange rate changes.

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For the three months ended August 4, 2018, the increase in same store sales was primarily attributable to an increase in average transaction value of 9.7%, partially offset by a decrease in average number of transactions per store of 5.3%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

For the six months ended August 4, 2018, the decrease in same store sales was primarily attributable a decrease in average number of transactions per store of 5.9%, partially offset by an increase in average transaction value of 9.1%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

The following table compares our sales of each product category for each of the periods presented:

	Percentage of Total				Percentage of Total
Product Category	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017		Six Months Ended August 4, 2018		Six Months Ended July 29, 2017
Jewelry		49.3		48.5		49.0		48.7
Accessories		50.7		51.5		51.0		51.3
		100.0		100.0		100.0		100.0

Gross profit

In calculating gross profit and gross profit percentages, we exclude the costs related to our distribution center and depreciation and amortization expense. These costs are included instead in “Selling, general and administrative” expenses in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Other retail companies may include these costs in cost of sales, so our gross profit percentages may not be comparable to those retailers.

During the three months ended August 4, 2018, gross profit percentage increased 180 basis points to 50.8% compared to 49.0% during the three months ended July 29, 2017. The increase in gross profit percentage consisted of a 100 basis point decrease in occupancy costs and by an 80 basis point increase in merchandise margin. The decrease in occupancy costs, as a percentage of net sales, resulted primarily from cost reductions associated with store closures. The increase in merchandise margin percentage resulted primarily from a favorable foreign currency translation effect.

During the six months ended August 4, 2018, gross profit percentage increased 130 basis points to 50.4% compared to 49.1% during the six months ended July 29, 2017. The increase in gross profit percentage consisted of a 110 basis point decrease in occupancy costs and a 30 basis point increase in merchandise margin, partially offset by a 10 basis point increase in buying and buying-related costs. The decrease in occupancy costs, as a percentage of net sales, resulted primarily from cost reductions associated with store closures. The increase in merchandise margin percentage resulted primarily from a favorable foreign currency translation effect, partially offset by higher markdowns. Markdowns fluctuate based upon many factors, including the amount of inventory purchased versus the rate of sale and promotional activity. We do not anticipate a significant change in the level of markdowns that would materially affect our merchandise margin.

Selling, general and administrative expenses

During the three months ended August 4, 2018, selling, general and administrative expenses decreased $1.3 million, or 1.2%, compared to the three months ended July 29, 2017. As a percentage of net sales, selling, general and administrative expenses decreased 20 basis points compared to the three months ended July 29, 2017. Excluding an unfavorable $1.4 million foreign currency translation effect, selling, general, and administrative expenses would have decreased by $2.7 million. Excluding the foreign currency translation effect, the decrease was primarily due to decreased compensation-related expense, including concession store commission expense.

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During the six months ended August 4, 2018, selling, general and administrative expenses increased $14.0 million, or 6.2%, compared to the six months ended July 29, 2017. As a percentage of net sales, selling, general and administrative expenses increased 170 basis points compared to the six months ended July 29, 2017. Excluding an unfavorable $7.4 million foreign currency translation effect and non-recurring pre-Chapter 11 consulting expense of $8.6 million, selling, general, and administrative expenses would have decreased by $2.0 million. Excluding the foreign currency translation effect and non-recurring pre-Chapter 11 consulting expense of $8.6 million, the decrease was primarily due to decreased compensation-related expense, including concession store commission expense.

Depreciation and amortization expense

During the three months ended August 4, 2018, depreciation and amortization expense increased $2.8 million to $13.7 million compared to $10.9 million for the three months ended July 29, 2017. Excluding an unfavorable $0.1 million foreign currency translation effect, the increase in depreciation and amortization expense would have been $2.7 million.

During the six months ended August 4, 2018, depreciation and amortization expense increased $4.8 million to $26.9 million compared to $22.1 million for the six months ended July 29, 2017. Excluding an unfavorable $0.6 million foreign currency translation effect, the increase in depreciation and amortization expense would have been $4.2 million.

Other (income) expense, net

The following is a summary of other income activity for the three and six months ended August 4, 2018 and July 29, 2017 (in thousands):

	Three Months Ended August 4, 2018			Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Royalty income	$	(2,809	)	$	(2,934	)	$	(5,279	)	$	(5,278	)
Foreign currency exchange gain, net		(539	)		768			(2,075	)		411
Other income		—			(5	)		—			(5	)
	$	(3,348	)	$	(2,171	)	$	(7,354	)	$	(4,872	)

Reorganization items, net

Reorganization items, net represent amounts incurred after the Commencement Date as a direct result of the Bankruptcy and are comprised of the following for the three and six months ended August 4, 2018 (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
Professional fees	$	22,744	$	33,697
Rejection of leases and other		7,277		7,277
Debtor-in-possession financing costs		432		4,470
Write-off of pre-petition debt issuance costs, debt premium, and adjustment in carrying value		—		(4,982	)
Total reorganization items, net	$	30,453	$	40,462

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Interest expense, net

During the three months ended August 4, 2018, net interest expense aggregated $5.1 million compared to $43.4 million for the three months ended July 29, 2017. The decrease is primarily due to the cessation of recording interest expense on outstanding debt subject to compromise.

During the six months ended August 4, 2018, net interest expense aggregated $30.0 million compared to $87.0 million for the six months ended July 29, 2017. The decrease is primarily due to the cessation of recording interest expense on outstanding debt subject to compromise.

Income taxes

The effective income tax rate was 287.8% and (13.6)% for the three and six months ended August 4, 2018. This effective income tax rate differed from the statutory federal income tax rate of 21.0% primarily from foreign losses with no associated income tax benefit and changes in valuation allowances.

The effective income tax rate was (100.4)% and (8.4)% for the three and six months ended July 29, 2017. This effective income tax rate differed from the statutory federal income tax rate of 35% primarily from foreign tax rate differentials as compared to the U.S. statutory rate, changes in the valuation allowance and the correction of an error associated with the prior quarter.

Segment Operations

We have two reportable segments – North America and Europe. The following is a discussion of results of operations by reportable segment.

North America

Key statistics and results of operations for our North America segment are as follows (dollars in thousands):

	Three Months Ended August 4, 2018			Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales	$	199,454		$	196,033		$	406,388		$	391,993
Increase in same store sales		4.4	%		2.6	%		4.9	%		1.4	%
Gross profit percentage		51.8	%		48.9	%		52.4	%		49.9	%
Number of company-operated stores at the end of the period		1,466			1,614			1,466			1,614
Number of concession stores at the end of the period		6,190			333			6,190			333

During the three months ended August 4, 2018, net sales in North America increased $3.4 million, or 1.7%, from the three months ended July 29, 2017. The increase was attributable to an increase in same store and new company-operated store sales of $8.9 million, increased franchisee sales of $0.7 million and a favorable foreign currency translation effect of our non-U.S. net sales of $0.1 million, partially offset by the effect of company-operated and concession store closures of $6.3 million. Sales would have increased 1.7% excluding the impact from foreign currency exchange rate changes.

During the six months ended August 4, 2018, net sales in North America increased $14.4 million, or 3.7%, from the six months ended July 29, 2017. The increase was attributable to an increase in same store sales of $18.1 million, an increase in new concession and company-operated store sales of $4.1 million, increased franchisee sales of $1.1 million and a favorable foreign currency translation effect of our non-U.S. net sales of $0.6 million, partially offset by the effect of company-operated and concession store closures of $9.5 million. Sales would have increased 3.5% excluding the impact from foreign currency exchange rate changes.

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For the three months ended August 4, 2018, the increase in same store sales was primarily attributable to an increase in average transaction value of 8.5% and an increase in average number of transactions per store of 1.2%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

For the six months ended August 4, 2018, the increase in same store sales was primarily attributable to an increase in average transaction value of 6.7% and an increase in average number of transactions per store of 1.7%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

During the three months ended August 4, 2018, gross profit percentage increased 290 basis points to 51.8% compared to 48.9% during the three months ended July 29, 2017. The increase in gross profit percentage consisted of a 260 basis point decrease in occupancy costs, a 20 basis point increase in merchandise margin and by a 10 basis point decrease in buying and buying-related costs. The decrease in occupancy costs, as a percentage of net sales, resulted primarily from cost reductions associated with store closures. The increase in merchandise margin percentage resulted primarily from higher initial markups and decreased shrink, partially offset by higher markdowns. Markdowns fluctuate based upon many factors, including the amount of inventory purchased versus the rate of sale and promotional activity. We do not anticipate a significant change in the level of markdowns that would materially affect our merchandise margin.

During the six months ended August 4, 2018, gross profit percentage increased 250 basis points to 52.4% compared to 49.9% during the six months ended July 29, 2017. The increase in gross profit percentage consisted of a 260 basis point decrease in occupancy costs, partially offset by a 10 basis point increase in buying and buying-related costs. The decrease in occupancy costs, as a percentage of net sales, resulted primarily from cost reductions associated with store closures.

The following table compares our sales of each product category in North America for each of the periods presented:

	Percentage of Total				Percentage of Total
Product Category	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017		Six Months Ended August 4, 2018		Six Months Ended July 29, 2017
Jewelry		54.3		54.8		53.8		55.1
Accessories		45.7		45.2		46.2		44.9
		100.0		100.0		100.0		100.0

Europe

Key statistics and results of operations for our Europe segment are as follows (dollars in thousands):

	Three Months Ended August 4, 2018			Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales	$	114,994		$	120,604		$	219,066		$	224,265
(Decrease) increase in same store sales		(6.3	)%		3.2	%		(8.1	)%		7.5	%
Gross profit percentage		49.1	%		49.0	%		46.6	%		47.8	%
Number of company-operated stores at the end of the period		1,005			1,046			1,005			1,046
Number of concession stores at the end of the period		441			527			441			527

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During the three months ended August 4, 2018, net sales in Europe decreased $5.6 million, or 4.7%, from the three months ended July 29, 2017. The decrease was attributable to a decrease in same stores sales of $7.7 million, and the effect of company-operated and concession store closures of $1.6 million, partially offset by a favorable foreign currency translation effect of our non-U.S. net sales of $3.7 million. Sales would have decreased 7.4% excluding the impact from foreign currency exchange rate changes.

During the six months ended August 4, 2018, net sales in Europe decreased $5.2 million, or 2.3%, from the six months ended July 29, 2017. The decrease was attributable to a decrease in same stores sales of $19.2 million and the effect of company-operated and concession store closures of $3.6 million, partially offset by a favorable foreign currency translation effect of our non-U.S. net sales of $17.6 million. Sales would have decreased 9.4% excluding the impact from foreign currency exchange rate changes.

For the three months ended August 4, 2018, the decrease in same store sales was primarily attributable to a decrease in average number of transactions per store of 13.0%, partially offset by an increase in average transaction value of 9.2%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

For the six months ended August 4, 2018, the decrease in same store sales was primarily attributable to a decrease in average number of transactions per store of 14.4%, partially offset by an increase in average transaction value of 9.6%. The average transaction value and the average number of transactions are calculated on an average store basis rather than a same store basis.

During the three months ended August 4, 2018, gross profit percentage increased 10 basis points to 49.1% compared to 49.0% during the three months ended July 29, 2017. The increase in gross profit percentage consisted of a 150 basis point increase in merchandise margin and a 10 basis point decrease in buying and buying-related costs, partially offset by a 150 basis point increase in occupancy costs. The increase in merchandise margin percentage resulted primarily from a favorable foreign currency translation effect and lower markdowns, partially offset by lower initial markups. Markdowns fluctuate based upon many factors, including the amount of inventory purchased versus the rate of sale and promotional activity. We do not anticipate a significant change in the level of markdowns that would materially affect our merchandise margin. The increase in occupancy costs, as a percentage of net sales, resulted primarily from the deleveraging effect of a decrease in same store sales.

During the six months ended August 4, 2018, gross profit percentage decreased 120 basis points to 46.6% compared to 47.8% during the six months ended July 29, 2017. The decrease in gross profit percentage consisted of a 210 basis point increase in occupancy costs, partially offset by a 90 basis point increase in merchandise margin. The increase in occupancy costs, as a percentage of net sales, resulted primarily from the deleveraging effect of a decrease in same store sales. The increase in merchandise margin percentage resulted primarily from a favorable foreign currency translation effect and lower markdowns, partially offset by lower initial markups. Markdowns fluctuate based upon many factors, including the amount of inventory purchased versus the rate of sale and promotional activity. We do not anticipate a significant change in the level of markdowns that would materially affect our merchandise margin.

The following table compares our sales of each product category in Europe for each of the periods presented:

	Percentage of Total				Percentage of Total
Product Category	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017		Six Months Ended August 4, 2018		Six Months Ended July 29, 2017
Jewelry		40.8		38.4		40.2		37.7
Accessories		59.2		61.6		59.8		62.3
		100.0		100.0		100.0		100.0

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Liquidity and Capital Resources

On March 22, 2018, the Company, entered into a Credit Agreement (the “DIP Credit Agreement”) among the Company, Claire’s Inc., a Delaware corporation (“Parent”), certain of the Company’s subsidiaries, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent and collateral agent for the Lenders (in such capacities, the “Administrative Agent”), pursuant to which, among other things, the Lenders have provided (i) a senior secured superpriority non-amortizing asset-based revolving facility in an aggregate principal amount of $75,000,000 (the “DIP ABL Loan”), with up to $10,000,000 of such DIP ABL Loan available for the issuance of standby letters of credit and (ii) a superpriority senior secured last-out term facility in an aggregate principal amount of $60,000,000 (the “DIP Term Loan” and together with the DIP ABL Loan, the “DIP Facility”).

The proceeds of the DIP ABL Loan were used to refinance all outstanding obligations and replace commitments under the ABL Credit Facility, including cash collateralization of certain letters of credit previously issued, outstanding and undrawn as of March 22, 2018, the closing date of the DIP Facility (the “DIP Closing Date”), and to pay fees, costs and expenses incurred in connection with the DIP Facility. The proceeds of the DIP Facility will also be used for working capital and general corporate purposes and to fund certain fees payable to professional service providers in connection with prosecuting the Chapter 11 Cases.

The Bankruptcy Court has approved the payment of certain pre-petition employee wages and benefits, the use of the debtors’ existing cash management system, the maintenance and administration of customer programs, the payment of the pre-petition claims of certain vendors, the honoring of insurance-related obligations, and the payment of certain pre-petition taxes and related fees.

Despite the liquidity provided by our existing cash on hand, our ability to maintain normal credit terms with our suppliers may become impaired. We may be required to pay cash in advance to certain vendors and may experience restrictions on the availability of trade credit, which would further reduce our liquidity. If liquidity problems persist, our suppliers could refuse to provide key products and services in the future. In addition, due to the public perception of our financial condition and results of operations, in particular with regard to our potential failure to meet our debt obligations, some vendors could be reluctant to enter into long-term agreements with us.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 Cases.

Although the Company has obtained financing under the DIP Facility, we cannot state with certainty that our liquidity will be sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or that we will be able to confirm a Chapter 11 plan of reorganization that allows us to emerge from bankruptcy. In addition, we must comply with the covenants of our DIP Facility in order to continue to access our borrowings thereunder. These covenants include, among other things, a minimum EBITDA covenant, restrictions on our ability to, among other things, incur or assume additional debt or provide guarantees in respect of obligations of other persons, prepay, redeem or repurchase subordinated debt, make loans and investments, incur certain liens, impose limitations on dividends, loans or asset transfers from subsidiaries, sell or otherwise dispose of assets, including capital stock of subsidiaries, consolidate or merge with or into, or sell substantially all of its assets to another person and enter into transactions with affiliates, provide financial information, budgets and other information, in each case except as permitted by the applicable agreements governing our DIP Facility. We cannot state with certainty that we will be able to comply with the covenants of our DIP Facility or secure additional interim financing or exit financing sufficient to meet our liquidity needs or, if sufficient funds are available, offered to us on acceptable terms.

Our ability to maintain adequate liquidity through the reorganization process and beyond depends on successful operation of our business, and appropriate management of operating expenses and capital spending. Our anticipated liquidity needs are highly sensitive to changes in each of these and other factors.

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As of August 4, 2018, we had $65.6 million of availability under the DIP ABL Loan, net of applicable reserves.

Our independent registered public accountants’ report dated as of April 20, 2018, includes an other matter paragraph regarding the Company’s ability to continue as a going concern. This other matter paragraph constitutes an event of default under the CLSIP Term Loan Agreement that would otherwise permit the lenders under the CLSIP Term Loan to cause such indebtedness to become immediately due and payable. CLSIP Holdings, CLSIP, Wilmington Trust, N.A., as Administrative Agent and Collateral Agent under the CLSIP Term Loan Agreement, and certain of the lenders constituting Required Lenders (as that term is defined by the CLSIP Term Loan Agreement) under the CLSIP Term Loan have entered into a forbearance agreement dated as of April 19, 2018 (the “CLSIP Forbearance”) providing that, among other things, such lenders will forbear from causing the CLSIP Term Loan to become immediately due and payable and from exercising remedies arising from such event of default or other events of default that may arise on account of the commencement of the Chapter 11 Cases and/or any other transaction and/or agreement contemplated by the Restructuring Agreement. The CLSIP Forbearance also increased the interest rate of the loan to bear 11.0% per annum. As a result of the CLSIP Forbearance, the CLSIP Term Loan is classified as long-term debt.

Certain indebtedness of our European subsidiaries in an aggregate principal amount of $85.5 million matures in early 2019, as follows (dollars in millions):

Facility	Outstanding Amount		Maturity
Claire’s Gibraltar Credit Facility	$	34.0		February 4, 2019
Europe Credit Agreement	$	51.5		January 31, 2019

We currently anticipate that our European subsidiaries should be able to refinance this existing indebtedness as it matures, but this will depend on market and other conditions. In addition, efforts to reach agreements on a restructuring of our U.S. debt may impact our ability to refinance the European debt.

A summary of cash flows provided by (used in) operating, investing and financing activities for the six months ended August 4, 2018 and July 29, 2017 is outlined in the table below (in thousands):

	Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Operating activities	$	26,905		$	(33,233	)
Investing activities		(9,127	)		(8,139	)
Financing activities		13,007			16,566

Cash flows from operating activities

For the six months ended August 4, 2018, cash provided by operations increased $60.1 million compared to the prior year period. The primary reason for the increase provided by operations was an increase in operating income and net other items of $85.8 million, offset by an increase in working capital of $25.7 million, excluding cash equivalents. For the six months ended July 29, 2017, cash used in operations decreased $20.3 million compared to the prior year period. The primary reason for the decrease in cash used in operations was an increase in operating income and net other items of $28.8 million, offset by an increase in working capital of $8.5 million, excluding cash equivalents.

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Cash flows from investing activities

For the six months ended August 4, 2018, cash used in investing activities was $9.1 million and consisted of $9.1 million for capital expenditures. For the six months ended July 29, 2017, cash used in investing activities was $8.1 million and consisted of $8.1 million for capital expenditures.

Cash flows from financing activities

For the six months ended August 4, 2018, cash provided by financing activities was $13.0 million, which consisted primarily of proceeds from the issuance of our $60.0 million DIP term loan, partially offset by net payments of $31.0 million under our ABL Credit Facility, payment of $5.3 million for unamortized interest related to long-term debt, payment of $4.5 million in financing costs, payment of $6.0 million for current portion of long-term debt and payment of $0.2 million for a capital lease. For the six months ended July 29, 2017, cash provided by financing activities was $16.6 million, which consisted primarily of net borrowings of $39.8 million under our ABL Credit Facility, partially offset by payment of $18.4 million for the extinguishment of the Senior Subordinated Notes, payment of $4.3 million for unamortized interest related to long-term debt, payment of $0.4 million in financing costs and payment of $0.1 million for a capital lease.

We or our affiliates have purchased and may, from time to time, purchase portions of our indebtedness. All of our purchases have been open market transactions.

Cash Position

As of August 4, 2018, we had cash of $69.4 million.

In addition, as of August 4, 2018, our foreign subsidiaries held cash and cash equivalents of $35.1 million. During the six months ended August 4, 2018, we transferred certain cash held by foreign subsidiaries to the U.S. to meet certain liquidity needs.

ABL Credit Facility

In March 2018, the Company paid an aggregate amount of $71.0 million and, in addition, the related accrued interest associated with the extinguishment of the ABL Credit Facility. As a result, the Company discharged all obligations with respect to the Company’s ABL Credit Facility.

Debt Covenants

Our debt agreements also contain various covenants that limit our ability to engage in specified types of transactions. These covenants, subject to certain exceptions and other basket amounts, limit our and our subsidiaries’ ability to, among other things:

• 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.

For a description of our existing debt and debt agreements, see Note 5 – Debt, in the Unaudited Condensed Consolidated Financial Statements. As of August 4, 2018, we were in compliance with the covenants in all existing debt agreements for debt not subject to compromise.

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See Note 4 – Fair Value Measurements for related fair value disclosure on debt.

Europe Bank Credit Facilities

Our non-U.S. subsidiaries have bank credit facilities totaling $1.9 million. These facilities are used for working capital requirements, letters of credit and various guarantees. These credit facilities have been arranged in accordance with customary lending practices in their respective countries of operation. As of August 4, 2018, we had a reduction of $1.7 million for outstanding bank guarantees, which reduces the borrowing availability to $0.2 million as of that date.

Management Services Agreement

See Note 10 – Related Party Transactions, in the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Fiscal 2017 Annual Report on Form 10-K, filed on April 20, 2018, in the Notes to Consolidated Financial Statements, Note 2 – Summary of Significant Accounting Policies, and the Critical Accounting Policies and Estimates section contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations therein.

Goodwill and indefinite-lived intangible assets are subject to impairment assessments at least annually (or more frequently when events or circumstances indicate that an impairment may have occurred) by applying a fair-value test. These fair value estimates require significant management judgment and are based on the best information available at the time of the analysis. Our principal intangible assets, other than goodwill, are tradenames, franchise agreements, and leases that existed as of the date that the Company was acquired in May 2007, which had terms that were favorable to market at that date. Our impairment testing for Fiscal 2017 resulted in the recognition of a non-cash impairment charge of $1.4 million relating to long-lived assets. We expect to next perform our annual impairment analysis during the fourth fiscal quarter of Fiscal 2018, and we may be required to recognize additional impairment charges at that time or in the future.

Recent Accounting Pronouncements

See Note 3 – Recent Accounting Pronouncements, in the Notes to the Unaudited Condensed Consolidated Financial Statements.

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

We and our representatives may from time to time make written or oral forward-looking statements, including statements contained in this and other filings with the Securities and Exchange Commission and in our press releases and reports to stockholders. All statements which address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to our future financial performance, business strategy, planned capital expenditures, ability to service our debt, and new store openings for future fiscal years, are forward-looking statements. The forward-looking statements are and will be based on management’s then current views and assumptions regarding future events and operating performance, and we assume no obligation to update any forward-looking statement. The forward-looking statements may use the words “expect,” “anticipate,” “plan,” “intend,” “project,” “may,” “believe,” “forecast,” and similar expressions. Forward-looking statements involve known or unknown risks, uncertainties and other factors, including changes in estimates and judgments discussed under “Critical Accounting Policies and Estimates” which may cause our actual results,

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performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of these risks, uncertainties and other factors are as follows: our level of indebtedness; general economic conditions; changes in consumer preferences and consumer spending; unwillingness of vendors and service providers to supply goods or services pursuant to historical customary credit arrangements; competition; general political and social conditions such as war, political unrest and terrorism; natural disasters or severe weather events; currency fluctuations and exchange rate adjustments; failure to maintain our favorable brand recognition; failure to successfully market our products through other channels, such as e-commerce; uncertainties generally associated with the specialty retailing business, such as decreases in mall traffic; disruptions in our supply of inventory; inability to increase same store sales; inability to renew, replace or enter into new store leases on favorable terms; increase in our cost of merchandise; significant increases in our merchandise markdowns; inability to grow our company-operated store base, expand our international store base through franchise or similar licensing arrangements, or expand our store base through concession stores; inability to design and implement new information systems; data security breaches of confidential information or other cyber-attacks; delays in anticipated store openings or renovations; results from any future asset impairment analysis, changes in applicable laws, rules and regulations, including laws and regulations governing the sale of our products, particularly regulations relating to heavy metal and chemical content in our products; changes in anti-bribery laws; changes in employment laws, including laws relating to overtime pay, tax laws and import laws; product recalls; loss of key members of management; increases in the costs of healthcare for our employees; increases in the cost of labor; labor disputes; increases in the cost of borrowings; unavailability of additional debt or equity capital; and the impact of our substantial indebtedness on our operating income and our ability to grow. In addition, we typically earn a disproportionate share of our operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. Risks and uncertainties relating to any capital restructuring initiative include: risks and uncertainties relating to the Chapter 11 Cases, including but not limited to, the Company’s ability to obtain Bankruptcy Court approval with respect to motions filed in the Chapter 11 Cases, the effects of the Chapter 11 Cases on the Company and on the interests of various constituents, Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time the Company will operate as a debtor in possession in Chapter 11, risks associated with motions filed and relief sought by third parties in the Chapter 11 Cases, the potential adverse effects of the Chapter 11 Cases on the Company’s liquidity or results of operations or business prospects and increased legal and other professional costs necessary to execute the Company’s reorganization; risks and uncertainties associated with the transactions contemplated in the DIP Credit Agreement, Backstop Agreement and Restructuring Support Agreement, including satisfaction of the conditions thereto are subject to certain conditions, which conditions may not be satisfied for various reasons, including for reasons outside of the Company’s control, including the negotiation of terms, conditions and provisions related thereto; the ability of the Company to obtain requisite support for the restructuring and a Chapter 11 plan of reorganization from various stakeholders; the ability of the Company to continue as a going concern; the ability of the Company and its Debtor affiliates to confirm a Chapter 11 plan of reorganization; and the effects of disruption from the Chapter 11 Cases and any restructuring transactions pursued or consummated in connection therewith or relating thereto, making it more difficult to maintain business, financing and operational relationships, to obtain and maintain normal terms with customers, suppliers and service providers and to retain key executives and to maintain various licenses and approvals necessary for the Company to conduct its business. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Additional discussion of these and other risks and uncertainties is contained elsewhere in this Item 2, in Item 3, “Quantitative and Qualitative Disclosures About Market Risk” and in our Form 10-K for Fiscal 2017 under “Statement Regarding Forward-Looking Disclosures” and “Risk Factors.”

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Cash

We have significant amounts of cash at financial institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on our deposits. We mitigate this risk by maintaining bank accounts with a group of credit worthy financial institutions.

Interest Rates

As of August 4, 2018, we had fixed rate debt of $2,066.7 million and variable rate debt of $94.0 million. Based on our variable rate balance as of August 4, 2018, a 1% change in interest rates would increase or decrease our annual interest expense by approximately $0.9 million.

Foreign Currency

We are exposed to market risk from foreign currency exchange rate fluctuations on the United States dollar (“USD” or “dollar”) value of foreign currency denominated transactions and our investments in foreign subsidiaries. We manage this exposure to market risk through our regular operating and financing activities, and may from time to time, use foreign currency hedges. Exposure to market risk for changes in foreign currency exchange rates relates primarily to our foreign operations’ buying, selling, and financing in currencies other than local currencies and to the carrying value of net investments in foreign subsidiaries. As of August 4, 2018, we maintained no foreign currency options. We generally do not hedge the translation exposure related to our net investment in foreign subsidiaries. Included in “Comprehensive loss” are $(15.1) million and $14.0 million, net of tax, reflecting the unrealized gain on foreign currency translations and intra-entity foreign currency transactions during the six months ended August 4, 2018 and July 29, 2017, respectively.

Certain of our subsidiaries make significant USD purchases from Asian suppliers, particularly in China. Until July 2005, the Chinese government pegged its currency, the yuan renminbi (“RMB”), to the USD, adjusting the relative value only slightly and on infrequent occasion. Many people viewed this practice as leading to a substantial undervaluation of the RMB relative to the USD and other major currencies, providing China with a competitive advantage in international trade. China now allows the RMB to float to a limited degree against a basket of major international currencies, including the USD, the euro and the Japanese yen. The official exchange rate has historically remained stable; however, there are no assurances that this currency exchange rate will continue to be as stable in the future due to the Chinese government’s adoption of a floating rate with respect to the value of the RMB against foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on China to adopt an even more flexible and more market-oriented currency policy that allows a greater fluctuation in the exchange rate between the RMB and the USD. This floating exchange rate, and any appreciation of the RMB that may result from such rate, could have various effects on our business, which include making our purchases of Chinese products more expensive. If we are unable to negotiate commensurate price decreases from our Chinese suppliers, these higher prices would eventually translate into higher costs of sales, which could have a material adverse effect on our results of operations.

The results of operations of our foreign subsidiaries, when translated into U.S. dollars, reflect the average foreign currency exchange rates for the months that comprise the periods presented. As a result, if foreign currency exchange rates fluctuate significantly from one period to the next, results in local currency can vary significantly upon translation into U.S. dollars. Accordingly, fluctuations in foreign currency exchange rates, most notably the strengthening of the dollar against the euro, could have a material impact on our revenue growth in future periods.

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General Market Risk

Our competitors include department stores, specialty stores, mass merchandisers, discount stores and other retail and internet channels. Our operations are impacted by consumer spending levels, which are affected by general economic conditions, consumer confidence, employment levels, availability of consumer credit and interest rates on credit, consumer debt levels, consumption of consumer staples including food and energy, consumption of other goods, adverse weather conditions and other factors over which we have little or no control. The increase in costs of such staple items has reduced the amount of discretionary funds that consumers are willing and able to spend for other goods, including our merchandise. Should there be continued volatility in food and energy costs, recession in the United States and Europe, rising unemployment and continued declines in discretionary income, our revenue and margins could be significantly affected in the future. We cannot predict whether, when or the manner in which the economic conditions described above will change. See also “Cautionary Note Regarding Forward Looking Statements and Risk Factors.”

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including each of such officers as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

No changes in our internal control over financial reporting have been made during the quarter ended August 4, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, involved in routine litigation incidental to the conduct of our business, including litigation instituted by persons injured upon premises under our control; litigation regarding the merchandise that we sell, including product and safety concerns regarding heavy metal and chemical content in our merchandise; litigation with respect to various employment matters, including wage and hour litigation; litigation with present or former employees; and litigation regarding intellectual property rights. Although litigation is routine and incidental to the conduct of our business, like any business of our size which employs a significant number of employees and sells a significant amount of merchandise, such litigation can result in large monetary awards when judges, juries or other finders of facts do not agree with management’s evaluation of possible liability or outcome of litigation. In the opinion of management, we believe that current pending litigation will not have a material adverse effect on our consolidated financial results.

See Note 2 – Bankruptcy Filing for a description of the Chapter 11 Cases.

Notwithstanding the foregoing, any litigation pending against the Company or any of the Debtors as of the Commencement Date and any claims that could be asserted against the Company or any of the Debtors that arose prior to the Commencement Date are automatically stayed as a result of the commencement of the Chapter 11 Cases pursuant to section 362 of the Bankruptcy Code, subject to certain statutory exceptions. These matters will be subject to resolution in accordance with the Bankruptcy Code and applicable orders of the Bankruptcy Court.

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Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in our Annual Report on Form 10-K for the year ended February 3, 2018.

Item 6. Exhibits

10.1	Amendment to Restructuring Support Agreement. (1)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). (1)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). (1)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

⁽¹⁾  Filed herewith.

Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CLAIRE’S STORES, INC.
September 14, 2018	By:	/s/ Ron Marshall
		Ron Marshall, Chief Executive Officer (principal executive officer)
September 14, 2018	By:	/s/ Scott Huckins
		Scott Huckins, Executive Vice President and Chief Financial Officer (principal financial officer)

48

EX-10.1

Exhibit 10.1

EXECUTION VERSION

THIS AGREEMENT IS NOT, AND SHALL NOT BE DEEMED, A SOLICITATION FOR CONSENTS TO ANY CHAPTER 11 PLAN OF REORGANIZATION PURSUANT TO SECTIONS 1125 AND 1126 OF THE BANKRUPTCY CODE OR A SOLICITATION TO TENDER OR EXCHANGE ANY OF THE FIRST LIEN CLAIMS. EACH CONSENTING CREDITOR’S VOTE ON THE PLAN SHALL NOT BE SOLICITED UNTIL THE CONSENTING CREDITORS HAVE RECEIVED THE DISCLOSURE STATEMENTS AND RELATED BALLOT(S), AS APPROVED BY THE BANKRUPTCY COURT

FIRST AMENDED RESTRUCTURING SUPPORT AGREEMENT

This First Amended Restructuring Support Agreement dated as of March 19, 2018 (as amended, supplemented, or otherwise modified from time to time, this “Agreement”), as amended as of July 7, 2018, is among: (i) Claire’s Inc. (“Claire’s”) and each of its direct and indirect wholly-owned domestic subsidiaries identified on the signature pages attached hereto (collectively, the “Company”), (ii) Apollo Management Holdings, L.P., as manager and/or investment advisor of funds that are the owners and/or beneficial holders of interests in and claims against the Company (together with its affiliates, the “Sponsor”), and (iii) each of the undersigned creditors party hereto from time to time (including Transferees and Joining Parties, collectively the “Consenting Creditors,” and together with the Sponsor and the Company, each a “Party” and, collectively, the “Parties”). All capitalized terms not defined herein shall have the meanings ascribed to them in the restructuring term sheet attached hereto as Exhibit A (including exhibits attached thereto, the “Restructuring Term Sheet”), which Restructuring Term Sheet is expressly incorporated by reference herein and made a part of this Agreement as if fully set forth herein.

RECITALS:

WHEREAS, before the date hereof, the Parties and their representatives have engaged in arm’s-length, good-faith negotiations regarding a restructuring of the existing debt and other obligations of the Company on the terms and conditions set forth in this Agreement (the “Restructuring”);

WHEREAS, the Parties have agreed to take certain actions in support of the Restructuring on the terms and conditions set forth in this Agreement and the Restructuring Term Sheet (which Restructuring Term Sheet is expressly incorporated by reference herein and made a part of this Agreement as if fully set forth herein); and

WHEREAS, the Company will be implementing the Restructuring through a pre-negotiated joint chapter 11 plan of reorganization and certain other transactions as set forth herein and in the Restructuring Term Sheet.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which each of the Parties hereby acknowledges, each Party, intending to be legally bound hereby, agrees as follows:

1. DEFINITIONS; RULES OF CONSTRUCTION.

(a) Definitions. The following terms shall have the following definitions:

“Ad Hoc First Lien Group” means that certain ad hoc group of holders of First Lien Claims, each in their capacities as such, represented by Willkie Farr & Gallagher LLP and Millstein & Co.

“Agreement” has the meaning set forth in the preamble hereof, and includes, for the avoidance of doubt, the Restructuring Term Sheet and all exhibits thereto.

“Agreement Effective Date” means: (i) with respect to the Consenting Creditors, the first day on which each of the conditions set forth at Section 37(a) have been satisfied, and (ii) with respect to the Company, the first day on which each of the conditions set forth at Section 37(b) have been satisfied.

“Alternative Proposal” means any plan of reorganization or liquidation, proposal, term sheet, offer, transaction, dissolution, winding up, liquidation, reorganization, refinancing, recapitalization, restructuring, merger, consolidation, business combination, joint venture, partnership, sale of material assets or equity involving the majority of the Company’s or one or more of its controlled subsidiaries’ equity, assets or liabilities, other than the Restructuring.

“Backstop Parties” means the Initial Consenting Creditors and Sponsor.

“Bankruptcy Code” means title 11 of the United States Code, 11 U.S.C. §§ 101–1532.

“Bankruptcy Court” means the United States Bankruptcy Court for the District of Delaware, administering the Chapter 11 Cases.

“Breakup Fee” has the meaning set forth in Section 5(b) hereof.

“Business Day” means any day other than Saturday, Sunday, and any day that is a legal holiday or a day on which banking institutions in New York, New York are authorized by law or other governmental action to close.

“Chapter 11 Cases” means the voluntary chapter 11 cases filed by the Debtors.

“Claim” means any claim as that term is defined by section 101(5) of the Bankruptcy Code.

“Claire’s” has the meaning set forth in the preamble hereof.

“Claire’s 2019 1L Notes” means the notes issued pursuant to the Claire’s 2019 1L Notes Indenture.

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“Claire’s 2019 1L Notes Indenture” means that certain Senior Secured First Lien Notes Indenture, dated as of February 28, 2012, between Claire’s Escrow II Corporation, and the Bank of New York Mellon Trust Company, N.A., as Trustee and Collateral Agent, as amended, modified, or supplemented from time to time.

“Claire’s 2020 1L Notes” means the notes issued pursuant to the Claire’s 2020 1L Notes Indenture.

“Claire’s 2020 1L Notes Indenture” means that certain Senior Secured First Lien Notes Indenture, dated as of March 15, 2013, between Claire’s Stores, Inc. as the issuer, and the Bank of New York Mellon Trust Company, N.A., as Trustee and Collateral Agent, as amended, modified, or supplemented from time to time.

“CLSIP Forbearance Agreement” shall have the meaning set forth in the Restructuring Term Sheet.

“Company” has the meaning set forth in the preamble hereof.

“Company Termination Event” has the meaning set forth in Section 11 hereof.

“Confidential Claims Information” has the meaning set forth in Section 4(a)(viii) hereof.

“Confirmation Order” means an order entered by the Bankruptcy Court confirming the Plan and approving assumption of the New Money Backstop Commitment Agreement that is consistent with this Agreement and otherwise reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors (as evidenced by their written approval).

“Consenting Creditors” has the meaning set forth in the preamble hereof.

“Creditor Termination Event” has the meaning set forth in Section 8 hereof.

“Debtors” means those Company entities identified on Schedule A to the Restructuring Term Sheet.

“Definitive Documentation” means the (i) Plan, (ii) Confirmation Order, (iii) Disclosure Statement, (iv) Disclosure Statement Order, (v) any intercompany financing agreements (vi) the CLSIP Forbearance Agreement; (vii) New First Lien Term Loan, (viii) New ABL Revolver, (ix) New Money Backstop Commitment Agreement, (x) Shareholders Agreement, (xi) Plan Supplement, (xii) Organizational Documents, (xiii) any court filings filed by the Debtors in the Chapter 11 Cases to implement the foregoing, and (xiv) any other documents or exhibits related to or contemplated in the foregoing clause (i) – (xiv), each of which shall be consistent with this Agreement and otherwise reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors (as evidenced by their written approval).

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“DIP Financing” means the DIP Facilities, the DIP Term Sheet and any subsequent debtor-in-possession financing to which the Requisite Consenting Creditors consent.

“DIP Orders” means the orders entered by the Bankruptcy Court approving the DIP Financing on an interim and final basis.

“Disclosure Statement” means the Company’s disclosure statement, including any exhibits, appendices, related documents, ballots, and procedures related to the solicitation of votes to accept or reject the Plan, in each case, as amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof, that is consistent with this Agreement and otherwise reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors (as evidenced by their written approval).

“Disclosure Statement Order” means an order entered by the Bankruptcy Court approving the Disclosure Statement and solicitation materials as containing, among other things, “adequate information” as required by sections 1125 and 1126(b) of the Bankruptcy Code that is consistent with this Agreement and otherwise reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors (as evidenced by their written approval).

“Effective Date” means the date upon which all conditions precedent to the effectiveness of the Plan have been satisfied or are expressly waived in accordance with the terms thereof, as the case may be, and on which the Restructuring and the other transactions to occur on the effective date pursuant to the Plan become effective or are consummated.

“Eligible Institution” means (a) a commercial bank (i) organized under the laws of the United States of America, any state thereof, or the District of Columbia, or that is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof, or the District of Columbia, and is a member of the Federal Reserve System or (ii) organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States or (b) any other lender that does not hold any Claims against or Interests in the Company and specializes in providing asset-based or cash flow revolving financing to variety of customers as part of its main business and that is (i) organized under the laws of the United States of America, any state thereof or the District of Columbia or (ii) organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, provided that such institution is acting through a branch or agency located in the United States.

“Executory Contracts and Leases Information” has the meaning set forth in Section 4(a)(v) hereof.

“Existing ABL Revolver” means that certain ABL Credit Agreement, dated as of September 20, 2016, between Claire’s Stores, Inc. as borrower, and Credit Suisse AG as Administrative Agent, as amended, modified, or supplemented from time to time.

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“Existing RCF” means that certain Second Amended and Restated Credit Agreement, dated as of September 20, 2016, between Claire’s Stores, Inc. as borrower, and Credit Suisse AG as Administrative Agent, as amended, modified, or supplemented from time to time.

“Fee Letters” means (i) that certain letter agreement dated as of January 12, 2018 among Millstein & Co., Willkie Farr & Gallagher, LLP, Claire’s Stores, Inc. and certain Initial Consenting Creditors; and (ii) that certain letter agreement dated January 16, 2018 among Willkie Farr & Gallagher LLP to Claire’s Stores, Inc.

“First Lien Claims” means all Claims arising under the First Lien Term Loan Credit Agreement, the Claire’s 2019 1L Notes Indenture, the Claire’s 2020 1L Notes Indenture, and the term loans and notes issued pursuant to the foregoing instruments.

“First Lien Debt” means all indebtedness arising under the First Lien Term Loan Credit Agreement, the Claire’s 2019 1L Notes Indenture, the Claire’s 2020 1L Notes Indenture, and the term loans and notes issued pursuant to the foregoing instruments.

“First Lien Fees and Expenses” means the reasonable and documented fees and expenses of (i) the Initial Consenting Creditors (other than professional fees and expenses) incurred in connection with the negotiation and implementation of the Restructuring; (ii) Paul, Weiss, Rifkind, Wharton & Garrison LLP as advisor to the Sponsor in its capacity as holder of certain First Lien Claims; and (iii) the First Lien Professionals incurred in their representation of holders of First Lien Claims in such capacity, from January 12, 2018 through and including the later of either (x) the termination of the applicable fee period in each Fee Letter and (y) the Effective Date; provided that documentation with respect to First Lien Fees and Expenses shall be summary in nature and shall be redacted to preserve attorney-client privilege.

“First Lien Professionals” means (i) Willkie Farr & Gallagher LLP, Morris Nichols, Arsht & Tunnell LLP, as local counsel, and Millstein & Co., each in their capacities as advisors to the Ad Hoc First Lien Group, (ii) an executive compensation consultant and (iii) such other legal, consulting, financial, and/or other professional advisors as may be retained from time to time by the Ad Hoc First Lien Group with the Company’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed).

“First Lien Term Loan” means the Senior Secured First Lien Term Loan due 2021 issued under the First Lien Term Loan Credit Agreement.

“First Lien Term Loan Credit Agreement” means the $40,000,000 Term Loan Credit Agreement dated as of September 20, 2016, among Claire’s Stores, Inc. as borrower, and Wilmington Trust, National Association as Administrative Agent and Collateral Agent, as amended, modified, or supplemented from time to time.

“Gibraltar Amendment” has the meaning set forth in Section 4(a)(xiii) hereof.

“Initial Consenting Creditors” means, collectively, Diameter Capital Partners LP, Elliott Management Corporation, Monarch Alternative Capital LP, The Cincinnati High Yield Desk of J.P. Morgan Investment Management Inc., The Indianapolis High Yield Desk of J.P. Morgan Investment Management Inc., and Venor Capital Management LP.

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“Interest” means any equity security or other rights, options, warrants, stock appreciation rights, phantom stock rights, restricted stock units, redemption rights, repurchase rights, convertible, exercisable or exchangeable securities or other agreements, arrangements or commitments of any character relating to, or whose value is related to, any such interest or other ownership interest in the Company.

“Joinder” has the meaning set forth in Section 36 hereof.

“Joining Party” has the meaning set forth in Section 36 hereof.

“Marketing Procedures Order” means the Order Granting in Part Motion of Oaktree Capital Management for Entry of an Order Pursuant to Sections 105, 363 and 1107 of the Bankruptcy Code Directing the Debtors to Modify Their Marketing Process [Docket No. 543], entered by the Bankruptcy Court on June 22, 2018.

“Material Adverse Change” means any event, change, effect, occurrence, development, circumstance or change of fact occurring after the date hereof that, individually or in the aggregate, has, had, or would reasonably be expected to have a material adverse effect on the business, results or operations, financial condition, assets, or liabilities of the Company and its subsidiaries, taken as a whole; provided that “Material Adverse Change” shall not include any event, effect, occurrence, development, circumstance, or change of fact occurring after the date hereof and arising out of or resulting from (i) conditions or effects that generally affect persons or entities engaged in the industries or markets in which the Company or its subsidiaries operate, (ii) general economic conditions in the United States or Europe, (iii) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States or its territories, possessions, diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (iv) financial, banking, securities, credit, or commodities markets, prevailing interest rates or general capital markets conditions in the United States, Europe, or globally, (v) changes in United States generally accepted accounting principles, (vi) changes in laws, rules, regulations, orders, or other binding directives issued by any governmental entity, or (vii) the taking of any action or any inaction required by this Agreement or the Restructuring, including the commencement of the Chapter 11 Cases and prosecution of the Plan.

“Milestones” means those milestones set forth in the Restructuring Term Sheet; provided that (i) the milestone to obtain entry of the Disclosure Statement Order shall be as soon as reasonably practicable after the Petition Date (but in no event later than July 20, 2018), and (ii) the milestone to cause the Effective Date to occur shall be as soon as reasonably practicable after the Petition Date (but in no event later than the earlier of (a) fifteen (15) calendar days after the entry of the confirmation order and (b) September 30, 2018).

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“New Money Backstop Commitment Agreement” shall have the meaning set forth in the Restructuring Term Sheet.    

“Organizational Documents” means the certificate or articles of incorporation and bylaws, certificate of formation and partnership or operating agreement (as applicable), and any similar documents thereto as may be applicable under applicable law for the reorganized Company.

“Participating Claims” has the meaning set forth in Section 13(a) hereof.

“Parties” has the meaning set forth in the preamble hereof.

“Payout Event” means a chapter 11 plan, other than the Plan, providing for the (i) the indefeasible payment in full in cash, including any accrued but unpaid interest (including postpetition interest at the default contract rate), of: (A) all of the First Lien Claims and (B) all Claims arising under (I) the DIP Financing, (II) the CLSIP Loan, (III) the Gibraltar 2019 Term Loan, (IV) the Gibraltar 2021 Term Loan, and (V) the Gibraltar Intermediate Secured Term Loan; and (ii) treatment of all other Claims against the Company on terms that are no less favorable than as provided in the Restructuring Term Sheet

“Payout Event Proposal” means a good faith proposal, offer, or indication of interest from a Payout Event Sponsor to fund a transaction that contemplates a Payout Event on or prior to November 30, 2018.

“Payout Event Sponsor” means a Person that the Company’s board of directors believes in good faith has expressed, or that may express, a legitimate interest in, and has the financial ability to consummate, a Payout Event.

“Person” means an individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization, a group or any legal entity or association.

“Petition Date” means the date on which the Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code.

“Plan” means the chapter 11 plan of reorganization for the Debtors annexed hereto as Exhibit B, as it may be amended, restated, or supplemented, in accordance with the terms thereof and consistent with this Agreement and the Restructuring Term Sheet.

“Plan Supplement” means the supplement to the Plan in the Chapter 11 Cases, that includes the necessary documentation to effect the Plan and shall be filed before confirmation of the Plan, in form and substance consistent with this Agreement and otherwise reasonably acceptable to the Requisite Consenting Creditors and the Company (as evidenced by their written approval).

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“Qualified Marketmaker” means an entity that (i) holds itself out to the market as standing ready in the ordinary course of business to purchase from and sell to customers Claims, or enter with customers into long and/or short positions in Claims, in its capacity as a dealer or market maker in such Claims, and (ii) is in fact regularly in the business of making a market in claims, interests and/or securities of issuers or borrowers. For the avoidance of doubt, it is acknowledged and agreed that no Initial Consenting Creditor is a Qualified Marketmaker.

“Qualified Marketmaker Joinder Date” has the meaning set forth in Section 13(d) hereof.

“Requisite Consenting Creditors” means, as of any time of determination, the Initial Consenting Creditors holding greater than 66 2/3% of the aggregate amount of all First Lien Claims held at such time by all of the Initial Consenting Creditors.

“Restructuring” has the meaning set forth in the recitals hereof.

“Restructuring Support Period” means the period commencing on the Agreement Effective Date, and ending on the earlier of (i) the date on which this Agreement is terminated with respect to all Parties, and (ii) the Effective Date.

“Restructuring Term Sheet” has the meaning set forth in the recitals hereof.

“Securities Act” has the meaning set forth in Section 7(c) hereof.

“Security Interest” has the meaning set forth in Section 7(b) hereof.

“Sponsor Termination Event” has the meaning set forth in Section 9 hereof.

“Termination Event” means a Creditor Termination Event or a Company Termination Event.

“Transfer” has the meaning set forth in Section 13(a) hereto.

(b) Rules of Construction. Each reference in this Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to this Agreement, including, for the avoidance of doubt, the Restructuring Term Sheet and all exhibits thereto. Additionally, for all references to written notices or other writings described herein, email to the parties set forth in Section 26 shall be sufficient.

(c) Sponsor. For the avoidance of doubt, each reference in this Agreement to the “Sponsor” shall not include any employee or member of Apollo Management Holdings, L.P. and/or its affiliates in such employee’s or member’s capacity as a member of the Company’s board of directors.

2. COMMITMENT OF THE CONSENTING CREDITORS.

(a) Affirmative Covenants. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, each Consenting Creditor shall:

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(i) use commercially reasonable efforts to support and complete the Restructuring and all transactions contemplated under this Agreement, in accordance with the Milestones;

(ii) (A) negotiate in good faith the Definitive Documentation and (B) exercise any and all necessary and appropriate rights, and execute and deliver any and all necessary and appropriate documentation, including any direction letters, in each case, in its capacity as a holder of Claims in furtherance of the Restructuring and the Definitive Documentation;

(iii) timely vote (when solicited to do so in accordance with this Agreement after receipt of a Disclosure Statement approved by the Bankruptcy Court and by the applicable deadline for doing so) all of its Participating Claims to accept the Plan and not to change or withdraw such vote prior to the voting deadline to accept or reject the Plan; provided that such vote shall be deemed revoked and void ab initio at any time following termination of this Agreement;

(iv) use its commercially reasonable efforts to consent to those actions contemplated by this Agreement or otherwise required to be taken to effectuate the Restructuring, including entering into all documents and agreements necessary to consummate the Restructuring;

(v) use its commercially reasonable efforts to promptly notify the Company, in writing, of any material governmental or third-party complaints, litigations, investigations, or hearings (or written communications indicating that the same may be contemplated or threatened) with respect to the Restructuring; provided that no such notice need by given if, in the opinion of counsel, giving such notice is not permitted pursuant to such proceedings;

(vi) upon request by the Company and/or their advisors, use its commercially reasonable efforts to promptly provide, through the First Lien Professionals, the Company or the Company’s advisors the aggregate principal amount of all Claims held by such Consenting Creditor against the Company and its subsidiaries or affiliates, on an issuance-by-issuance basis as of the date of such request;

(vii) to the extent applicable, (A) not opt-out of any third party release contemplated by the Plan and/or (B) opt-in to any third party release contemplated by the Plan; and

(viii) for any Initial Consenting Creditor that is also a CLSIP Creditor, use its commercially reasonable efforts to enter into the CLSIP Forbearance Agreement.

(b) Negative Covenants. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, each Consenting Creditor shall not:

(i) object to, or vote any of such Participating Claims to reject, the Plan;

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(ii) direct the administrative agents under the Existing ABL Revolver, the Existing RCF, and the First Lien Term Loan, and the trustees under the Claire’s 2019 1L Notes Indenture and the Claire’s 2020 1L Notes Indenture or any other individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization, a group, a governmental or regulatory authority, or any legal entity or other Person to exercise any right or remedy for the enforcement, collection, or recovery of any Participating Claims against, or Interests in, the Company, its subsidiaries, or affiliates;

(iii) negotiate, enter into, consummate or otherwise participate in any Alternative Proposal or take any other action, including, but not limited to, initiating any legal proceeding or enforcing rights as holders of Claims, that is inconsistent with, or that would reasonably be expected to prevent or materially delay consummation of, the Restructuring;

(iv) enter into any other restructuring support or similar agreement (including any settlement agreement) with respect to the Restructuring with any material creditor, equity holder, ad hoc group, or statutory committee that would be inconsistent with such Consenting Creditors’ obligations under this Agreement, in each case without the consent of the Company (such consent not to be unreasonably withheld);

(v) directly or indirectly, take any actions, or fail to take any actions, where such taking or failing to take actions would be, in either case, (A) inconsistent with this Agreement or the Definitive Documentation or (B) otherwise inconsistent with, or reasonably expected to prevent, interfere with, delay or impede the implementation or consummation of, the Restructuring;

(vi) directly or indirectly, acquire, beneficially own, or control (whether through syndications, assignments, participations, or otherwise) any DIP ABL Revolving Loans or DIP ABL Revolving Commitments (each as defined in the DIP Term Sheet); or

(vii) directly or indirectly, encourage any entity to undertake any action prohibited by this Section 2(b).

Subject in all respects to applicable intercreditor agreements among the parties thereto, nothing in this Agreement shall prohibit any Consenting Creditor from (x) appearing as a party-in-interest in any matter arising in the Chapter 11 Cases, (y) taking or directing any action to be taken relating to maintenance, protection, or preservation of any collateral or defending its claims and interests, and (z) enforcing any right, remedy, condition, consent, or approval requirement under this Agreement or any Definitive Documentation entered into in connection with the Restructuring; provided that, in each case, any such action is not materially inconsistent with such Consenting Creditor’s obligations hereunder.

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3. COMMITMENT OF THE SPONSOR.

(a) Affirmative Covenants. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, the Sponsor shall:

(i) use commercially reasonable efforts to support and complete the Restructuring and all transactions contemplated under this Agreement, in accordance with the Milestones;

(ii) (A) negotiate in good faith the Definitive Documentation and (B) exercise any and all necessary and appropriate rights, and execute and deliver any and all necessary and appropriate documentation, including any direction letters, in each case, in its capacity as a holder of Claims in furtherance of the Restructuring and the Definitive Documentation;

(iii) timely vote (to the extent solicited to do so in accordance with this Agreement after receipt of a Disclosure Statement approved by the Bankruptcy Court and by the applicable deadline for doing so) all of its Participating Claims and Interests to accept the Plan and not to change or withdraw such vote prior to the voting deadline to accept or reject the Plan; provided that such vote shall be deemed revoked and void ab initio at any time following termination of this Agreement;

(iv) use commercially reasonable efforts to consent to those actions contemplated by this Agreement or otherwise required to be taken to effectuate the Restructuring, including entering into all documents and agreements necessary to consummate the Restructuring;

(v) use commercially reasonable efforts to promptly notify the Company and the Ad Hoc First Lien Group, in writing, of any material governmental or third-party complaints, litigations, investigations, or hearings (or written communications indicating that the same may be contemplated or threatened) with respect to the Restructuring; provided that no such notice need be given if, in the opinion of counsel, giving such notice is not permitted pursuant to such proceedings;

(vi) upon request by the Company, the Ad Hoc First Lien Group and/or their respective advisors, use its commercially reasonable efforts to promptly provide the aggregate principal amount of all Claims held by the Sponsor against the Company and its subsidiaries or affiliates, on an issuance-by-issuance basis as of the date of such request;

(vii) to the extent applicable, (A) not opt-out of any third party release contemplated by the Plan and/or (B) opt-in to any third party release contemplated by the Plan; and

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(viii) use commercially reasonably efforts to promptly notify or update the Company and the Ad Hoc First Lien Group upon becoming aware (A) of a breach by one or more Party of its obligations under this Agreement, (B) that a Termination Event has occurred, and (C) of any developments or any case or controversy that has been commenced or may be commenced against the Company or any of the Consenting Creditors that would reasonably be expected to impede or prevent consummation of the Restructuring; provided that, for the avoidance of doubt, none of the obligations in this paragraph (ix) shall apply to any information learned by an employee or member of the Sponsor in his or her capacity as a member of the Company’s board of directors.

(b) Negative Covenants. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, the Sponsor shall not:

(i) object to, or vote any of such Claims to reject, the Plan;

(ii) vote any of its Claims in favor of or support, directly or indirectly, any Alternative Proposal;

(iii) publicly announce its intention not to pursue the Restructuring or file any pleading with the Bankruptcy Court inconsistent with this Agreement;

(iv) direct any other individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization, a group, a governmental or regulatory authority, or any legal entity or other Person to exercise any right or remedy for the enforcement, collection, or recovery of any Claims against, or Interests in, the Company, its subsidiaries, or affiliates;

(v) negotiate, enter into, consummate, or assist in the submission or development of or otherwise participate in any Alternative Proposal or take any other action, including, but not limited to, initiating any legal proceeding or enforcing rights as holders of Claims or Interests, that is inconsistent with, or that would reasonably be expected to prevent or materially delay consummation of, the Restructuring; for the avoidance of doubt, in no event shall the Sponsor take any action to solicit, initiate, encourage, or assist the submission or development of any Payout Event Proposal;

(vi) enter into any other restructuring support or similar agreement (including any settlement agreement) with respect to the Restructuring with any material creditor, equity holder, ad hoc group, or statutory committee that would be inconsistent with Sponsor’s obligations under this Agreement, in each case without the consent of the Company and the Requisite Consenting Creditors (such consent not to be unreasonably withheld);

(vii) directly or indirectly, take any actions, or fail to take any actions, where such taking or failing to take actions would be, in either case, (A) inconsistent with this Agreement or the Definitive Documentation or (B) otherwise inconsistent with, or reasonably expected to prevent, interfere with, delay or impede the implementation or consummation of, the Restructuring;

(viii) solicit, initiate, encourage, assist the submission or development of, or negotiate any financing for the Debtors that is not the DIP Financing; or

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(ix) directly or indirectly, encourage any entity to undertake any action prohibited by this Section 3(b).

Subject in all respects to applicable intercreditor agreements among the parties thereto, nothing in this Agreement shall prohibit the Sponsor from (x) appearing as a party-in-interest in any matter arising in the Chapter 11 Cases, (y) taking or directing any action to be taken relating to maintenance, protection, or preservation of any collateral or defending its claims and interests, and (z) enforcing any right, remedy, condition, consent, or approval requirement under this Agreement or any Definitive Documentation entered into in connection with the Restructuring; provided that, in each case, any such action is not materially inconsistent with the Sponsor’s obligations hereunder.

4. COVENANTS OF THE COMPANY.

(a) Affirmative Covenants of the Company. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, the Company shall:

(i) use commercially reasonable efforts to support and complete the Restructuring and all transactions contemplated under this Agreement, in accordance with the Milestones, including commencing the Chapter 11 Cases;

(ii) negotiate in good faith the Definitive Documentation;

(iii) use commercially reasonable efforts to obtain any and all required governmental, regulatory, licensing, Bankruptcy Court, or other approvals (including, without limitation, any necessary third-party consents) necessary to implement and/or consummate the Restructuring;

(iv) use commercially reasonable efforts to lift or otherwise reverse the effect of any injunction or other order or ruling of a court or regulatory body that would impede the consummation of the Restructuring;

(v) (1) cause Hilco Real Estate, LLC, the Company’s real estate advisor, to consult weekly with the First Lien Professionals and the Ad Hoc First Lien Group on the Company’s lease assumption and rejection strategy, (2) consult in good faith with the counsel and financial advisor to the Ad Hoc First Lien Group on the Company’s lease assumption and rejection strategy, including with respect to negotiations on the rejection, modification, or assumption of leases, (3) consult in good faith with the First Lien Professionals prior to the Company’s entry into, termination, or modification of any material operational contracts or other arrangements (including without limitation, concessions agreements and European operations); and (4) use commercially reasonable efforts to identify in writing to the First Lien Professionals the contracts and leases proposed to be assumed, assumed and assigned, or rejected by motion to the Bankruptcy Court or pursuant to the Plan at least 5 business days prior to filing the Plan Supplement (the “Executory Contracts and Leases Information”). The Company shall make relevant personnel or advisors reasonably available during business hours to provide reasonable assistance to the Initial Consenting Creditors’ review of any such executory contracts and leases identified in the Executory Contracts and Leases Information;

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(vi) use commercially reasonable efforts to operate the Company in the ordinary course consistent with industry practice and the operations contemplated pursuant to the Company’s business plan (as may be updated from time to time in consultation with the Ad Hoc First Lien Group), taking into account the Restructuring and the commencement of the Chapter 11 Cases;

(vii) use commercially reasonable efforts to promptly notify or update the Initial Consenting Creditors upon becoming aware of any of the following occurrences: (A) a Termination Event has occurred; (B) any person has challenged the validity or priority of, or has sought to avoid, any lien securing the First Lien Claims pursuant to a pleading filed with the Bankruptcy Court or otherwise; (C) any developments, negotiations, or proposals relating to any material contracts or case or controversy against the Company that has been or may be commenced against the Company that would reasonably be expected to impede or prevent consummation of the Restructuring; or (D) a written proposal with respect to an Alternative Proposal, including a Payout Event Proposal, with such notice to include the identity of the non-Debtor Person or group of Persons involved as well as a written copy of such Alternative Proposal;

(viii) unless the Company obtains the prior written consent of a Consenting Creditor: (x) use the information regarding any Claims owned at any time by such Consenting Creditor (the “Confidential Claims Information”) solely in connection with this Agreement (including any disputes relating thereto); and (y) except as required by law, rule, or regulation or by order of a court or as requested or required by the Securities and Exchange Commission or by any other federal or state regulatory, judicial, governmental, or supervisory authority or body, keep the Confidential Claims Information strictly confidential and not disclose the Confidential Claims Information to any other Person. In the event that the Company is required (by law, rule, regulation, deposition, interrogatories, requests for information or documents in legal or administrative proceedings, subpoena, civil investigative demand or other similar process, or by any governmental, judicial, regulatory, or supervisory body) to disclose the Confidential Claims Information or the contents thereof, the Company shall, to the extent legally permissible, provide affected Consenting Creditors with prompt notice of any such request or requirement so that such Consenting Creditors may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this section at such Consenting Creditor’s sole cost and expense. If, in the absence of a protective order or other remedy or the receipt of a waiver from a Consenting Creditor, the Company believes that it is nonetheless, following consultation with counsel, required to disclose the Confidential Claims Information, the Company may disclose only that portion of the Confidential Claims Information that it believes, following consultation with counsel, it is required to disclose, provided that it exercises reasonable efforts to preserve the confidentiality of the Confidential Claims Information, including, without limitation, by marking the Confidential Claims Information “Confidential – Attorneys’ Eyes Only” and by reasonably cooperating with the affected Consenting Creditor to

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obtain an appropriate protective order or other reliable assurance that confidential and attorneys’ eyes only treatment will be accorded to the Confidential Claims Information. In no event shall this Agreement be construed to impose on a Consenting Creditor an obligation to disclose the price for which it acquired or disposed of any Claim. The Company’s obligations under this Section 4(a)(viii) shall survive termination of this Agreement;

(ix) use commercially reasonable efforts to cause the signature pages attached to this Agreement to be redacted to the extent this Agreement is filed on the docket maintained in the Chapter 11 Cases, posted on the Company’s website, or otherwise made publicly available;

(x) (A) after the Petition Date, and to the extent authorized by the Bankruptcy Court pursuant to any order providing adequate protection to holders of First Lien Claims, promptly pay the First Lien Fees and Expenses (which, for the avoidance of doubt, shall not include success fees, transaction fees, or similar fees), other than those fees and expenses set forth in clause (ii) of the definition of First Lien Fees and Expenses, as adequate protection as provided by the Restructuring Term Sheet so long as a Company Termination Event has not occurred and is not continuing; and (B) on the Effective Date, pay, in full, all unpaid First Lien Fees and Expenses (which, for the avoidance of doubt, shall include success fees, transaction fees, or similar fees);

(xi) use commercially reasonable efforts and work in good faith to finalize the Definitive Documentation, including, without limitation, the form of the documents in the Plan Supplement so that before the commencement of the hearing on confirmation of the Plan each such document has been filed in forms that are consistent with this Agreement and otherwise reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors (as evidenced by their written approval);

(xii) use commercially reasonable efforts to provide the Initial Consenting Creditors or the First Lien Professionals with copies of any information or reporting at the same time such information or reporting is provided to DIP agents and/or lenders pursuant to the DIP Financing or the DIP Orders;

(xiii) use commercially reasonable efforts to provide the Initial Consenting Creditors or the First Lien Professionals with advance copies of any amendment, forbearance agreement or similar document related to the Gibraltar Intermediate Secured Term Loan due 2019 (the “Gibraltar Amendment”), which document shall be reasonably acceptable in form and substance to the Company and the Requisite Consenting Creditors, it being acknowledged and agreed that the term sheet for the Gibraltar Amendment reviewed as of the date hereof is reasonably acceptable; and

(xiv) use commercially reasonable efforts to cause each of its direct and indirect subsidiaries, whether a Party to this Agreement or not, to comply with the terms of this Agreement as if such entity were a Company entity party hereto.

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(b) Negative Covenants of the Company. Subject to the terms and conditions hereof, for the duration of the Restructuring Support Period, the Company (except with the prior written consent of the Requisite Consenting Creditors) shall not, directly or indirectly:

(i) subject to Section 5(a) hereof (and from and after the date hereof), take any action to solicit, initiate, encourage, negotiate, or assist the submission or development of an Alternative Proposal;

(ii) (A) publicly announce its intention not to pursue the Restructuring; (B) suspend or revoke the Restructuring; or (C) execute any agreements, instruments, or other documents (including any modifications or amendments to any Definitive Documentation necessary to effectuate the Restructuring) that, in whole or in part, are not materially consistent with this Agreement;

(iii) directly or indirectly, take any actions, or fail to take any actions, where such taking or failing to take actions would be, in either case, (A) inconsistent with this Agreement or the Definitive Documentation or (B) otherwise inconsistent with, or reasonably expected to prevent, interfere with, delay or impede the implementation or consummation of, the Restructuring;

(iv) enter into, terminate, or otherwise modify any material operational contracts, leases, or other arrangements (including without limitation, concessions agreements and European operations) without the prior written consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld, conditioned, or delayed);

(v) (A) redeem, purchase or acquire, or offer to acquire any shares of, or any options, warrants, conversion privileges, or rights of any kind to acquire any shares of, any of its capital stock or other equity interests, or (B) issue, sell, pledge, dispose of, or grant or incur any encumbrance on, any shares of, or any options, warrants, conversion privileges, or rights of any kind to acquire any shares of, any of its capital stock or other equity interests (other than issuances of equity interests upon the exercise, exchange, or conversion of options, warrants, or other conversion privileges that are outstanding as of the date hereof and only in accordance with the terms of such options, warrants, or other conversion privileges as in effect on the date hereof);

(vi) other than as required by the Restructuring Term Sheet or the Plan, amend or propose to amend its respective certificate or articles of incorporation, bylaws, LLC Agreement, or other comparable organizational documents;

(vii) (A) split, combine or reclassify any outstanding shares of its capital stock or other equity interests, or (B) declare, set aside or pay any dividend or other distribution payable in cash, stock, property, a combination thereof, or otherwise with respect to any of its capital stock or other equity interests or any capital stock or other equity interests of any other Person;

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(viii) pay or make any payment, transfer, or other distribution (whether in cash, securities, or other property) of or in respect of principal of or interest on any funded indebtedness for borrowed money of the Debtors that either (A) is expressly subordinate in right of payment to the First Lien Claims or (B) secured by an interest in collateral, which interest is subordinate in priority to that securing any of the First Lien Claims, or any payment or other distribution (whether in cash, securities, or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation, or termination in respect of any such funded indebtedness that is not contemplated by the Restructuring Term Sheet;

(ix) enter into any transaction, or proposed settlement of any claim, litigation, dispute, controversy, cause of action, proceeding, appeal, determination, investigation, matter, or otherwise that will materially impair the Company’s ability to consummate the Restructuring or the value that the Company is committing to provide holders of First Lien Claims in accordance with this Agreement;

(x) file, support, amend or modify the Plan except as provided by this Agreement or otherwise without the consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld);

(xi) enter into any other restructuring support or similar agreement (including any settlement agreement) with respect to the Restructuring with any material creditor, equity holder, ad hoc group, or statutory committee that would be inconsistent with the Company’s obligations under this Agreement or that would materially impair the Company’s ability to consummate the Restructuring within the timeframe contemplated by this Agreement, in each case without the consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld);

(xii) without limiting the Company’s rights under Section 5(a) hereof, solicit, initiate, encourage, assist the submission or development of, negotiate, enter into, file with the Bankruptcy Court, or seek Court approval to enter into any financing that is not the DIP Financing without the written consent of the Requisite Consenting Creditors, such consent not to be unreasonably withheld, provided that such consent shall not be required if the Company is seeking alternate DIP financing and one or more Initial Consenting Creditors control the exercise of remedies under the DIP Financing in effect at that time;

(xiii) consent to any assignments of, or participations in, the DIP ABL Revolving Loans or DIP ABL Revolving Commitments to any bank or other financial institutions other than an Eligible Institution without first receiving the written consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld); provided that this clause (xiii) shall not apply to the extent compliance herewith would otherwise breach the Company’s obligations pursuant to that certain Commitment Letter dated as of March 11, 2018 by and between Claire’s Stores, Inc. and Citigroup Global Markets; or

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(xiv) directly or indirectly, encourage any entity to undertake any action prohibited by this Section 4(b).

(c) The Company acknowledges that it has reviewed this Agreement and has decided to enter into this Agreement in the exercise of its fiduciary duties.

5. ADDITIONAL AGREEMENTS; GO-SHOP AND BREAKUP FEE.

(a) From and after the date hereof, the Company shall be authorized to solicit, develop, and negotiate one or more Alternative Proposals pursuant to the Marketing Procedures Order.

(b)

(i) If this Agreement is terminated as to all Parties hereto for any reason other than (x) by the Consenting Creditors following a breach by the Sponsor in respect of which the Consenting Creditors may terminate this Agreement or (y) by the Company upon the breach of Consenting Creditors in respect of which the Company may terminate this Agreement, the Company shall pay to the Backstop Parties a termination fee equal to $38.75 million upon such termination (the “Breakup Fee”).    

(ii) The Company shall make the payment of the Breakup Fee to the Backstop Parties or their designees based upon the allocations set forth on Schedule I hereto

(iii) Following the termination of this Agreement in a circumstance where the Breakup Fee would be payable in accordance with Section 5(b)(i), (x) the Consenting Creditors’ rights to seek allowance of the Breakup Fee as an administrative expense of the Debtors’ estates pursuant to section 503(b)(1) of the Bankruptcy Code and (y) the Company’s and any other party’s rights to oppose such a request are fully reserved.

6. MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS.

(a) Each of the Parties, severally and not jointly, represents and warrants to each other Party that the following statements are true, correct, and complete as of the date hereof (or, if later, the date that such Party first became or becomes a Party) but, solely with respect to the Company, subject to any limitations or approvals arising from, or required by, the commencement of the Chapter 11 Cases:

(i) it is validly existing and in good standing under the laws of the state of its organization, and this Agreement is a legal, valid, and binding obligation of such Party, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability;

(ii) except as expressly provided in this Agreement or as may be required for disclosure by the Securities and Exchange Commission, no material consent or approval of, or any registration or filing with, any other Person is required for it to carry out the Restructuring contemplated by, and perform its obligations under, this Agreement;

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(iii) except as expressly provided in this Agreement, it has all requisite organizational power and authority to enter into this Agreement and to carry out the Restructuring contemplated by, and perform its obligations under, this Agreement;

(iv) the execution and delivery by it of this Agreement, and the performance of its obligations hereunder, have been duly authorized by all necessary organizational action on its part;

(v) it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement; and

(vi) the execution, delivery, and performance by such Party of this Agreement does not and will not (1) violate any provision of law, rule, or regulation applicable to it or any of its subsidiaries or its charter or bylaws (or other similar governing documents) or those of any of its subsidiaries, (2) conflict with, result in a breach of, or constitute (with or without notice or lapse of time or both) a default under any material debt for borrowed money to which it or any of its subsidiaries is a party, or (3) violate any order, writ, injunction, decree, statute, rule, or regulation.

(b) The Company represents and warrants to the Consenting Creditors and the Sponsor that there are no pending agreements or understandings (oral or written) and that it has not entered into a definitive agreement (oral or written) with respect to an Alternative Proposal as of the date first written above.

7. OWNERSHIP OF CLAIMS. Each Consenting Creditor and Sponsor, severally and not jointly, represents and warrants as follows:

(a) as of the date of this Agreement, it (i) either (A) is the beneficial owner of the principal amount of Claims set forth below its signature hereto with the power to vote such Claims or (B) has sole investment or voting discretion with respect to the principal amount of Claims set forth below its signature hereto and has the power and authority to bind the beneficial owner(s) of such Claims to this Agreement, and (ii) does not beneficially own or control any other Claims for outstanding debt obligations other than those Claims identified below its name on it signature page hereof;

(b) other than pursuant to this Agreement, such Claims are free and clear of any pledge, lien, security interest, hypothecation or encumbrance (each, a “Security Interest”), that would materially or adversely affect such Consenting Creditor’s ability to perform its obligations contained in this Agreement at the time such obligations are required to be performed, it being understood that any Security Interest that is released upon the payment of the underlying obligation and any Security Interest in favor of a broker-dealer in connection with any prime brokerage account does not materially and adversely affect a Consenting Creditor’s ability to perform its obligations contained in this Agreement at the time such obligations are required to be performed; and

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(c) (i) it is either (A) a qualified institutional buyer as defined in Rule 144A of the Securities Act, (B) an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act of 1933, as amended (the “Securities Act”), (C) a non-U.S. person under Regulation S under the Securities Act, or (D) the foreign equivalent of (A) or (B) above, and (ii) any securities of the Company acquired by the Consenting Creditor in connection with the Restructuring will have been acquired for investment and not with a view to distribution or resale in violation of the Securities Act.

8. TERMINATION BY REQUISITE CONSENTING CREDITORS.

The Requisite Consenting Creditors may terminate this Agreement, in each case, upon delivery of written notice to the Company and the Sponsor in accordance with Section 26 hereof at any time after the occurrence of or during the continuation of any of the following events (each, a “Creditor Termination Event”):

(a) the breach by the Company of any of its obligations, representations, warranties, or covenants set forth in this Agreement in any respect, which breach of covenant or obligation (if curable) remains uncured three (3) Business Days after the receipt by the Company of written notice of such breach from the Requisite Consenting Creditors;

(b) (i) the issuance, promulgation, or enactment by any governmental entity, including any regulatory or licensing authority or court of competent jurisdiction (including, without limitation, an order of the Bankruptcy Court which has not been stayed), of any statute, regulation, ruling or order declaring this Agreement or any material portion hereof to be unenforceable or enjoining or otherwise restricting the consummation of any material portion of the Restructuring, and/or (ii) the execution by the Company of a settlement or other agreement in respect of any of the counts asserted against it that adversely affects (or would adversely affect if consummated) the consummation of any material portion of the Restructuring, and in each case which remains uncured after three (3) Business Days after receipt by the Company of written notice from the Requisite Consenting Creditors;

(c) a trustee under section 1104 of the Bankruptcy Code or an examiner shall have been appointed in the Chapter 11 Cases, which order has not been reversed, stayed, or vacated after three (3) Business Days;

(d) an order for relief under chapter 7 of the Bankruptcy Code shall have been entered in the Chapter 11 Cases, or the Chapter 11 Cases shall have been dismissed, in each case by order of the Bankruptcy Court, which order has not been reversed, stayed, or vacated after three (3) Business Days;

(e) if any of the Definitive Documentation (including any amendment or modification thereof) filed with the Bankruptcy Court or otherwise finalized, or has become effective, contains terms and conditions that are inconsistent with this Agreement or otherwise not reasonably acceptable in form and substance to the Requisite Consenting Creditors, and such defect remains uncured three (3) Business Days after the receipt by the Company of written notice of such inconsistency from the Requisite Consenting Creditors;

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(f) the Disclosure Statement Order or the Confirmation Order, is (i) amended or modified without the consent of the Requisite Consenting Creditors; or (ii) reversed, permanently stayed, dismissed, or vacated, unless the Bankruptcy Court enters a new Disclosure Statement Order, or a new Confirmation Order, as applicable; in each case which remains uncured after three (3) Business Days after receipt by the Company of written notice by the Requisite Consenting Creditors;

(g) the Company, Sponsor, or any of their respective affiliates file any motion or pleading with the Bankruptcy Court that is not consistent in all material respects with this Agreement and such motion or pleading has not been withdrawn within two (2) Business Days of each of the Company’s and/or the applicable filing party’s receiving written notice from the Requisite Consenting Creditors that such motion or pleading is inconsistent with this Agreement;

(h) the Company (i) withdraws or revokes the Plan, (ii) files, publicly proposes or otherwise supports (in a manner not permitted pursuant to Section 5(a) hereof), or executes a definitive written agreement with respect to an Alternative Proposal, including a Payout Event Proposal, or (iii) executes an amendment or written modification to a Definitive Document that is not consistent with this Agreement;

(i) the Company fails to use commercially reasonable efforts to oppose any (A) Alternative Proposal filed with the Bankruptcy Court, or (B) amendment or modification to the Plan filed with the Bankruptcy Court containing any terms that are inconsistent with this Agreement, unless such amendment or modification is otherwise consented to in writing by the Requisite Consenting Creditors (such consent not to be unreasonably withheld);

(j) the Bankruptcy Court grants relief terminating, annulling, or modifying the automatic stay (as set forth in section 362 of the Bankruptcy Code) with regard to any assets of the Company with an aggregate value in excess of $10,000,000 without the written consent of the Requisite Consenting Creditors, which order has not been reversed, stayed, or vacated after three (3) Business Days;

(k) the Bankruptcy Court grants relief that is inconsistent in any respect with this Agreement and such inconsistent relief is not dismissed, vacated or modified to be consistent with this Agreement within five (5) Business Days of the Company’s receiving written notice from the Requisite Consenting Creditors that such relief is inconsistent with this Agreement;

(l) the Company loses the exclusive right to file and solicit acceptances of a chapter 11 plan;

(m) the Company files, joins or supports (pursuant to a pleading filed with, or a statement made before, the Bankruptcy Court) any motion, application, adversary proceeding or cause of action (A) challenging the validity, enforceability, or priority of, or to avoid, the liens on any asset or assets comprising any portion of the collateral securing the First Lien Claims, (B)

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seeking to impose liability upon or enjoin the holders of First Lien Claims in their capacity as such, or (C) seeking to restrict the rights of holders of First Lien Claims in their capacity as such, in each case unless otherwise consented to in writing by the Requisite Consenting Creditors and where such pleading has not been withdrawn within three (3) Business Days of the Company receiving written notice from the Requisite Consenting Creditors that such motion or pleading is inconsistent with this Agreement; provided, that, the foregoing shall not limit nor be deemed to limit (x) the Company’s rights to enforce this Agreement in any way or (y) the Company’s rights to seek a determination that any adequate protection payments made on account of First Lien Claims should be recharacterized as payment on account of the secured portion of First Lien Claims as of the Petition Date;

(n) the occurrence of a Material Adverse Change;

(o) there is a failure to achieve any Milestone, unless such Milestone is satisfied prior to a termination of this Agreement;

(p) the Effective Date has not occurred by September 30, 2018, subject to extension by the Requisite Consenting Creditors in writing;

(q) the Company executes a definitive written agreement with respect to an Alternative Proposal;

(r) the Company or any of its subsidiaries enters into any Gibraltar

Amendment that is not reasonably acceptable to the Requisite Consenting Creditors, it being acknowledged and agreed that the Gibraltar Amendment contemplated by the term sheet reviewed by the Consenting Creditors as of the date hereof is acceptable; or

(s) the Bankruptcy Court grants relief that is inconsistent in any respect with this Agreement and such inconsistent relief is not dismissed, vacated or modified to be consistent with this Agreement within five (5) Business Days of the Company’s receiving written notice from the Requisite Consenting Creditors that such relief is inconsistent with this Agreement.

9. TERMINATION BY THE SPONSOR. The Sponsor may terminate this Agreement, solely with respect to the Sponsor, at any time after the occurrence of or during the continuation of any of the following events solely to the extent such event adversely impacts the Sponsor (each, a “Sponsor Termination Event”):

(a) the breach by the Company of any of its obligations, representations, warranties, or covenants set forth in this Agreement in any respect, which breach of covenant or obligation (if curable) remains uncured three (3) Business Days after the receipt by the Company of written notice of such breach from the Sponsor;

(b) (i) the issuance, promulgation, or enactment by any governmental entity, including any regulatory or licensing authority or court of competent jurisdiction (including, without limitation, an order of the Bankruptcy Court which has not been stayed), of any statute, regulation, ruling or order declaring this Agreement or any material portion hereof to be unenforceable or enjoining or otherwise restricting the consummation of any material portion of

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the Restructuring, and/or (ii) the execution by the Company of a settlement or other agreement in respect of any of the counts asserted against it that adversely affects (or would adversely affect if consummated) the consummation of any material portion of the Restructuring, and in each case which remains uncured after three (3) Business Days after receipt by the Company of written notice from the Sponsor;

(c) a trustee under section 1104 of the Bankruptcy Code or an examiner shall have been appointed in the Chapter 11 Cases, which order has not been reversed, stayed, or vacated after three (3) Business Days;

(d) an order for relief under chapter 7 of the Bankruptcy Code shall have been entered in the Chapter 11 Cases, or the Chapter 11 Cases shall have been dismissed, in each case by order of the Bankruptcy Court, which order has not been reversed, stayed, or vacated after three (3) Business Days;

(e) the Company (i) withdraws or revokes the Plan, or (ii) files, publicly proposes or otherwise supports (in a manner not permitted pursuant to Section 5(a) hereof), or executes a definitive written agreement with respect to an Alternative Proposal, including a Payout Event Proposal; or

(f) the Bankruptcy Court grants relief that is inconsistent in any respect with this Agreement and such inconsistent relief is not dismissed, vacated or modified to be consistent with this Agreement within five (5) Business Days of the Company receiving written notice from the Sponsor that such relief is inconsistent with this Agreement.

10. MUTUAL TERMINATION. This Agreement may be terminated by mutual, written agreement among (a) the Company, and (b) the Requisite Consenting Creditors.

11. COMPANY TERMINATION EVENTS. The Company may terminate this Agreement, upon the occurrence of any of the following events (each a “Company Termination Event):

(a) a failure by any Consenting Creditor to timely vote all its Participating Claims (as defined herein) in accordance with Section 2(a)(iii) hereof; provided that the foregoing shall not apply if Consenting Creditors holding in excess of 67.0% of all First Lien Claims have submitted ballots to accept the Plan (and not withdrawn such ballots) in accordance with Section 2(a)(iii) hereof;

(b) without limiting Section 11(a) hereof, the breach by one or more Consenting Creditors of any of the material obligations, representations, warranties, or covenants of such Consenting Creditors set forth in this Agreement, and which breach remains uncured after three (3) Business Days after receipt by the Requisite Consenting Creditors of written notice from the Company; provided that the foregoing shall not apply if non-breaching Consenting Creditors hold in excess of 67.0% of all First Lien Claims as of such date;

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(c) the issuance, promulgation, or enactment by any governmental entity, including any regulatory or licensing authority or court of competent jurisdiction (including, without limitation, an order of the Bankruptcy Court which has not been stayed), of any statute, regulation, ruling or order declaring this Agreement or any material portion hereof to be unenforceable or enjoining or otherwise restricting the consummation of a portion of the Restructuring and in each case which remains uncured after three (3) Business Days after receipt by the Requisite Consenting Creditors of written notice from the Company;

(d) a Consenting Creditor or any of its affiliates files any motion or pleading with the Bankruptcy Court that is not consistent in all material respects with this Agreement and such motion or pleading has not been withdrawn within two (2) Business Days of each of the Consenting Creditor’s and/or the applicable filing party’s receiving written notice from the Company that such motion or pleading is inconsistent with this Agreement; provided that the foregoing shall not apply if non-breaching Consenting Creditors hold in excess of 67.0% of all First Lien Claims as of such date;

(e) a Consenting Creditor files, publicly proposes or otherwise supports any (i) Alternative Proposal (other than a Payout Event Proposal), or (ii) amendment or modification to the Plan containing any terms that are inconsistent with this Agreement and such filing, proposal or support has not been withdrawn within two (2) Business Days of the Consenting Creditor receiving written notice from the Company that such filing, proposal or support violates this Agreement; provided that the foregoing shall not apply if non-breaching Consenting Creditors hold in excess of 67.0% of all First Lien Claims as of such date;

(f) the Bankruptcy Court grants relief that is inconsistent in any respect with this Agreement and such inconsistent relief is not dismissed, vacated or modified to be consistent with this Agreement within five (5) Business Days of the Consenting Creditors’ receiving written notice from the Company that such relief is inconsistent with this Agreement;

(g) the occurrence of a Material Adverse Change; or

(h) if the board of directors of any Debtor at any time determines in good faith that continued performance under this Agreement would be inconsistent with its fiduciary duties.

12. TERMINATION.

(a) This Agreement shall terminate if the New Money Backstop Commitment Agreement terminates for any reason, provided that if the New Money Backstop Commitment Agreement is terminated by the Company upon the breach of Initial Consenting Creditors in respect of which the Company may terminate that agreement, the Breakup Fee shall not be due and payable hereunder.

(b) Subject to Section 11(h), no Party may terminate this Agreement based on a Company Termination Event, Creditor Termination Event, or Sponsor Termination Event, as applicable, caused by such Party’s failure to perform or comply in all material respects with the terms and conditions of this Agreement (unless such failure to perform or comply arises as a result of another Party’s actions or inactions).

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(c) Upon the termination of this Agreement by the Requisite Consenting Creditors or the Company, (i) all Parties shall be released from their commitments, undertakings, and agreements under or related to this Agreement other than obligations under this Agreement which by their terms expressly survive a termination date, and (ii) there shall be no liability or obligation on the part of any Party.

(d) Upon the termination of this Agreement as to the Sponsor following a Sponsor Termination Event, (i) the Sponsor shall be released from its commitments, undertakings, and agreements under or related to this Agreement other than obligations under this Agreement which by their terms expressly survive a termination date, and (ii) there shall be no liability or obligation on the part of any Party to the Sponsor.

(e) In no event shall any termination of this Agreement relieve a Party from (i) liability for its breach or non-performance of its obligations hereunder prior to the termination date, including but not limited to the Company’s obligations to pay the First Lien Fees and Expenses, and (ii) obligations under this Agreement which by their terms expressly survive a termination date.

13. TRANSFER OF CLAIMS

(a) Each Consenting Creditor and the Sponsor agrees that it shall not sell, assign, grant, transfer, convey, hypothecate or otherwise dispose of (each, a “Transfer”) any Claims, including First Lien Claims, against the Company now owned or hereafter acquired (collectively, the “Participating Claims”), or any option thereon or any right or interest (voting or otherwise) in any or all of its Participating Claims, except to a party that (i) is a Consenting Creditor, or (ii), as a condition subsequent to the effectiveness of any such Transfer, executes and delivers a Transfer Agreement in the form attached hereto as Exhibit C to counsel to the Ad Hoc First Lien Group, the Company, and to Weil, Gotshal & Manges LLP (“Weil”) no more than two (2) business days after the settlement of the relevant Transfer in accordance with Section 26 hereof, and any such Participating Claims automatically shall be deemed to be subject to the terms of this Agreement. With respect to any Transfers effectuated in accordance with clause (ii) above, (A) such transferee shall be deemed to be Consenting Creditor for purposes of this Agreement, and (B) the Company shall be deemed to have acknowledged such Transfer.

(b) This Agreement shall in no way be construed to preclude any Consenting Creditor from acquiring additional Claims against the Company other than DIP ABL Revolving Loans or DIP ABL Revolving Commitments; provided, that, (i) any such additional Claims automatically shall be deemed to be Participating Claims and shall be subject to all of the terms of this Agreement and (ii) each such Consenting Creditor agrees that such additional Participating Claims shall be subject to this Agreement. Each Consenting Creditor agrees to provide to counsel to the Ad Hoc First Lien Group, the Company, and Weil notice in accordance with Section 26 hereof of (x) the acquisition of any additional Participating Claims and (y) whether such Claims were acquired from an existing Consenting Creditor, no more than two (2) business days after of the consummation of the transaction acquiring such additional Participating Claims.

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(c) Notwithstanding anything herein to the contrary, (i) any Consenting Creditor may Transfer any of its Participating Claims to a Qualified Marketmaker without the requirement that the Qualified Marketmaker be or become a Consenting Creditor; provided, that, the Qualified Marketmaker subsequently Transfers all right, title and interest in such Participating Claims to a transferee that is or becomes a Consenting Creditor in accordance with this Agreement, and the transfer documentation between the transferring Consenting Creditor and such Qualified Marketmaker shall contain a requirement that provides as such; and (ii) to the extent any Consenting Creditor is acting in its capacity as a Qualified Marketmaker, it may Transfer any Claims that it acquires from an entity that is not a Consenting Creditor without the requirement that the transferee be or become a Consenting Creditor.

(d) Notwithstanding the foregoing, if at the time of a proposed Transfer of such Participating Claims to a Qualified Marketmaker, such Participating Claims (x) may be voted on the Plan or any Alternative Proposal, the proposed transferor Consenting Creditor must first vote such Participating Claims in accordance with Section 2(a)(iii), or (y) have not yet been and may not yet be voted on the Plan or any Alternative Proposal and such Qualified Marketmaker does not Transfer such Participating Claims to a subsequent transferee prior to the third (3^rd) business day prior to the expiration of the applicable voting deadline (such date, the “Qualified Marketmaker Joinder Date”), such Qualified Marketmaker shall be required to (and the transfer documentation to the Qualified Marketmaker shall have provided that it shall), on the first (1st) Business Day immediately following the Qualified Marketmaker Joinder Date, become a Consenting Creditor with respect to such Participating Claims in accordance with the terms hereof; provided, that, the Qualified Marketmaker shall automatically, and without further notice or action, no longer be a Consenting Creditor with respect to such Participating Claims at such time that the transferee of such Participating Claims becomes a Consenting Creditor with respect to such Participating Claims.

(e) Any Transfer of Participating Claims that does not comply with this Section 13 shall be deemed null and void ab initio in all respects and without further action by any Party.

(f) Notwithstanding anything herein to the contrary, to the extent that a Consenting Creditor effects the Transfer of all of its Claims in accordance with this Agreement, including, for the avoidance of doubt, in accordance with the foregoing portion of this Section 13, such Consenting Creditor shall cease to be a Party to this Agreement in all respects and shall have no further obligations hereunder.

14. COOPERATION.

(a) The Company shall use commercially reasonable efforts to provide counsel for the Ad Hoc First Lien Group and the Sponsor drafts of all motions, applications, and other pleadings the company intends to file with the Bankruptcy Court to implement the Restructuring (or that could be reasonably expected to affect the interests of holders of First Lien Claims, in their capacities as such) at least three (3) business days before the date when the Company intends to file such pleading, unless such advance notice is impossible or impracticable under the circumstances, in which case the Company shall use commercially reasonable efforts to notify telephonically or by electronic mail counsel to the Ad Hoc First Lien Group and the Sponsor to advise them as such and, in any event, shall provide such drafts as soon as reasonably practicable.

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(b) Each Consenting Creditor shall use commercially reasonable efforts to provide counsel for the Company drafts of all motions, applications, and other pleadings the Consenting Creditor intends to file with the Bankruptcy Court to implement the Restructuring at least three (3) business days before the date when such Consenting Creditor intends to file such pleading, unless such advance notice is impossible or impracticable under the circumstances, in which case the Consenting Creditor shall use commercially reasonable efforts to notify telephonically or by electronic mail counsel to the Company to advise them as such and, in any event, shall provide such drafts as soon as reasonably practicable.

15. AMENDMENTS. Unless otherwise specifically provided herein, no amendment, modification, waiver, or other supplement of the terms of this Agreement (including the Restructuring Term Sheet) shall be valid unless such amendment, modification, waiver, or other supplement is in writing and has been signed by the Company and the Requisite Consenting Creditors; provided, however, that any amendment to this Agreement to (i) the defined term “Requisite Consenting Creditors,” (ii) the conditions to the effectiveness of this Agreement set forth in Section 37, and (iii) this Section 15, shall require the written consent of the Company and each Initial Consenting Creditor.

16. ENTIRE AGREEMENT. This Agreement, including the Restructuring Term Sheet and the attached exhibits, constitutes the entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all other prior negotiations, agreements and understandings, whether written or oral, among the Parties with respect to the subject matter of this Agreement; provided, however, that any confidentiality agreement executed by any Consenting Creditor or First Lien Professional and the Fee Letters shall survive this Agreement and shall continue to be in full force and effect in accordance with their terms.

17. SURVIVAL OF AGREEMENT. Notwithstanding the termination of this Agreement, the agreements and obligations of the Parties in Sections 4(a)(viii), 4(a)(x)(A), and 15 through 35 survive such termination and shall continue in full force and effect in accordance with the terms hereof. Each of the Parties acknowledges and agrees that this Agreement is being executed in connection with negotiations concerning a possible restructuring of the Company, and in contemplation of possible filings by the Company under Chapter 11 of the Bankruptcy Code, and (a) the exercise of the rights granted in this Agreement (including giving of notice of termination) shall not be a violation of the automatic stay provisions of section 362 of the Bankruptcy Code and (b) the Company hereby waives its right to assert a contrary position in the Chapter 11 Cases, if any, with respect to the foregoing.

18. IPCOs; ADDITIONAL AGREEMENTS. Notwithstanding anything herein to the contrary, it is acknowledged and agreed that CLSIP Holdings LLC (“CLSIP HoldCo”) and CLSIP LLC (“CLSIPCo” and, collectively, the “IPCos”) shall be Parties to this Agreement only to the extent their respective obligations or undertakings (including representations, and warranties) do not conflict with, or breach, any material contractual

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obligation or undertaking of those entities, including the CLSIP Loan Credit Agreement and their formation or organizational documents, (collectively, the “Non-RSA IPCo Undertakings”); provided further that to the extent any of the Non-RSA IPCo Undertakings would otherwise conflict with, or breach, any of the IPCos’ respective covenants, obligations, undertakings, representations, or warranties under this Agreement, the applicable covenant, undertaking, representation or warranty under this Agreement shall be automatically amended and deemed amended without any further action by any Party solely with respect to CLSIP HoldCo and/or CLSIPCo, as applicable, such that no such conflict or breach (including any Consenting Creditor Termination Event or Sponsor Termination Event that might otherwise occur) shall exist and in no event shall the IPCos have any monetary liability as a result of their status as Parties under this Agreement.

19. NO WAIVER OF PARTICIPATION AND PRESERVATION OF RIGHTS. If the transactions contemplated herein are not consummated, or following the occurrence of the termination of this Agreement with respect to all Parties, if applicable, nothing herein shall be construed as a waiver by any Party of any or all of such Party’s rights, remedies, claims, and defenses and the Parties expressly reserve any and all of their respective rights, remedies, claims and defenses.

20. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which, when so executed, shall constitute the same instrument and the counterparts may be delivered by email in portable document format (.pdf).

21. HEADINGS. The headings of the Sections, paragraphs, and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof.

22. RELATIONSHIP AMONG PARTIES. Notwithstanding anything herein to the contrary, the duties and obligations of the Consenting Creditors under this Agreement shall be several, not joint. No Consenting Creditor shall, as a result of its entering into and performing its obligations under this Agreement, be deemed to be part of a “group” (as that term is used in section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) with any of the other Consenting Creditor. It is understood and agreed that no Consenting Creditor has any duty of trust or confidence in any kind or form with any other Consenting Creditor, and, except as expressly provided in this Agreement, there are no commitments among or between them. In this regard, it is understood and agreed that any Consenting Creditor may trade in the Claims or other debt or equity securities of the Company without the consent of the Company or any other Consenting Creditor, but subject to applicable securities laws, the terms of this Agreement, and the terms of the First Lien Term Loan Credit Agreement and the First Lien Indentures; provided, however, that no Consenting Creditor shall have any responsibility for any such trading to any other entity by virtue of this Agreement. No prior history, pattern, or practice of sharing confidences among or between the Consenting Creditors shall in any way affect or negate this understanding and agreement.

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23. REMEDIES. It is understood and agreed by the Parties that, without limiting any other remedies available at law or equity, money damages would be an insufficient remedy for any breach of this Agreement by any Party and each non-breaching Party shall be entitled to specific performance and injunctive or other equitable relief as a remedy of any such breach, including, without limitation, an order of the Bankruptcy Court or other court of competent jurisdiction requiring any Party to comply promptly with any of its obligations hereunder, without the necessity of proving the inadequacy of money damages as a remedy. Each of the Parties hereby waives any defense that a remedy at law is adequate and any requirement to post bond or other security in connection with actions instituted for injunctive relief, specific performance, or other equitable remedies.

24. NO COMMITMENT. Neither any Consenting Creditor nor the Sponsor shall be obligated to fund or otherwise be committed to provide funding in connection with the Restructuring, except pursuant to a separate commitment letter or definitive documentation relating specifically to such funding, if any, that has been (i) executed by such Consenting Creditor or the Sponsor and (ii) approved by the Bankruptcy Court, as necessary, along with the satisfaction of any conditions precedent to such funding requirements.

25. JURY TRIAL, GOVERNING LAW AND DISPUTE RESOLUTION.

(a) The Parties waive all rights to trial by jury in any jurisdiction in any action, suit, or proceeding brought to resolve any dispute between or among the Parties arising out of this Agreement, whether sounding in contract, tort or otherwise.

(b) This Agreement shall be governed by and construed in accordance with the Bankruptcy Code and the laws of the State of New York, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction. By its execution and delivery of this Agreement, each Party irrevocably and unconditionally agrees for itself that, subject to Section 25(c), any legal action, suit or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, may be brought in any state or federal court of competent jurisdiction in New York County, State of New York, and by execution and delivery of this Agreement, each of the Parties hereby: (i) irrevocably accepts and submits itself to the nonexclusive jurisdiction of such court, generally and unconditionally, with respect to any such action, suit or proceeding; and (ii) waives any objection to laying venue in any such action, suit or proceeding.

(c) Notwithstanding the foregoing, if the Chapter 11 Cases are commenced, nothing in Section 25(a)–(b) shall limit the authority of the Bankruptcy Court to hear any matter related to or arising out of this Agreement, and each Party irrevocably and unconditionally consents to the jurisdiction and venue of the Bankruptcy Court to hear and determine such matters during the pendency of the Chapter 11 Cases.

26. NOTICES. All notices, requests, documents delivered, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally, mailed (first class postage prepaid) or by email to the Parties at the below addresses, or e-mail addresses. For the avoidance of doubt when written notice or approval from

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Requisite Consenting Creditors is required by this Agreement, email from Requisite Consenting Creditors’ counsel to Company’s counsel shall be sufficient.

If to the Company:

Claire’s Stores, Inc.

2400 West Central Road

Hoffman Estates, IL 60192

Attn: Stephen Sernett

Facsimile: (312)

E-mail Address:      Stephen.Sernett@claires.com

With a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

Attn: Ray C. Schrock, P.C.

         Matt Barr

         Ryan Preston Dahl

Facsimile: (212) 310 8007

E-mail Address:     ray.schrock@weil.com

                                matt.barr@weil.com

                                ryan.dahl@weil.com

If to a Consenting Creditor, to the address set forth beneath such lender’s signature block, and, if to an Initial Consenting Creditor, with a copy to:

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

Attn:    Matthew A. Feldman

            Brian S. Lennon

            Daniel I. Forman

Telephone: (212) 728-8000

Facsimile: (212) 728-8111

E-mail Address:     mfeldman@willkie.com

                                blennon@willkie.com

                                dforman@willkie.com

If to the Sponsor:

Apollo Management Holdings, L.P.

9 West 57th Street

New York, NY 10019

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Attn:    Lance Milken

            John Suydam

Telephone: (212) 515-3200

E-mail Address:    milken@apollolp.com

                               suydam@apollolp.com

With a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attn:    Jeffrey D. Saferstein

Facsimile: (212) 373-3000

Email Address:    jsaferstein@paulweiss.com

27. NO ASSIGNMENTS; THIRD-PARTY BENEFICIARIES. Except as expressly provided herein, this Agreement may not be assigned by any Party. In furtherance of the foregoing, the rights of an Initial Consenting Creditor in its capacity as such are personal to it and may not be assigned to any party. The terms and provisions of this Agreement are intended solely for the benefit of the Parties hereto and their respective successors, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person.

28. CONFLICTS BETWEEN THE RESTRUCTURING TERM SHEET AND THIS AGREEMENT. In the event of any conflict among the terms and provisions in the Restructuring Term Sheet and this Agreement, the terms and provisions of the Restructuring Term Sheet shall control, except with respect to the definition of “Milestones” set forth herein (in which case this Agreement shall control). In the event of any conflict among the terms and provisions in the Plan, this Agreement, and the Restructuring Term Sheet, the terms and provisions of the Plan shall control. Nothing contained in this Section 28 shall affect, in any way, the requirements set forth herein for the amendment of this Agreement and the Restructuring Term Sheet as set forth in Section 15 herein.

29. SETTLEMENT DISCUSSIONS. This Agreement is part of a proposed settlement of matters that could otherwise be the subject of litigation among the Parties hereto. Nothing herein shall be deemed an admission of any kind. Pursuant to Federal Rule of Evidence 408 and any applicable state rules of evidence, this Agreement and all negotiations relating thereto shall not be admissible into evidence in any proceeding other than to prove the existence of this Agreement or in a proceeding to enforce the terms of this Agreement.

30. GOOD-FAITH COOPERATION; FURTHER ASSURANCES. The Parties shall cooperate with each other in good faith in respect of matters concerning the implementation and consummation of the Restructuring.

31. ACCESS. The Company will promptly provide the First Lien Professionals and Initial Consenting Creditors access, upon reasonable notice, during normal business hours to relevant properties, books, contracts (including any executory contracts and

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unexpired leases), commitments, records, management and executive personnel, and advisors of the Company (other than with respect to materials subject to attorney-client privilege or where granting such access is prohibited by law); provided, however, that the Company’s obligations hereunder shall be conditioned upon such Party being party to an appropriate confidentiality agreement or undertaking; provided, further, however, that any existing confidentiality agreements entered into between the Company, on one hand, and a Party, on the other hand, shall be deemed to be appropriate.

32. QUALIFICATION ON CONSENTING CREDITOR REPRESENTATIONS. The Parties acknowledge that all representations, warranties, covenants, and other agreements made by any Consenting Creditor that is a separately managed account of an investment manager are being made only with respect to the Claims managed by such investment manager (in the amount identified on the signature pages hereto), and shall not apply to (or be deemed to be made in relation to) any Claims that may be beneficially owned by such Consenting Creditor that are not held through accounts managed by such investment manager.

33. PUBLICITY. The Company shall use commercially reasonable efforts to submit drafts to the First Lien Professionals of any press releases and public documents that constitute disclosure of the existence or terms of this Agreement or any amendment to the terms of this Agreement at least three (3) Business Days prior to making any such disclosure, and shall afford them a reasonable opportunity under the circumstances to comment on such documents and disclosures and shall incorporate any such reasonable comments in good faith.

34. SEVERABILITY. If any provision of this Agreement for any reason is held to be invalid, illegal or unenforceable in any respect, that provision shall not affect the validity, legality or enforceability of any other provision of this Agreement.

35. COMPANY FIDUCIARY DUTIES

(a) Nothing in this Agreement shall require the Company or any directors, officers, or members of the Company, each in its capacity as a director, officer, or member of the Company, to take any action, or to refrain from taking any action, to the extent inconsistent with its or their fiduciary obligations under applicable law (as determined by them after consultation with legal counsel).

(b) All Consenting Creditors reserve all rights they may have, including the right to challenge any exercise by the Company, or any directors, officers, or members of the Company of their respective fiduciary duties.

36. ADDITIONAL CONSENTING CREDITORS. Any holder of First Lien Claims may at any time become a party to this Agreement as a Consenting Creditor (a “Joining Party”) by executing a joinder agreement (the “Joinder”) substantially in the form attached as Exhibit D hereto, pursuant to which such Joining Party represents and warrants to the Company and the other Consenting Creditors that it agrees to be bound by the terms of this Agreement as a Consenting Creditor hereunder.

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37. CONDITION TO EFFECTIVENESS OF RESTRUCTURING SUPPORT AGREEMENT.

(a) This Agreement shall be effective and binding upon each Consenting Creditor and Sponsor immediately upon such Party’s execution and delivery of its signature page to the Company; provided, that, if the Agreement Effective Date with respect to the Company does not occur prior to March 19, 2018, this Agreement shall be null and void ab initio and of no force and effect and without any further action by any Party.

(b) This Agreement shall be effective and binding upon the Company immediately upon the execution and delivery of signature pages to the Company of Consenting Creditors holding not less than 67.0% of all First Lien Claims.

[Signature Pages Follow]

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*    *    *    *    *

Signature Page to Restructuring Support Agreement

Exhibit A

Restructuring Term Sheet

CLAIRE’S INC., ET AL.

RESTRUCTURING TERM SHEET

March 19, 2018

This term sheet (the “Term Sheet”) sets forth the principal terms of a comprehensive restructuring of the existing debt and other obligations of the Company (on the terms set forth herein, the “Restructuring”). The Restructuring will be consummated through prearranged cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and as otherwise set forth in the restructuring support agreement to which this Term Sheet is attached as Exhibit A (the “RSA”) and this Term Sheet.

THIS TERM SHEET DOES NOT CONSTITUTE (NOR SHALL IT BE CONSTRUED AS) AN OFFER WITH RESPECT TO ANY SECURITIES OR A SOLICITATION OF ACCEPTANCES OR REJECTIONS AS TO ANY CHAPTER 11 PLAN OF REORGANIZATION, IT BEING UNDERSTOOD THAT SUCH A SOLICITATION, IF ANY, ONLY WILL BE MADE IN COMPLIANCE WITH APPLICABLE PROVISIONS OF SECURITIES, BANKRUPTCY AND/OR OTHER APPLICABLE LAW.

Material Terms of the Restructuring
Term	Description
Overview of the Restructuring	This Term Sheet contemplates the Restructuring of Claire’s Inc. and certain of its wholly-owned direct and indirect domestic subsidiaries that are listed on Schedule A hereto (collectively, the “Debtors”, and together with CLSIP Holdings LLC, CLSIP LLC, Claire’s Stores Canada Corp, and Claire’s Swiss Holdings LLC and its direct and indirect subsidiaries, the “Company”).
	To implement the Restructuring, the Company will consummate the transactions set forth in this Term Sheet, which include the Debtors filing voluntary petitions for relief under the Bankruptcy Code by March 19, 2018 (the date of commencement of the Chapter 11 Cases, the “Petition Date”) and obtaining confirmation from the Bankruptcy Court of the Plan (as defined in the RSA) within the deadlines set forth in the Milestones set forth below. For the avoidance of doubt, none of (i) CLSIP Holdings LLC, (ii) CLSIP LLC, (iii) Claire’s Stores Canada Corp., a Canadian corporation, or (iii) Claire’s Swiss Holdings LLC or any of its subsidiaries will file voluntary petitions for relief under the Bankruptcy Code or commence comparable proceedings under local law.
	The initial parties to the RSA will be: (i) Claire’s Inc. and each of its direct and indirect wholly-owned domestic subsidiaries;1 (ii) the Initial Consenting Creditors (as defined in the RSA) represented by Willkie Farr & Gallagher LLP and Millstein & Co., LLC (the “Ad Hoc First Lien Group”)

¹  Including CLSIP Holdings LLC, and CLSIP LLC, but not Claire’s Swiss Holdings LLC, as parties to the RSA. Company parties to the RSA shall cause all direct and indirect subsidiaries to comply with RSA as provided therein.

1

As of the date hereof, the Ad Hoc First Lien Group beneficially holds or controls: (a) 26.1%% of the aggregate principal amount of outstanding loans under that certain ABL Credit Agreement, dated September 20, 2016 (as amended, modified, or supplemented from time to time, the “Existing ABL Revolver”); (b) 26.1%% of the aggregate principal amount of outstanding loans under that certain Second Amended and Restated Credit Agreement, dated as of September 20, 2016 (as amended, modified, or supplemented from time to time, the “Existing RCF”); (c) 59.5% of the aggregate principal amount of outstanding Senior Secured First Lien Term Loan due 2021 (the “Claire’s Term Loan”) issued by Claire’s Stores Inc. under that certain Term Loan Credit Agreement, dated September 20, 2016 (as amended, modified, or supplemented from time to time, the “Claire’s Term Loan Credit Agreement”); (d) 69.6% of the aggregate principal amount of outstanding 9% Senior Secured First Lien Notes due 2019 (the “Claire’s 2019 1L Notes”) issued by Claire’s Stores Inc. pursuant to that certain Senior Secured First Lien Notes Indenture, dated February 28, 2012 (as amended, modified, or supplemented from time to time, the “Claire’s 2019 1L Notes Indenture”); (e) 89.4% of the aggregate principal amount of outstanding 6.125% Senior Secured First Lien Notes due 2020 (the “Claire’s 2020 1L Notes”) issued by Claire’s Stores Inc. pursuant to that certain Senior Secured First Lien Notes Indenture, dated March 15, 2013 (as amended, modified, or supplemented from time to time, the “Claire’s 2020 1L Notes Indenture” and all claims arising under the Claire’s Term Loan Credit Agreement, the Claire’s 2019 1L Notes Indenture, and the Claire’s 2020 1L Notes Indenture, and the term loans and notes issued pursuant to the foregoing instruments shall be referred to herein collectively as the “First Lien Claims”)²; (f) 26.1% of the aggregate principal amount of outstanding Gibraltar Unsecured Term Loan due 2019 (the “Gibraltar 2019 Term Loan”) issued by Claire’s Gibraltar Holdings Limited. pursuant to that certain Credit Agreement, dated as of August 12, 2016 (as amended, modified, or supplemented from time to time, the “Gibraltar 2019 Term Loan Credit Agreement”); (g) 60.2% of the aggregate principal amount of outstanding 9% Gibraltar Unsecured Term Loan due 2021 (the “Gibraltar 2021 Term Loan”) issued by Claire’s Gibraltar Holdings Limited. pursuant to that certain Term Loan Credit Agreement, dated September 20, 2016 (as amended, modified, or supplemented from time to time, the “Gibraltar 2021 Term Loan Credit Agreement”); (h) 60.1% of the aggregate principal amount of outstanding CLSIP Senior Secured Term Loan due 2021 (the “CLSIP Loan”) issued by CLSIP LLC pursuant to that certain Term Loan Credit Agreement, dated September 20, 2016 (as amended, modified, or supplemented from time to time, the “CLSIP Loan Credit Agreement”); and (i) 7.9% of the aggregate principal amount of outstanding 8.875 % Senior Notes Due 2020 (the “Claire’s 2L Notes”) issued by Claire’s Stores, Inc. pursuant to the certain Senior Secured Second Lien Notes Indenture, dated as of March 4, 2011 (as amended, modified or supplemented from time to time, the “Claire’s 2L Notes Indenture”) (all claims arising under the Claire’s 2L Notes Indenture and the Claire’s 2L Notes shall be referred to herein collectively as the “Second Lien Claims”); and (j) 83.0% of the aggregate principal amount of outstanding 7.775% Senior Notes Due 2020 (the “Unsecured Notes”) issued by Claire’s Stores, Inc. pursuant to the certain Senior Notes Indenture, dated as of May 14, 2013 (as amended, modified or supplemented from time to time, the “Unsecured Notes Indenture”) (all claims arising under the Unsecured Notes Indenture and the Unsecured Notes shall be referred to herein collectively as the “Unsecured Notes Claims) and does not beneficially own or control any other debt claims not disclosed here; and

(iii) Apollo Management Holdings, L.P., as manager and/or investment advisor of funds that are the owners and/or beneficial holders of interests in and claims against the Company (the “Sponsor”) (“Sponsor”), which, as of the date hereof, consist of

²  For the avoidance of doubt “First Lien Claims” excludes claims outstanding with respect to the Existing ABL Revolver and the Existing RCF.

	approximately 28% of the Claire’s Term Loan, approximately 28% of the Gibraltar 2021 Term Loan, approximately 28% of the CLSIP Loan, and 97.66% of the outstanding equity interests of the Company and does not beneficially own or control any other debt or equity claims not disclosed here, (collectively with the Initial Consenting Creditors and the Company, the “Restructuring Support Parties”).
Financing
DIP Financing	Prior to the Petition Date, the Debtors shall have entered into a debt financing commitment letter with Citibank Global Markets Inc. providing for debtor-in-possession financing on the terms attached hereto as Exhibit 1 (the “DIP Term Sheet”).
Permitted Refinancing Stipulation	The Consenting Creditors hereby stipulate that entry into the agreement governing the DIP Facilities (as defined in the DIP Term Sheet) (the “DIP Credit Agreement”) constitutes a “Permitted Refinancing” as such term is defined by the ABL Intercreditor Agreement.
Adequate Protection	During the Chapter 11 Cases, the Company shall provide adequate protection with respect to First Lien Claims consisting of: (i) the adequate protection provided by clauses (c), (d), and (e) of the “Adequate Protection” provision of the DIP Term Sheet; (ii) customary lien stipulations, and (iii) timely payment of the reasonable and documented fees and expenses (but not success fees, transaction fees, or similar fees), including reasonable and documented professional fees and expenses, incurred by (A) the Ad Hoc First Lien Group, and (B) the agents under the Existing ABL Revolver, the Existing RCF, and the Claire’s Term Loan, and the trustees under the Claire’s 2019 1L Notes Indenture and the Claire’s 2020 1L Notes Indenture; provided that the payment of all such fees and expenses shall be subject to the Debtors’ or any party in interest’s rights to seek a determination that such payments should be recharacterized as repayment on account of the secured portion of First Lien Claims as of the Petition Date.
	Upon the termination of the RSA by the Requisite Consenting Creditors (as defined in the RSA) in accordance with its terms, the Requisite Consenting Creditors shall have the right to file a motion with the Bankruptcy Court requesting additional adequate protection on account of First Lien Claims with respect to their interest in the Notes Priority Collateral (as defined in the ABL Intercreditor Agreement), including in the form of cash-pay interest at the default rate on account of First Lien Claims; provided that the Debtors’ or any party in interest’s rights to contest any such request on any basis whatsoever are fully reserved.
	For the avoidance of doubt, in no instance shall the Debtors be required to provide adequate protection on account of First Lien Claims in the form of cash-pay interest unless otherwise ordered by the Bankruptcy Court after the occurrence of an RSA Milestone Event.
CLSIP Loan Amendment/Refinancing	Not later than seven (7) days following the Petition Date, the Company shall enter into a forbearance with respect to the CLSIP Loan Credit Agreement, with the holders of the CLSIP Loan other than insiders of the Company (as insider is defined in the Bankruptcy Code) (the “CLSIP Creditors”) on terms consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors (the “CLSIP Forbearance Agreement”), to provide, among other things, that any “going concern” default arising with respect to the CLSIP Loan, and any other defaults arising on account of the transactions and agreements contemplated hereby, shall be waived during the pendency of the Chapter 11 Cases.

	CLSIP Creditors consenting to the CLSIP Forbearance Agreement and the Sponsor, solely with respect to the Sponsor’s CLSIP Loan claims, will receive a one-time forbearance fee paid in kind (i.e. additional CLSIP loan principal amount owed) of 2.75% of their holdings under the CLSIP Loan. Such forbearance fee paid in kind shall accrue interest at the default rate from the closing date of the CLSIP Forbearance Agreement and be paid interest as set forth below. Additionally, the CLSIP Forbearance Agreement will:
	•  provide for payment of interest in cash on a regularly scheduled basis while the CLSIP Forbearance Agreement is in effect at the default rate; and
	•  provide that the CLSIP Loan, including amounts on account of the forbearance fee and interest on such forbearance fee, will be repaid in full on the Effective Date (as defined in the RSA).
Chapter 11 Plan Implementation
New Money Investment	On or prior to seven (7) days after the “first day” hearing, the Company, the Initial Consenting Creditors and the Sponsor shall execute the backstop commitment agreement on terms consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors (the “New Money Backstop Commitment Agreement”) pursuant to which the Initial Consenting Creditors and the Sponsor will backstop an investment in the Company, in the allocations set forth on Schedule I to the RSA, up to $575 million (the “New Money Investment”) comprised of (i) a $75 million new exit ABL revolver (the “New ABL Revolver”), (ii) $250 million of a new first lien exit term loan (the “New First Lien Term Loan”) and (iii) up to $250 million of preferred stock or equity interests of reorganized Claire’s (the “Preferred Equity Interests”). The Backstop Agreement shall further provide for the payment, on the Effective Date, of First Lien Fees and Expenses (as defined in the RSA) that are accrued but unpaid as of the Effective Date.
	As part of the solicitation of acceptances for the Plan, the Company shall commence a rights offering through which holders of First Lien Claims that are qualified institutional buyers and/or accredited investors (each, an “Eligible Holder”) will receive rights to participate, on a pro rata basis, in the New Money Investment less the Holdback Amount (defined below) (the “Rights Offering”). The Backstop Parties (defined below) will purchase any and all of the New Money Investment not subscribed in the Rights Offering. The amount of the New Money Investment each participant purchases through the Rights Offering and the Plan will be allocated as follows (as may be adjusted to account for the adjusted Preferred Investment Amount): (i) 13.0434782% to commitments under the New ABL Revolver; (ii) 43.4782609% to the purchase of notes issued under the New First Lien Term Loan; and (iii) 43.4782609% to the investment of the Preferred Investment Amount (defined below).
	Each holder of First Lien Claims that executes a joinder to the RSA on or prior to ten (10) business days after the Petition Date, and subsequently subscribes for their pro rata share of the Rights Offering (collectively, excluding the Backstop Parties, the “Supporting Parties”). Each Supporting Party shall receive its pro rata allocation of the following, where pro rata allocation is calculated by dividing the amount of such Supporting Party’s First Lien Claims by the total amount of First Lien Claims:

	(a) a premium equal to 3.5% of the maximum Preferred Investment Amount (defined below), or $8.75 million, (the “Preferred Commitment Premium”), which Preferred Commitment Premium shall be paid in additional Preferred Equity Interests issued to the Supporting Parties on the Effective Date; and
	(b) a premium equal to 1.5% of the total commitment amount of the New First Lien Term Loan, or $3.75 million (the “Term Commitment Premium” and together with the Preferred Commitment Premium, the “Commitment Premiums”), which Term Commitment Premium shall be paid in cash on the Effective Date.
	Proceeds of the New Money Investment, together with cash on hand, shall be used (i) to repay the DIP Facilities, the CLSIP Loan, the Gibraltar 2019 Term Loan, the Gibraltar 2021 Term Loan and the Gibraltar Intermediate Secured Term Loan due 2019, (ii) to fund the costs arising from the administration of the Debtors’ Chapter 11 Cases (including “emergence” costs), and (iii) for working capital requirements and general corporate purposes.
New ABL Revolver	Terms for the New ABL Revolver will be on terms consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors and shall provide that:
	•  the New ABL Revolver shall be secured by a first lien on assets constituting ABL Priority Collateral (as defined in that certain [ABL] Intercreditor Agreement, dated as of September 20, 2016) and a second lien on all other assets with respect to the New First Lien Term Loan; and
	•  the New ABL Revolver will (i) mature 4 years after the Effective Date, (ii) bear interest at L+350 bps with no floor, payable in cash quarterly, and (iii) include an undrawn commitment fee 0.75%.
New First Lien Term Loan	Material terms for the New First Lien Term Loan include: The New First Lien Term Loan shall be secured by a first lien on all assets other than ABL Priority Collateral (including all foreign stock that may be pledged with no material tax consequences, and including at least 65% of the voting stock of top-tier foreign holding companies and 100% of the economic value of top tier foreign holding companies to the extent such value may be pledged without material adverse tax consequences) subject to customary exceptions and exclusions, and a second lien on assets constituting ABL Priority Collateral with respect to the New ABL Revolver. Additionally, the New First Lien Term Loan shall permit the company to incur up to $175 million of indebtedness senior in lien priority to the New First Lien Term Loan.
	The New First Lien Term Loan will (i) mature 20 years from the Effective Date and (ii) bear interest at L+725 bps with a 1.5% LIBOR floor per annum, payable in cash quarterly. The full principal amount of the New First Lien Term Loan will be due at maturity, and have no amortization.
	The New First Lien Term Loan will include a make-whole redemption provision (the “Make-Whole Premium”), subject to waiver by two-thirds supermajority of holders of the New First Lien Term Loan, which shall be owed and payable upon a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption or prepayment whether mandatory or at the reorganized Company’s option. “Make-Whole Premium” means, as of any date on which the New First Lien Term Loan is repaid or prepaid, the greater of (i) 1.0% of the principal amount of the New First Lien Term Loan and (ii) the excess of (A) the present value at such date of redemption of (1) the principal amount of the New First Lien Term Loan, plus (2) all remaining required interest payments (assuming that the rate of interest will be equal to (x) the U.S. dollar interest rate swap rate with a duration most nearly equal to the then remaining term of New First Lien Term Loan

	to the Maturity Date (as quoted by Bloomberg) plus 7.25% per annum or (y) if such rate in clause (x) is not available, the rate of interest applicable to the New First Lien Term Loan on the date that is two (2) business days prior to the date on which the notice of prepayment is delivered) due on the New First Lien Term Loan through the Maturity Date (excluding accrued but unpaid interest to the date of repayment or prepayment), computed using a discount rate equal to the applicable treasury rate plus 50 basis points, over (B) the principal amount of the New First Lien Term Loan.
	The terms for the New First Lien Term Loan shall otherwise be consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors.
Preferred Equity Interests	The Preferred Equity Interests shall initially be convertible into [●]%3 of the new common stock or equity interests of reorganized Claire’s (the “New Common Interests”), at holders’ option at any time.
	The Preferred Equity Interests will bear a 14% annual dividend on its liquidation preference (inclusive of all fees and additional Preferred Equity Interests issued as part of the Restructuring), payable in cash or, at the option of the holder (which option must be delivered to the Company at least 180 days before each payment date), accrued quarterly.
	The Preferred Equity Interests, which shall have an aggregate investment amount equal to the greater of (x) $200 million and (y) the investment amount of Preferred Equity Interests, not to exceed $250 million, such that the Company’s consolidated cash on the Effective Date shall be not more than $100 million assuming no draw on the New ABL Revolver and pro forma for all uses of cash associated with the Restructuring4 (the greater of (x) and (y), the “Preferred Investment Amount”), will be offered at a 37.5% discount to plan equity value, and shall have a maximum initial liquidation preference of $400 million excluding fees (or $426.25 million after accounting for the issuance of additional Preferred Equity Interests to the Supporting Parties and Backstop Parties on account of the Preferred Commitment Premium and Preferred Equity Backstop Fee).
	The Preferred Equity Interests shall have an early redemption premium (the “Preferred Redemption Premium”), subject to waiver by two-thirds supermajority of holders of the Preferred Equity Interests, owed and payable upon a change of control, merger, sale of all or substantially all assets, acceleration, default, bankruptcy, insolvency, redemption or prepayment whether mandatory or at the reorganized Company’s option. “Preferred Redemption Premium” means, as of any date on which Preferred Equity Interests are redeemed, the greater of (i) 1.0% of the liquidation preference of such Preferred Equity Interests (inclusive of all fees and additional Preferred Equity Interests issued as part of the Restructuring) and (ii) the excess of (A) the present value at such date of redemption of (1) the liquidation preference of such Preferred Equity Interests (inclusive of all fees and additional Preferred Equity Interests issued as part of the Restructuring), plus (2) all remaining required dividends due on the such Preferred Equity Interests through the twentieth (20th) anniversary of the Effective Date assuming such dividends would be elected to

³  To be equal to (a) the total initial liquidation preference of the New Preferred Stock, including the Preferred Commitment Premium and Preferred Equity Backstop Fee (as defined below) (the “Aggregate New Preferred Stock Initial Liquidation Preference”), divided by (b) the sum of: (i) such Aggregate New Preferred Stock Initial Liquidation Preference, plus (ii) the value of the New Common Stock based on a total enterprise value upon and pro forma for the Effective Date and all payments or accruals related to the Restructuring of $1.4 billion, with such calculation being satisfactory to the Requisite Consenting Creditors in their reasonable discretion.

⁴  Which amount shall be estimated in good faith by the Company prior to commencement of the Rights Offering subject to the reasonable consent of the financial advisors to the Ad Hoc First Lien Group.

	be paid in cash, computed using a discount rate equal to the applicable treasury rate plus 50 basis points, over (B) the liquidation preference of such Preferred Equity Interests (inclusive of all fees and additional Preferred Equity Interests issued as part of the Restructuring). The terms will also include certain standard and customary covenants, among other provisions, on terms consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors.
New Money Backstop Commitment Agreement	Pursuant to the New Money Backstop Commitment Agreement, the Initial Consenting Creditors and Sponsor (the “Backstop Parties”) shall, in the allocations set forth on Schedule I to the RSA, (i) have the option to purchase up to 50% of the New Money Investment (the amount of the New Money Investment purchased pursuant to this option being the “Holdback Amount”), and (ii) commit to purchase all of the New Money Investment not purchased by other holders of First Lien Claims in the Rights Offering. The Backstop Parties shall receive, in the allocations set forth in Schedule I to the RSA, the remainder of the Commitment Premiums, and: (a) a backstop fee earned upon execution of the New Money Backstop Commitment Agreement of 7.0% of the maximum Preferred Investment Amount, or $17.5 million, (the “Preferred Equity Backstop Fee”), which Preferred Equity Backstop Fee shall be paid in additional Preferred Equity Interests issued to the Initial Consenting Creditors on the Effective Date; and (b) a backstop fee of 3.5% of the total commitment amount of the New First Lien Term Loan, or $8.75 million (the “New Term Loan Backstop Fee” and together with the Commitment Premiums and the Preferred Equity Backstop Fee, the “Backstop Fee”), which New Term Loan Backstop Fee shall be paid in cash on the Effective Date. Claire’s Inc. shall have the right to participate in the New Money Investment on the same terms as the Initial Consenting Creditors and in the allocation set forth on Schedule I to the RSA.
Conditions Precedent to Emergence	The occurrence of the Effective Date shall be subject to the following conditions precedent; provided that any condition could be waived with the consent of the Debtors and the Requisite Consenting Creditors (as defined in the RSA): •  the RSA shall not have been terminated and remains in full force and effect, other than on account of a breach by the Sponsor or one or more of the Consenting Creditors; •  the Bankruptcy Court shall have entered: •  the DIP Orders (defined below) in form and substance consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors; •  the order approving the disclosure statement (the “Disclosure Statement”) and solicitation materials related to the Plan (the “Disclosure Statement Order”) in form and substance consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors; and •  the order confirming the Plan, any exhibits or supplements thereto, and approving the assumption of the New Backstop Commitment Agreement (the “Confirmation Order”) in form and substance consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors;

	•  the Debtors shall not be in default under the DIP Credit Agreement or the DIP Orders that results in an acceleration of the obligations outstanding under the DIP Credit Agreement (or, to the extent that the Debtors have been in default or are in default, in each case, that results in the acceleration of outstanding obligations, on the proposed Effective Date, such default shall have been waived by the DIP Lenders or cured by the Debtors in a manner consistent with the DIP Credit Agreement and/or the DIP Orders); •  (i) the Debtors shall have entered into credit agreements governing the terms of the New ABL Revolver and the New First Lien Term Loan (with all conditions precedent thereto having been satisfied or waived), and (ii) organizational documents and agreements providing for the terms of the Preferred Equity Interests shall be adopted, in each case, on terms consistent with this Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors; •  the New Money Backstop Commitment Agreement shall not have been terminated and remain in full force and effect (with all conditions precedent thereto having been satisfied or waived) on terms consistent with the Term Sheet and otherwise reasonably acceptable to the Company and the Requisite Consenting Creditors; •  the Professional Fee Escrow shall have been established and funded as provided herein; •  the Company shall have generated consolidated Adjusted EBITDA (which shall be calculated using the same methodology and definition used in the Company’s financial reporting but exclusive of restructuring costs and charges incurred in connection with the Chapter 11 Cases) of at least $185 million measured as of the last month for which internal financial statements are available, and adjusted for a 52-week year, if applicable; •  the reorganized Company, shall have minimum consolidated cash on the Effective Date, assuming no draw on the New ABL Revolver and pro forma for all uses of cash associated with the Restructuring, after giving effect to emergence costs and funding the Professional Fee Escrow, of $75 million; and •  the Debtors shall have assumed, rejected, and/or renegotiated their store leases in consultation with the Ad Hoc First Lien Group and in a manner reasonably acceptable to each of the Debtors and the Requisite Consenting Creditors, as evaluated by reference to the Debtors’ store portfolio as a whole.
Treatment of Claims and Interests Under the Chapter 11 Plan
Claim	Proposed Treatment
Administrative and Priority Claims	Allowed administrative, priority, and tax claims shall be satisfied in full, in cash, or otherwise receive treatment consistent with the provisions of section 1129(a)(9) of the Bankruptcy Code.
DIP Claims	On the Effective Date, the claims under the DIP Facilities shall be repaid in full in cash.
Existing ABL Revolver and Existing RCF Claims	Obligations outstanding under the Existing ABL Revolver and the Existing RCF as of the Petition Date, together with accrued but unpaid interest and fees, shall be paid in full, in cash, with proceeds from the DIP Facilities.

First Lien Claims	On the Effective Date, each holder of First Lien Claims (including, for the avoidance of doubt, the Backstop Parties) shall receive its pro rata share of (i) 100% of the New Common Interests, subject to dilution by the Preferred Equity Interests and the MEIP (as defined below), and (ii) (A) for Eligible Holders, the rights to participate in the Rights Offering, and (B) for holders of First Lien Claims that are not Eligible Holders, the cash value of such rights.
Unsecured Claims	On the Effective Date or as soon as reasonably practicable thereafter, each holder of (i) First Lien Claims (on account of deficiency claims totaling $[•]), (ii) Second Lien Claims, (iii) Unsecured Notes Claims and (iv) allowed general unsecured claims ((i)-(iv) collectively, the “Unsecured Claims”) shall receive its pro rata distribution from a cash pool in the amount of $[•], with such inputs, calculation and allocation being satisfactory to the Requisite Consenting Creditors in their reasonable discretion.
Intercompany Claims	Other than funded debt claims held by Claire’s Inc. against other Company entities, on account of which Claire’s Inc. shall be entitled to receive either (i) the same recovery as the Initial Consenting Creditors on account of the same debt as set forth herein, or (ii) cash consideration in an amount to be agreed by Claire’s Inc. and the Initial Consenting Creditors, intercompany claims may be reinstated or cancelled as may be determined by the Debtors with the reasonable consent of the Requisite Consenting Creditors.
Existing Claire’s Equity Interests	On the Effective Date, each holder of prepetition equity interests (including common stock, preferred stock and any options, warrants, profit interest units, or rights to acquire any equity interests) in Claire’s (the “Existing Claire’s Equity Interests”) shall receive its pro rata share of any cash or other consideration recovered by Claire’s Inc. on account of its funded debt claims against Company entities that is remaining after the satisfaction of all senior classes of claims against Claire’s Inc. in full.
Other Terms Relevant to Chapter 11 Plan Implementation
Registration Rights	Customary for any holder of claims to the extent it receives any “restricted” or “control” New Common Interests pursuant to the Securities Act, consistent with this Term Sheet and acceptable in form and substance to the Company and the Requisite Consenting Creditors.
Shareholders Agreement	On the Effective Date, holders of the New Common Interests and the Preferred Equity Interests will become party to the shareholders agreement. The provisions of the shareholders agreement shall be determined by and satisfactory to the Requisite Consenting Creditors in good faith.
Releases and Exculpation	The Plan shall provide customary releases (including third party releases) and exculpation provisions, in each case, to the fullest extent permitted by law and effective as of the Effective Date, for the benefit of the Company, the reorganized Company, the Sponsor, the Initial Consenting Creditors, the DIP Lenders, the Consenting Creditors, and such entities’ respective affiliates, and such entities’ and their affiliates’ officers, managers, directors, predecessors, successors, and assigns, subsidiaries, and each of their officers, managers, directors, equity holders, principals, members, employees, agents, managed accounts or funds, management companies, fund advisors, advisory board members, financial advisors, partners, attorneys, accountants, investment bankers, consultants, representatives, and other professionals, each in their capacity as such.

Management Incentive Plan and Management Employment Agreements	The Company and the Initial Consenting Creditors will agree on the material terms of a management equity incentive plan (the “MEIP”), on terms and conditions reasonably acceptable to the Company and the Requisite Consenting Creditors, including with respect to emergence allocations. The terms and conditions of the MEIP will be filed with the Plan Supplement prior to the hearing on confirmation of the Plan.
New Board	The post-Restructuring board of directors of Claire’s (the “New Board”) will consist of 7 directors, one of whom will be the Company’s current Chief Executive Officer, one of whom will be designated by the Company, and the remaining of whom will be designated by the holders of the Preferred Equity Interests and New Common Interests based on each holder’s pro forma share of the New Common Interests (with the Preferred Equity Interests treated on an as fully-converted basis), and shall be identified at or prior to the hearing on confirmation of the Plan.
Indemnification Obligations	The Company’s indemnification obligations in place as of the Effective Date, whether in the bylaws, certificates of incorporation or formation, limited liability company agreements, other organizational or formation documents, board resolutions, management or indemnification agreements, employment contracts, or otherwise, for the directors and the officers that are currently employed by, or serving on the Board of Directors of, any of the Company or its subsidiaries, as of the date immediately prior to the Effective Date, shall be assumed pursuant to the Plan.
Professional Fee Escrow	The Plan shall require the establishment of a professional fee escrow account (the “Professional Fee Escrow”) to be funded with cash in the amount equal to the Professional Fee Reserve Amount (as defined herein). It shall be a condition precedent to the substantial consummation of the Plan that the Company shall have funded the Professional Fee Escrow in full in cash in an amount equal to the Professional Fee Reserve Amount. The Professional Fee Escrow shall be maintained in trust solely for the benefit of professionals retained by the Company or any official committee appointed in the Chapter 11 Cases (each a “Professional,” and collectively, the “Professionals”). The Professional Fee Escrow shall not be considered property of the Debtors, their estates, or their affiliates, and no liens, claims, or interests shall encumber the Professional Fee Escrow, or funds held in the Professional Fee Escrow, in any way. The “Professional Fee Reserve Amount” shall consist of the total amount of unpaid compensation and unreimbursed expenses incurred by Professionals retained by the Debtors or any official committee through and including the Effective Date, in each case as determined in good faith by the applicable Professional. All accrued and unpaid fees and expenses of the professionals to the Initial Consenting Creditors shall be paid in cash on the Effective Date.
Tax Attributes	To the extent reasonably practicable, the Restructuring shall be structured in a manner which minimizes any current cash taxes payable as a result of the consummation of the Restructuring, and the terms of the Restructuring contemplated by this Term Sheet shall be structured to maximize the favorable tax attributes of the Company going forward.
Milestones	Subject to the RSA, failure to meet any of the following deadlines (each a “Milestone”) shall enable the Requisite Consenting Creditors to terminate the RSA unless the Debtors shall have satisfied such Milestone prior to termination of the RSA: •  Commence the Chapter 11 Cases with respect to each of the Debtors and file first day motions no later than March 19, 2018;

•  File the New Money Backstop Commitment Agreement, as executed by the Company and the Initial Consenting Creditors as soon as reasonably practicable after the Petition Date (but in no event later than seven (7) days after the first day hearing); •  Obtain entry of the interim order approving the DIP Facilities and permitting the Debtors’ use of cash collateral (the “Interim DIP Order”) by the Bankruptcy Court as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at least five (5) calendar days after the Petition Date); •  File the Plan, the Disclosure Statement, and the motion for approval of the Disclosure Statement, the rights offering procedures and the solicitation procedures as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at least twenty one (21) calendar days after the Petition Date); •  Obtain entry of the final order approving the DIP Facilities and permitting the Debtors’ use of cash collateral (the “Final DIP Order” and, together with the Initial DIP Order, the “DIP Orders”) as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at forty five (45) calendar days after the Petition Date); •  Obtain entry of the Disclosure Statement Order as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at least seventy-five (75) calendar days after the Petition Date); •  Commence the Rights Offering and solicitation of votes in connection with the Plan as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at least seven (7) days after entry of the Disclosure Statement Order); •  Obtain entry of the confirmation order as soon as reasonably practicable after the Petition Date (but in no event later than the first business day that is at least seventy-five (75) calendar days after the Disclosure Statement Order is entered); and •  Provided that no stay pending appeal has been granted by any court, cause the Effective Date to occur as soon as reasonably practicable after the Petition Date (but in no event later than the earlier of (a) fifteen (15) calendar days after the entry of the confirmation order, and (b) one hundred eighty (180) calendar days after the Petition Date).

Fiduciary Duties

Notwithstanding anything to the contrary herein, nothing in this Term Sheet, the RSA, or any of the definitive documents implementing the Restructuring (collectively, the “Definitive Documents”) shall require the Debtors, or any of their directors or officers, to take or refrain from taking any action such person or entity believes is reasonably required to comply with its or their fiduciary duties under applicable law

Schedule A

Debtors

BMS Distributing Corp.

CBI Distributing Corp.

Claire’s Inc.

Claire’s Boutiques, Inc.

Claire’s Canada Corp.

Claire’s Puerto Rico Corp.

Claire’s Stores, Inc.

CSI Canada LLC

EX-31.1

Exhibit 31.1

CERTIFICATE PURSUANT TO

RULES 13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ron Marshall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Claire’s Stores, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f))) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 14, 2018	/s/ Ron Marshall
	Ron Marshall
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATE PURSUANT TO

RULES 13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Huckins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Claire’s Stores, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f))) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 14, 2018	/s/ Scott Huckins
	Scott Huckins
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 USC. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report on Form 10-Q of Claire’s Stores, Inc. (the “Company”) for the quarterly period ended August 4, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ron Marshall, Chief Executive Officer of the Company, hereby certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ron Marshall

     Ron Marshall

     Chief Executive Officer

     September 14, 2018

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 USC. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report on Form 10-Q of Claire’s Stores, Inc. (the “Company”) for the quarterly period ended August 4, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Huckins, Chief Financial Officer of the Company, hereby certify, pursuant to 18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Scott Huckins

     Scott Huckins

     Chief Financial Officer

     September 14, 2018

XML

Document and Entity Information - shares	6 Months Ended
	Aug. 04, 2018	Sep. 01, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 04, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Trading Symbol	CLE
Entity Registrant Name	CLAIRES STORES INC
Entity Central Index Key	0000034115
Current Fiscal Year End Date	--02-03
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		100

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands		Aug. 04, 2018	Feb. 03, 2018
Current assets:
Cash		$ 69,445	$ 42,446
Inventories		148,331	134,690
Prepaid expenses		36,889	32,284
Other current assets		21,737	26,858
Total current assets		276,402	236,278
Property and equipment:
Furniture, fixtures and equipment		208,288	223,644
Leasehold improvements		279,104	301,338
Total property and equipment, gross		487,392	524,982
Accumulated depreciation and amortization		(387,631)	(405,284)
Total property and equipment, net		99,761	119,698
Leased property under capital lease:
Land and building		18,055	18,055
Accumulated depreciation and amortization		(7,667)	(7,216)
Total leased property under capital lease		10,388	10,839
Goodwill		1,132,575	1,132,575
Intangible assets, net of accumulated amortization of $88,005 and $87,295, respectively		450,145	457,078
Other assets		61,107	44,255
Total other noncurrent assets		1,643,827	1,633,908
Total assets		2,030,378	2,000,723
Current liabilities:
Current portion of long-term debt, net	[1]	84,732	1,894,039
Debtor-in-possession term loan		60,000
Trade accounts payable		55,272	62,965
Income taxes payable		14,096	4,049
Accrued interest payable		1,083	56,182
Accrued expenses and other current liabilities		101,216	94,934
Total current liabilities		316,399	2,112,169
Long-term debt, net		208,847	250,355
Obligation under capital lease		15,718	15,970
Deferred tax liability		29,179	32,614
Deferred rent expense		31,557	34,851
Unfavorable lease obligations and other long-term liabilities		8,646	10,040
Total Non current liabilities		293,947	343,830
Liabilities subject to compromise		1,905,215
Commitments and contingencies
Stockholder's deficit:
Common stock par value $0.001 per share; authorized 1,000 shares; issued and outstanding 100 shares		0	0
Additional paid-in capital		630,794	630,719
Accumulated other comprehensive loss, net of tax		(40,364)	(25,302)
Accumulated deficit		(1,075,613)	(1,060,693)
Total stockholder's deficit		(485,183)	(455,276)
Total liabilities and stockholder's deficit		$ 2,030,378	$ 2,000,723

[1] LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 - Bankruptcy Filing for additional details.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018
Accumulated amortization on intangible assets	$ 88,005	$ 87,295
Common stock, par value	$ 0.001	$ 0.001
Common stock, share authorized	1,000	1,000
Common stock, share issued	100	100
Common stock, share outstanding	100	100

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018		Jul. 29, 2017
Net sales	$ 314,448	$ 316,637	$ 625,454		$ 616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	154,723	161,583	310,371		313,371
Gross profit	159,725	155,054	315,083		302,887
Other expenses (income):
Selling, general and administrative	111,459	112,774	237,240		223,286
Depreciation and amortization	13,709	10,890	26,903		22,093
Severance and transaction-related costs	629	389	1,005		532
Other income, net	(3,348)	(2,171)	(7,354)		(4,872)
Total other expenses	122,449	121,882	257,794		241,039
Operating income before interest, reorganization items and income taxes	37,276	33,172	57,289		61,848
Reorganization items, net	30,453		40,462
Interest expense, net	5,072	43,394	29,961		86,974
Income (loss) before income tax expense	1,751	(10,222)	(13,134)		(25,126)
Income tax expense	5,040	10,266	1,786		2,120
Net income (loss)	(3,289)	(20,488)	(14,920)		(27,246)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(1,067)	4,523	(3,602)		4,567
Net (loss) gain on intra-entity foreign currency transactions, net of tax (benefit) expense of $(35), $714, $5 and $944	(4,952)	7,593	(11,460)		9,474
Other comprehensive (loss) income	(6,019)	12,116	(15,062)	[1]	14,041
Comprehensive loss	$ (9,308)	$ (8,372)	$ (29,982)		$ (13,205)

[1] Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Tax related to net gain on intra-entity foreign currency transactions	$ (35)	$ 714	$ 5	$ 944

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017
Cash flows from operating activities:
Net income (loss)	$ (14,920)	$ (27,246)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	26,903	22,093
Reorganization items, net	40,462
Amortization of lease rights and other assets	2,517	1,862
Amortization of debt issuance costs	1,613	4,312
Accretion of debt premium	(360)	(1,457)
Non-cash pay-in-kind interest expense	2,889	750
Net unfavorable accretion of lease obligations	9	(55)
Loss on sale/retirement of property and equipment, net	46	128
Stock-based compensation expense	75	156
(Increase) decrease in:
Inventories	(17,945)	(22,083)
Prepaid expenses	(7,130)	(1,926)
Other assets	(6,461)	(75)
Increase (decrease) in:
Trade accounts payable	(7,122)	(709)
Income taxes payable	12,249	(279)
Accrued interest payable	17,955	(155)
Accrued expenses and other liabilities	(6,128)	(6,994)
Deferred income taxes	(15,287)	(359)
Deferred rent expense	(2,460)	(1,196)
Net cash provided by (used in) operating activities	26,905	(33,233)
Cash flows from investing activities:
Acquisition of property and equipment	(9,027)	(8,101)
Acquisition of intangible assets/lease rights	(100)	(38)
Net cash used in investing activities	(9,127)	(8,139)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility	57,000
Repayments under debtor-in-possession credit facility	(57,000)
Proceeds from debtor-in-possession term loans	60,000
Debt issuance costs related to debtor-in-possession financing	(4,470)
Proceeds from revolving credit facilities	43,000	81,000
Payments on revolving credit facilities	(74,000)	(41,200)
Payment on current portion of long-term debt	(6,000)	(18,420)
Payments of unamortized interest related to long-term debt	(5,321)	(4,272)
Payment of debt issuance costs	(2)	(386)
Principal payments on capital lease	(200)	(156)
Net cash provided by (used in) financing activities	13,007	16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents	(3,786)	203
Net increase (decrease) in cash and cash equivalents	26,999	(24,603)
Cash and cash equivalents, at beginning of period	42,446	55,792
Cash and cash equivalents, at end of period	69,445	31,189
Supplemental disclosure of cash flow information:
Interest paid	13,002	87,454
Income taxes paid	2,112	3,927
Non-cash supplemental financing activities:
Increase in term loans due 2021 from pay-in-kind interest	2,976	2,207
Decrease in adjustment to carrying value	$ 2,976	$ 2,207

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Basis of Presentation

6 Months Ended

Aug. 04, 2018

Basis of Presentation

1. Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements of Claire’s Stores, Inc. (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods presented have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended February 3, 2018 filed with the Securities and Exchange Commission, including Note 2 to the Consolidated Financial Statements included therein, which discusses principles of consolidation and summary of significant accounting policies.

The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures regarding contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include, but are not limited to, the value of inventories, goodwill, intangible assets and other long-lived assets, legal contingencies and assumptions used in the calculation of income taxes, stock-based compensation, residual values and other items. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates will be reflected in the financial statements in those future periods when the changes occur.

Due to the seasonal nature of the retail industry and the Company’s business, the results of operations for interim periods of the year are not necessarily indicative of the results of operations for future quarters or on an annualized basis.    

As discussed further in Note 2 entitled “Bankruptcy Filing,” on March 19, 2018 (the “Commencement Date”), the Company and certain of its domestic subsidiaries (collectively with the Company, the “Debtors”) commenced chapter 11 cases (the “Chapter 11 Cases”) by filing voluntary petitions for reorganization under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).    The Debtors are authorized to continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

Ability to Continue as a Going Concern - The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in the debtor-in-possession credit facility (the “DIP Facility”) described in Note 2 – Bankruptcy Filing, the Bankruptcy Court’s approval of its Chapter 11 plan of reorganization, and its ability to successfully implement a restructuring plan and obtain new financing, among other factors. The Company has significant indebtedness. The Company’s level of indebtedness has adversely impacted and is continuing to adversely impact its financial condition. The Company’s financial condition, the defaults under its debt agreements, and the risks and uncertainties surrounding the Chapter 11 Cases, raise substantial doubt as to the Company’s ability to continue as a going concern.

As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The commencement of the Chapter 11 Cases constituted an event of default with respect to certain of the Company’s existing debt obligations. While operating as debtors in possession under Chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business under the Bankruptcy Code and subject to restrictions contained in the DIP Credit Agreement (see Note – 5 Debt) and applicable orders of the Bankruptcy Court, for amounts other than those reflected in the accompanying Unaudited Condensed Consolidated Financial Statements. Further, the Company’s restructuring plan, to the extent confirmed by the Bankruptcy Court, could materially impact the amounts and classifications of assets and liabilities reported in its Unaudited Condensed Consolidated Financial Statements.

The Company plans to emerge from its Chapter 11 Cases after it obtains an order from the Bankruptcy Court confirming the Company’s Proposed Plan (as defined below). Among other things, confirmation of the Proposed Plan will determine the rights and satisfy the claims of the Company’s creditors and security holders in accordance with the terms of the Proposed Plan. A copy of the Debtors’ Proposed Plan is available free of charge online at https://cases.primeclerk.com/claires/.

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Bankruptcy Filing

6 Months Ended

Aug. 04, 2018

Bankruptcy Filing

2. Bankruptcy Filing

Chapter 11 Proceedings

On the Commencement Date, the Debtors commenced the Chapter 11 Cases by filing voluntary petitions for reorganization under Chapter 11 with the Bankruptcy Court. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the Debtors’ Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Claire’s Stores, Inc., et al., Case No. 18-10584 (MFW). Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://cases.primeclerk.com/claires/.

In connection with the commencement of the Chapter 11 Cases, the Debtors entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”), dated as of March 19, 2018, with Apollo Global Management, LLC, the Debtors’ equity sponsor (the “Sponsor”) and certain unaffiliated holders of first lien debt issued by the Company (each, an “Ad Hoc First Lien Holder” and, collectively, the “Ad Hoc First Lien Group” or the “Initial Consenting Holders”). On July 7, 2018, the Debtors and the Ad Hoc First Lien Group amended the Restructuring Support Agreement to permit the Debtors to solicit alternative proposals for (i) plans of reorganization or liquidation or (ii) the purchase of some or all of the Debtors’ assets, and to modify certain milestones with respect to the Debtors’ restructuring process.

Pursuant to the Restructuring Support Agreement, the Ad Hoc First Lien Group and Apollo agreed to support the pre-negotiated plan of reorganization that the Debtors seek to confirm. In accordance with the Restructuring Support Agreement, the Debtors filed the plan of reorganization (as amended, modified, or supplemented, the “Proposed Plan”) and related disclosure statement (as amended, modified, or supplemented the “Disclosure Statement”) with the Bankruptcy Court on April 12, 2018. The Debtors then amended the Proposed Plan on July 7, 2018 and again on July 16, 2018. On July 26, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement, finding that the Disclosure Statement contained adequate information as required by the Bankruptcy Code. Additionally, the Bankruptcy Court approved solicitation and confirmation procedures for the Proposed Plan and scheduled a hearing (the “Confirmation Hearing”) for September 17, 2018 to consider confirmation of the Proposed Plan.

Significant Bankruptcy Court Actions

Following the Commencement Date, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain pre-petition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical and foreign vendors, honor insurance-related obligations, and pay certain pre-petition taxes and related fees on a final basis. The Bankruptcy Court also approved the DIP Facility on a final basis.    

Global Plan Settlement

On July 15, 2018, the Debtors, the official committee of unsecured creditors appointed in the Chapter 11 Cases (the “Creditors’ Committee”), the indenture trustee under the Company’s Unsecured Notes (the “Unsecured Notes Trustee”), and the Ad Hoc First Lien Group entered into a settlement agreement (the “Global Plan Settlement”). Pursuant to the Global Plan Settlement, the Debtors resolved the formal and informal objections of the Creditors’ Committee and the Unsecured Notes Trustee with respect to the Proposed Plan and the Debtors’ restructuring, including with respect to (i) the enterprise value for the Debtors, together with their non-Debtor affiliates; (ii) value attributable to the Debtors’ unencumbered assets; (iii) junior creditor recoveries; (iv) the treatment of intercompany claims and interests; (v) the releases and exculpations contemplated by the Proposed Plan, including with respect to the Sponsor and claims or causes of action arising from or related to the exchange transaction effectuated by the Company in 2016 (the “2016 Exchange”); (vi) the terms of the new capital to be invested in the Company by the Ad Hoc First Lien Group; (vii) the allocation of assets and liabilities among the Debtors’ Estates; and (vii) prospective lien challenges, claims, or causes of action that might be brought by or on behalf of the Debtors’ Chapter 11 estates, including on account of the 2016 Exchange. The Bankruptcy Court will consider approval of the Global Plan Settlement at the Confirmation Hearing.

Settlement with FFI

On August 31, 2018, the Debtors, FFI Fund Ltd., FYI Ltd. and their affiliates (collectively, the “FFI Parties”), holders of the Company’s Unsecured Notes, and certain signatories to the Restructuring Support Agreement (the “Requisite Consenting Creditors”) entered into a Plan Support Agreement (the “PSA”), whereby the FFI Parties agreed to settle any and all potential objections they may have to the Proposed Plan and to support and vote all claims and interests held by the FFI Parties to accept the Proposed Plan and grant the releases provided for in the PSA. Pursuant to the PSA, the Debtors modified the Proposed Plan to increase the recoveries of holders of the Company’s Unsecured Notes. The PSA became effective and binding on each of the Parties upon the execution and delivery of the PSA by each of (a) the Debtors, (b) the Requisite Consenting Creditors, and (c) the FFI Parties; provided that the PSA shall not be effective as to the Debtors until approved by the Bankruptcy Court upon confirmation of the Proposed Plan.

Oaktree’s Standing Motion

On July 19, 2018, Oaktree Capital Management, L.P. (“Oaktree”), the majority holder of the Company’s Second Lien Notes, filed a motion in the Chapter 11 Cases seeking derivative standing to pursue certain avoidance actions with respect to the 2016 Exchange (the “Standing Motion”). The Debtors object to Oaktree’s Standing Motion on the grounds that, among other things, Oaktree is prohibited from bringing such avoidance actions by virtue of its intercreditor obligations, Oaktree’s Standing Motion is a premature objection to the approval of the Global Plan Settlement, and Oaktree cannot assert colorable claims with respect to such avoidance actions. The Bankruptcy Court will hold a hearing on Oaktree’s Standing Motion on September 17, 2018.

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach.

The Debtors have filed motions and received Bankruptcy Court approval for the rejection of 140 leases. As of August 4, 2018, the Debtors have rejected 83 leases. On August 24, 2018, the Debtors filed with the Bankruptcy Court a Rejected Executory Contracts and Unexpired Leases Schedule and Assumed Executory Contracts and Unexpired Leases Schedule with respect to those executory contracts and unexpired leases that either will be assumed or rejected pursuant to the Proposed Plan. Copies of these schedules are available free of charge online at https://cases.primeclerk.com/claires/.

Key Employee Incentive and Retention Programs

On May 5, 2018, the Debtors filed with the Bankruptcy Court a motion (the “KEIP/KERP Motion”) seeking authority to implement a key employee incentive plan (the “KEIP”) and a key employee retention program (the “KERP”).    The KEIP provides performance metrics for senior members of the Debtors’ management team to achieve in furtherance of the Debtors’ business goals and, upon the achievement of those performance metrics, provides for maximum payments of up to approximately $1.5 million in the aggregate per quarter through the end of the fourth quarter of Fiscal 2018. The KERP identifies valuable, hard-to-replace non-senior members of the Debtors’ management team that play important roles in the Debtors’ restructuring efforts, each performing crucial tasks to ensure a seamless transition into and an efficient emergence from Chapter 11. The KERP provides for payments of up to approximately $1.5 million in the aggregate. The KERP participants would receive awards on the earlier of thirty days following the effective date of a Chapter 11 plan of reorganization and December 31, 2018, with the payment of such awards conditioned on the KERP participants’ continued employment with the Company. The KEIP/KERP Motion was approved by the Bankruptcy Court on June 13, 2018.

Debtor-In-Possession Facility

See Note – 5 Debt for further discussion of the DIP Facility, which provides up to $135.0 million in senior secured super-priority financing under a $75.0 million DIP ABL Loan and a $60.0 million DIP Term Loan.

Marketing Process

On June 22, 2018, the Bankruptcy Court entered an order requiring the Debtors to solicit bids with respect to a sale or disposition by the Debtors of the Company’s assets or an investment and/or sponsorship of a Chapter 11 plan of reorganization or liquidation. Additionally, the Bankruptcy Court established certain procedures (the “Bid Procedures”) regarding the submission of certain bids (each, a “Qualified Bid” as defined in the Bid Procedures) with respect to some, all, or substantially all of the Company’s assets or an investment in, and/or sponsorship of, a Chapter 11 plan of reorganization or liquidation. The deadline for the submission of Qualified Bids was August 31, 2018. The Debtors, in consultation with the Creditors’ Committee, have determined that the Debtors have not received any Qualified Bids.

Financial Reporting in Reorganization

Effective on March 19, 2018, the Company began to apply ASC, No. 852, “Reorganizations,” which is applicable to companies under Chapter 11 bankruptcy protection. It requires the financial statements for periods subsequent to the Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. In addition, the balance sheet must distinguish debtor pre-petitionliabilities subject to compromise (“LSTC”) from liabilities of non-Debtor entities, pre-petition liabilities that are not subject to compromise and from post-petition liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheet. LSTC are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, the Company has classified the entire amount of the claim as a LSTC.

Liabilities Subject to Compromise

As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Commencement Date liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes, and certain vendors.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for different amounts. The amounts classified as LSTC may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims or other events.

Liabilities Subject to Compromise as of August 4, 2018 included the following components (in thousands):

	August 4, 2018
Debt (1)	$	1,806,363
Accrued interest on debt subject to compromise		73,054
Accounts payable, accrued expense and other liabilities		25,798
Total liabilities subject to compromise	$	1,905,215

(1) See Note 5 – Debt for details of pre-petition debt reported as liabilities subject to compromise.

Reorganization Items, Net

Reorganization items, net represent amounts incurred after the Commencement Date as a direct result of the Bankruptcy and are comprised of the following for the three and six months ended August 4, 2018 (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
Professional fees	$	22,744	$	33,697
Rejection of leases and other		7,277		7,277
Debtor-in-possession financing costs		432		4,470
Write-off of pre-petition debt issuance costs, debt premium, and adjustment in carrying value		—		(4,982	)
Total reorganization items, net	$	30,453	$	40,462

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Recent Accounting Pronouncements

6 Months Ended

Aug. 04, 2018

Recent Accounting Pronouncements

3. Recent Accounting Pronouncements

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The update eliminates the exception for an intra-entity transfer of an asset other than inventory, which aligns the recognition of income tax consequences for inter-entity transfers of assets other than inventory by requiring the recognition of current and deferred income taxes resulting from an intra-entity transfer of such an asset when the transfer occurs rather than when it is sold to an external party. The Company adopted ASU 2016-16 as of the first day of Fiscal 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flow.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in this update address how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The Company adopted ASU 2016-15 as of the first day of Fiscal 2018 and it did not have a material impact on the Company’s cash flows.

In March 2016, the FASB issued ASU 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20), Recognition of Breakage for Certain Prepaid Stored-Value Products. The new guidance addresses diversity in practice related to the derecognition of a prepaid stored-value product liability. ASU 2016-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-04 as of the first day of Fiscal 2018 in connection with ASU 2014-09 and it did not have a material impact on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for substantially all leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The new standard is effective for years beginning after December 15, 2018, including interim periods within those years. In July 2018, the FASB issued ASU 2018-11 which provided additional transition methods. The Company is currently quantifying the amount of lease assets and lease liabilities that it will recognize on its balance sheet. The Company’s review of the requirements of Topic 842 is ongoing, and believes that the impact on its balance sheet, while not currently calculated, will be significant.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in evaluating whether it controls the good or the service before it is transferred to the customer. The new revenue recognition standard was effective for public entities for annual reporting periods beginning after December 15, 2017, and interim periods therein, that is, the first quarter of 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company adopted ASU 2014-09 as of the first day of Fiscal 2018 using the modified retrospective method. There were no changes to the consolidated financial position, results of operations, or cash flows as a result of the adoption and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance. The Company has included additional disclosures in Note 11 – Segment Information showing disaggregation by revenue channel.

Accounting policies as a result of recently adopted accounting pronouncements

Revenue Recognition – Net sales is comprised of company-operated store sales, and other sales, which includes sales from concession, e-commerce and franchise. The Company excludes sales taxes collected from customers from “Net sales” in its Consolidated Statements of Operations and Comprehensive Income (Loss). Net Sales is presented net of an allowance for estimated returns, which is based on historic experience. The estimated liability for sales returns is based on the historical return levels, which is included in “Accrued expenses and other current liabilities.”

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company’s customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue from company-operated stores is recognized as the customer takes possession of the merchandise. Revenue from concessions is recognized as the customer takes possession of the merchandise. Revenue from e-commerce is recognized when merchandise is shipped to the customer. Revenue from franchisees is recognized when merchandise is shipped from the Company to the franchisee. The Company accounts for the merchandise it sells to third parties under franchising and licensing agreements within “Net Sales” and “Cost of sales, occupancy and buying expenses” in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). The franchise fees the Company charges under the franchising agreements are reported in “Other income, net” in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).    

Shipping fees billed to customers are recorded as revenue, and shipping costs are recognized within cost of sales in the same period the related revenue is recognized.

Upon purchase of a gift card or gift certificate, a liability is established for the cash value. The liability is included in “Accrued expenses and other current liabilities.” Revenue from gift card and gift certificate sales is recognized at the time of redemption. Unredeemed gift card and gift certificate breakage income is recorded as a reduction of “Selling, general and administrative” expenses. The Company records breakage income when the probability of redemption, based upon historical redemption patterns, is remote as there is currently no basis for estimating breakage income.

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Fair Value Measurements

6 Months Ended

Aug. 04, 2018

Fair Value Measurements

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Disclosures of the fair value of certain financial instruments are required, whether or not recognized in the Unaudited Condensed Consolidated Balance Sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. There is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company does not have any assets (liabilities) measured at fair value on a recurring basis.

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

The Company’s non-financial assets, which include goodwill, intangible assets, and long-lived tangible assets, are not adjusted to fair value on a recurring basis. Fair value measures of non-financial assets are primarily used in the impairment analysis of these assets. Any resulting asset impairment would require that the non-financial asset be recorded at its fair value. The Company reviews goodwill and indefinite-lived intangible assets for impairment annually, during the fourth quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The Company monitors the carrying value of definite-lived intangible assets and long-lived tangible assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable.

Financial Instruments Not Measured at Fair Value

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, short-term debt, current liabilities and long-term debt. Cash and cash equivalents, accounts receivable, short-term debt, and current liabilities approximate fair market value due to the relatively short maturity of these financial instruments.

The Company considers all investments with a maturity of three months or less when acquired to be cash equivalents. The Company’s cash equivalent instruments are valued using quoted market prices and are primarily U.S. Treasury securities. The revolving credit facilities approximate fair value due to the variable component of the interest rate. Excluding unamortized debt issuance costs, the estimated fair value of the Company’s long-term debt (including current portion) was approximately $1.12 billion as of August 4, 2018, compared to a carrying value of $2.10 billion at that date. Excluding unamortized debt issuance costs, the estimated fair value of the Company’s long-term debt (including current portion) was approximately $1.28 billion as of February 3, 2018, compared to a carrying value of $2.12 billion at that date. For publicly-traded debt, the fair value (estimated market value) is based on quoted market prices in less active markets. For non-publicly traded debt, fair value is estimated based on quoted prices for similar instruments. If measured at fair value in the financial statements, long-term debt excluding term loans would be classified as Level 2 in the fair value hierarchy, while term loans would be classified as Level 3 in the fair value hierarchy.

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Debt

6 Months Ended

Aug. 04, 2018

Debt

5. Debt

Debt as of August 4, 2018 and February 3, 2018 included the following components (in thousands):

	August 4, 2018			February 3, 2018
Short-term borrowings:
Debtor-in-possession facility	$	60,000		$	—
Current portion of long-term debt:
Claire’s Gibraltar Intermediate secured term loan due 2019	$	51,500		$	51,500
Claire’s Gibraltar unsecured term loan due 2019		34,000			—
9.0% Senior secured first lien notes due 2019		—			1,125,000
8.875% Senior secured second lien notes due 2019		—			222,300
6.125% Senior secured first lien notes due 2020		—			210,000
7.75% Senior notes due 2020		—			216,742
9.0% Claire’s Stores term loan due 2021		—			31,804
U.S. asset based lending credit facility due 2019		—			31,000
Unamortized premium (1)		—			3,642
Adjustment to carrying value (1)		—			12,483
Unamortized debt issuance cost (1)		(768	)		(10,432	)
Total current portion of long-term debt, net (1)	$	84,732		$	1,894,039
Debt subject to compromise:
9.0% Senior secured first lien notes due 2019	$	1,125,000		$	—
8.875% Senior secured second lien notes due 2019		222,300			—
6.125% Senior secured first lien notes due 2020		210,000			—
7.75% Senior notes due 2020		216,742			—
9.0% Claire’s Stores term loan due 2021		32,321			—
Total debt subject to compromise	$	1,806,363		$	—
Long-term debt:
Claire’s Gibraltar unsecured term loan due 2019	$	—		$	40,000
11.0% CLSIP term loan due 2021 (2)		107,926			103,356
9.0% Claire’s Gibraltar term loans due 2021		48,477			47,701
Adjustment to carrying value		52,444			59,298
Total long-term debt, net	$	208,847		$	250,355
Obligation under capital lease (including current portion)	$	16,188		$	16,388

(1) LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 – Bankruptcy Filing for additional details.

(2) See CLSIP Forbearance Agreement below for discussion of increased interest rate.

Debtor-In-Possession Facility

On March 22, 2018, the Company, pursuant to a commitment letter dated as of March 11, 2018 and previously disclosed on the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 19, 2018, and in connection with the Chapter 11 Cases and as a debtor in possession pursuant to the Bankruptcy Code, entered into a Credit Agreement (the “DIP Credit Agreement”) among the Company, Claire’s Inc., a Delaware corporation (“Parent”), certain of the Company’s subsidiaries (as described below), the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent and collateral agent for the Lenders (in such capacities, the “Administrative Agent”), pursuant to which, among other things, the Lenders have provided (i) a senior secured superpriority non-amortizing asset-based revolving facility in an aggregate principal amount of $75,000,000 (the “DIP ABL Loan”), with up to $10,000,000 of such DIP ABL Loan available for the issuance of standby letters of credit and (ii) a superpriority senior secured last-out term facility in an aggregate principal amount of $60,000,000 (the “DIP Term Loan” and together with the DIP ABL Loan, the “DIP Facility”). The DIP Facility is guaranteed on a joint and several basis by Parent, and certain of the Company’s subsidiaries, including BMS Distributing Corp., a Delaware corporation, CBI Distributing Corp., a Delaware corporation, Claire’s Boutiques, Inc., a Colorado corporation, Claire’s Canada Corp., a Delaware corporation, Claire’s Puerto Rico Corp., a Delaware corporation and CSI Canada LLC, a Delaware limited liability company.

The proceeds of the DIP ABL Loan extended on the DIP Closing Date were used to refinance all outstanding obligations and replace commitments under the ABL Credit Facility (described below), including cash collateralization of certain letters of credit previously issued, outstanding and undrawn as of March 22, 2018, the closing date of the DIP Facility (the “DIP Closing Date”), and to pay fees, costs and expenses incurred in connection with the DIP Facility. The proceeds of the DIP Facility will also be used for working capital and general corporate purposes and to fund certain fees payable to professional service providers in connection with the Chapter 11 Cases.

The DIP Facility will mature, subject to the satisfaction of certain conditions, on the earliest of (i) the one year anniversary of the DIP Closing Date, (ii) the effective date of a plan of reorganization, (iii) the date of closing of a sale of all or substantially all of the Company’s assets pursuant to Section 363 of the Bankruptcy Code, (iv) the date on which acceleration of the outstanding loans, and the terminations of the commitments, occurs under the DIP Facility and (v) certain dates specified in connection with the Chapter 11 Cases and orders issued in connection therewith.

As of August 4, 2018, the Company had $65.6 million of availability under the DIP ABL Loan, net of applicable reserves.

Contractual interest on debt subject to compromise

Effective as of the Commencement Date, the Company ceased recording interest expense on outstanding pre-petition debt subject to compromise. Contractual interest expense represents amounts due under the contractual terms of outstanding pre-petition debt classified as LSTC. For the quarter ended August 4, 2018, contractual interest expense of $58.5 million related to LSTC has not been recorded in the financial statements.

ABL Credit Facility

In March 2018, the Company paid an aggregate amount of $71.0 million and, in addition, the related accrued interest associated with the extinguishment of the ABL Credit Facility.

CLSIP Forbearance Agreement

CLSIP Holdings, CLSIP, Wilmington Trust, N.A., as Administrative Agent and Collateral Agent under the CLSIP Term Loan Agreement, and certain of the lenders constituting Required Lenders (as that term is defined by the CLSIP Term Loan Agreement) under the CLSIP Term Loan entered into a forbearance agreement dated as of April 19, 2018 (the “CLSIP Forbearance”) providing that, among other things, such lenders will forbear from causing the CLSIP Term Loan to become immediately due and payable and from exercising remedies arising from such event of default or other events of default that may arise on account of the commencement of the Chapter 11 Cases and/or any other transaction and/or agreement contemplated by the Restructuring Support Agreement. The CLSIP Forbearance also increased the interest rate of the CLSIP Term Loan to bear 11.0% per annum. As a result of the CLSIP Forbearance, the CLSIP Term Loan is classified as long-term debt.

Debt Covenants

The Company’s debt agreements contain certain covenants that, among other things, subject to certain exceptions and other basket amounts, restrict its ability and the ability of its subsidiaries to:

• incur additional indebtedness;

• pay dividends or distributions on its capital stock, repurchase or retire its 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 the Company’s 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.

Certain of these covenants in the indentures governing the Company’s note indebtedness, such as limitations on the Company’s ability to make certain payments such as dividends, or incur debt, will no longer apply if the notes have investment grade ratings from both of the rating agencies of Moody’s Investor Services, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) and no event of default has occurred. Since the date of issuance of the notes, the notes have not received investment grade ratings from Moody’s or S&P. Accordingly, all of the covenants under the notes currently apply to the Company. None of the covenants under the notes, however, require the Company to maintain any particular financial ratio or other measure of financial performance.

See Note 4 – Fair Value Measurements for related fair value disclosure on debt.

Europe Bank Credit Facilities

The Company’s non-U.S. subsidiaries have bank credit facilities totaling approximately $1.9 million. The facilities are used for working capital requirements, letters of credit and various guarantees. These credit facilities have been arranged in accordance with customary lending practices in the respective country of operation. As of August 4, 2018, there was a reduction of $1.7 million for outstanding bank guarantees, which reduces the borrowing availability to $0.2 million as of that date.

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Commitments and Contingencies

6 Months Ended

Aug. 04, 2018

Commitments and Contingencies

6. Commitments and Contingencies

The Company is, from time to time, involved in litigation incidental to the conduct of its business, including personal injury litigation, litigation regarding merchandise sold, including product and safety concerns regarding heavy metal and chemical content in merchandise, litigation with respect to various employment matters, including litigation with present and former employees, wage and hour litigation and litigation regarding intellectual property rights.

The Company believes that current pending litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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Accumulated Other Comprehensive Loss

6 Months Ended

Aug. 04, 2018

Accumulated Other Comprehensive Loss

7. Accumulated Other Comprehensive Loss

The following summary sets forth the components of accumulated other comprehensive loss, net of tax as follows (in thousands, net of tax):

	Total (1)
Balance as of February 3, 2018	$	(25,302	)
Other comprehensive loss		(15,062	)
Balance as of August 4, 2018	$	(40,364	)

(1) Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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Stock Options and Stock-Based Compensation

6 Months Ended

Aug. 04, 2018

Stock Options and Stock-Based Compensation

8. Stock Options and Stock-Based Compensation

The following is a summary of activity in the Company’s stock option plan for the six months ended August 4, 2018:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding as of February 3, 2018		3,224,326		$	5.18
Options granted		—
Options exercised		—
Options forfeited		(17,511	)	$	2.83
Options expired		(154,887	)	$	9.48
Outstanding as of August 4, 2018		3,051,928		$	4.98		3.6
Options vested and expected to vest as of August 4, 2018		2,938,253		$	5.10		3.5
Exercisable as of August 4, 2018		1,892,324		$	6.09		3.1

There were no options granted during the six months ended August 4, 2018. The weighted average grant date fair value of options granted during the six months ended July 29, 2017 was $0.39.

Stock-based compensation benefit is recorded in “Selling, general and administrative” expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

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Income Taxes

6 Months Ended

Aug. 04, 2018

Income Taxes

9. Income Taxes

The effective income tax rate was 287.8% and (13.6)% for the three and six months ended August 4, 2018. This effective income tax rate differed from the statutory federal income tax rate of 21.0% primarily due to foreign losses with no associated income tax benefit and changes in valuation allowances.

The effective income tax rate was (100.4)% and (8.4)% for the three and six months ended July 29, 2017. This effective income tax rate differed from the statutory federal income tax rate of 35.0% primarily due to foreign tax rate differentials as compared to the U.S. statutory rate, changes in the valuation allowance and the correction of an immaterial error in the three months ended July 29, 2017.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act instituted fundamental changes to the US tax system. Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, Management calculated their best estimate of the impact of the Tax Act in the 2017 year-end income tax provision in accordance with their understanding of the Tax Act and available guidance. Also pursuant to SAB 118, certain additional impacts of the Tax Act remain open during the measurement period to include other indirect correlative impacts of the Tax Act, the Company’s position with regards to the one-time mandatory transition tax and the state tax impacts of the Tax Act. As of the close of the second quarter, the Company continues to analyze the Tax Act in its entirety and refine its calculations, which could potentially impact the measurement of recorded tax balances. Any subsequent adjustment to the tax balances resulting from the analysis of the Tax Act, will be recorded to income tax expense in the fiscal quarter of 2018 when the analysis is completed.

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Related Party Transactions

6 Months Ended

Aug. 04, 2018

Related Party Transactions

10. Related Party Transactions

Indebtedness

As of August 4, 2018 and February 3, 2018, Parent and affiliates held $68.6 million and $65.6 million of the Company’s indebtedness and the Company had no accrued interest payable associated with the indebtedness. For the three and six months ended August 4, 2018 and July 29, 2017, the Company recognized no interest expense related to the indebtedness held by Parent and affiliates as a result of the 2016 debt exchange whereby all future interest to be paid through maturity date was recorded at the time of the exchange.

Management Services Agreement

On June 6, 2017, the Company and Parent entered into an Amended and Restated Management Services Agreement (the “Management Services Agreement”) with Apollo Management VI, L.P. (“Apollo”), Cowen & Co., LLC, as successor to Tri-Artisan Capital Partners, LLC (“TACP”), (“Cowen”, and together with Apollo, the “Managers”) and TACP Investments – Claire’s LLC (“TACPI”). The Management Services Agreement supersedes, amends and entirely restates the Management Services Agreement, dated as of May 29, 2007 by and among the Company, Parent, Apollo, TACP and TACPI (“the Original Agreement”). Under the Management Service Agreement, the Managers have agreed to provide to the Company certain investment banking, management, consulting and financial planning services on an ongoing basis. The Managers will receive no fee for these services, but will be reimbursed by the Company for their out-of-pocket expenses. In the prior Management Services Agreement, the Managers were paid a $3.0 million fee annually. In addition, under the Management Services Agreement, the Managers have agreed to provide to the Company certain financial advisory and investment banking services from time-to-time in connection with major financial transactions that may be undertaken by the Company or its subsidiaries in exchange for normal and customary fees as agreed by the Managers (or their affiliates) and the Company and Parent, taking into consideration all relevant factors. Under the Management Services Agreement, the Company and Parent have also agreed to provide the Managers (and their affiliates) with customary indemnification. The Management Services Agreement will terminate upon the earliest to occur of May 29, 2025 or the occurrence of certain termination events specified therein.    The Company has not made any payments on account of the Management Services Agreement since commencing the Chapter 11 Cases.

In addition, on June 6, 2017, the Company and Cowen entered into a letter agreement (the “Cowen Management Agreement”) pursuant to which Cowen agreed to provide the Company with certain financial advisory and investment banking services on a month-to-month basis. In return for such services, the Company agreed to pay Cowen a monthly cash fee of $32,000, payable at the beginning of each month, and in addition, to reimburse Cowen for all reasonable out-of-pocket expenses. The Company also agreed to provide Cowen (and its affiliates) with customary indemnification. Both Cowen and the Company had the right to terminate the Cowen Management Agreement at any time during its term on 30 days prior written notice. While in effect, the terms of the Cowen Management Agreement were to govern in the event of any conflict between the Cowen Management Agreement and the terms of the Management Services Agreement referred to above. On September 1, 2017, the Company elected to terminate the Cowen Management Agreement effective as of September 30, 2017.

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Segment Information

6 Months Ended

Aug. 04, 2018

Segment Information

11. Segment Information

The Company is organized based on the geographic markets in which it operates. Under this structure, the Company currently has two reportable segments: North America and Europe. The Company accounts for the goods it sells to third parties under franchising and licensing agreements within “Net sales” and “Cost of sales, occupancy and buying expenses” in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income within its North America segment. The franchise fees the Company charges under the franchising agreements are reported in “Other income, net” in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income within its Europe segment. Substantially all of the interest expense on the Company’s outstanding debt and all of Reorganization Items, net is recorded in the Company’s North America segment.

Net sales, depreciation and amortization and operating income for the three and six months ended August 4, 2018 and July 29, 2017 are as follows (in thousands):

	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales:
North America	$	199,454	$	196,033		$	406,388		$	391,993
Europe		114,994		120,604			219,066			224,265
Total net sales		314,448		316,637			625,454			616,258
Depreciation and amortization:
North America		9,623		7,028			18,276			14,130
Europe		4,086		3,862			8,627			7,963
Total depreciation and amortization		13,709		10,890			26,903			22,093
Operating income for reportable segments:
North America		28,511		16,306			55,139			42,016
Europe		9,394		17,255			3,155			20,364
Total operating income for reportable segments		37,905		33,561			58,294			62,380
Severance and transaction-related costs		629		389			1,005			532
Consolidated operating income		37,276		33,172			57,289			61,848
Reorganization items, net		30,453		—			40,462			—
Interest expense, net		5,072		43,394			29,961			86,974
Consolidated income (loss) before income tax expense	$	1,751	$	(10,222	)	$	(13,134	)	$	(25,126	)

Excluded from operating income for the North America segment are severance and transaction-related costs of approximately $0.3 million and $0.3 million for the three months ended August 4, 2018 and July 29, 2017, respectively, and $0.4 million and $0.3 million for the six months ended August 4, 2018 and July 29, 2017, respectively.

Excluded from operating income for the Europe segment are severance and transaction-related costs of approximately $0.3 million and $0.1 million for the three months ended August 4, 2018 and July 29, 2017, respectively and $0.6 million and $0.2 million for the six months ended August 4, 2018 and July 29, 2017, respectively.

Net sales by channel type and by segment for the three and six months ended August 4, 2018 are as follows (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
North America:
Company-operated net sales	$	186,518	$	376,453
Other net sales		12,936		29,935
Total net sales		199,454		406,388
Europe:
Company-operated net sales		108,419		205,089
Other net sales		6,575		13,977
Total net sales		114,994		219,066
Consolidated:
Company-operated net sales		294,937		581,542
Other net sales		19,511		43,912
Total net sales	$	314,448	$	625,454

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Condensed Combined Debtor-In-Possession Financial Information

6 Months Ended

Aug. 04, 2018

Condensed Combined Debtor-In-Possession Financial Information

12. Condensed Combined Debtor-In-Possession Financial Information

The financial statements below represent the unaudited condensed combined financial statements of the Debtors. As of and for the three and six months ended August 4, 2018, the results of the Company’s subsidiaries that are not part of the Chapter 11 Cases, are not included in these condensed combined financial statements.

Intercompany transactions among the Debtors have been eliminated in the financial statements contained herein. Intercompany transactions among the Debtors and the subsidiaries that are not part of the Chapter 11 Cases have not been eliminated in the Debtors’ financial statements.

Debtors Unaudited Condensed Combined Balance Sheet

August 4, 2018

(in thousands)

ASSETS
Current assets:
Cash	$	27,825
Inventories		88,422
Prepaid expenses		20,935
Other current assets		13,400
Total current assets		150,582
Property and equipment:
Furniture, fixtures and equipment		128,307
Leasehold improvements		167,133
		295,440
Accumulated depreciation and amortization		(240,023	)
		55,417
Leased property under capital lease:
Land and building		18,055
Accumulated depreciation and amortization		(7,667	)
		10,388
Investment in non-filing entities		409,863
Goodwill		987,517
Intangible assets, net		188,223
Other assets		14,169
		1,599,772
Total assets	$	1,816,159
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current liabilities:
Debtor-in-possession term loan	$	60,000
Trade accounts payable		18,549
Income taxes payable		7,849
Accrued interest payable		140
Accrued expenses and other current liabilities		61,907
Total current liabilities		148,445
Intercompany payables		174,547
Obligation under capital lease		15,718
Deferred tax liability		24,795
Deferred rent expense		20,692
Other long-term liabilities		8,646
		244,398
Liabilities subject to compromise		1,905,215
Stockholder’s deficit:
Common stock		—
Additional paid in capital		630,794
Accumulated other comprehensive loss, net of tax		(40,364	)
Accumulated deficit		(1,072,329	)
		(481,899	)
Total liabilities and stockholder’s deficit	$	1,816,159

Debtors Unaudited Condensed Combined Statement of Operations and Comprehensive Income

(in thousands)

	Three Months Ended August 4, 2018			Six Months Ended August 4, 2018
Net sales	$	184,157		$	376,611
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		89,654			179,919
Gross profit		94,503			196,692
Other expenses:
Selling, general and administrative		62,921			136,553
Depreciation and amortization		9,202			17,389
Severance and transaction-related costs		264			348
Other income		(4,351	)		(10,764	)
		68,036			143,526
Operating income		26,467			53,166
Reorganization items, net		30,453			40,462
Interest expense, net		1,940			21,472
Loss before income taxes		(5,926	)		(8,768	)
Income tax expense		2,945			7,872
Loss from continuing operations		(8,871	)		(16,640	)
Equity in earnings of subsidiaries		24,836			51,928
Equity in earnings of non-filing entities		5,977			5,004
Net income		21,942			40,292
Foreign currency translation adjustments		(1,207	)		(4,168	)
Net loss on intra-entity foreign currency transactions, net of tax		(5,214	)		(12,522	)
Other comprehensive loss		(6,421	)		(16,690	)
Comprehensive income	$	15,521		$	23,602

Debtors Unaudited Condensed Combined Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

Cash flows from operating activities:
Net income	$	40,292
Adjustments to reconcile net income to net cash used in operating activities:
Equity in earnings of subsidiaries		(51,928	)
Equity in earnings of non-filing entities		(5,004	)
Depreciation and amortization		17,389
Reorganization items, net		40,462
Amortization of debt issuance costs		898
Accretion of debt premium		(360	)
Net accretion of unfavorable lease obligations		7
Loss on sale/retirement of property and equipment, net		44
Stock-based compensation expense		70
(Increase) decrease in:
Inventories		(11,953	)
Prepaid expenses		(4,557	)
Other assets		(6,947	)
Increase (decrease) in:
Trade accounts payable		(8,076	)
Income taxes payable		7,340
Accrued interest payable		17,386
Accrued expenses and other liabilities		(5,802	)
Deferred income taxes		(2,586	)
Deferred rent expense		(2,142	)
Net cash provided by operating activities		24,533
Cash flows from investing activities:
Acquisition of property and equipment		(6,553	)
Acquisition of intangible assets/lease rights		(20	)
Net cash used in investing activities		(6,573	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000
Repayments under debtor-in-possession credit facility		(57,000	)
Proceeds from debtor-in-possession term loans		60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)
Proceeds from revolving credit facilities		43,000
Payments on revolving credit facilities		(74,000	)
Payments of unamortized interest related to long-term debt		(925	)
Principal payments on capital lease		(200	)
Intercompany activity, net		(18,680	)
Net cash provided by financing activities		4,725
Effect of foreign currency exchange rate changes on cash and cash equivalents		(2,207	)
Net increase in cash and cash equivalents		20,478
Cash and cash equivalents, at beginning of period		7,347
Cash and cash equivalents, at end of period		27,825

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Supplemental Financial Information

6 Months Ended

Aug. 04, 2018

Supplemental Financial Information

13. Supplemental Financial Information

On March 4, 2011, Claire’s Stores, Inc. (referred to in this Note 13 as the “Issuer”), issued the Second Lien Notes. On February 28, 2012, March 12, 2012 and September 20, 2012, the Issuer issued the 9.0% Senior Secured First Lien 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 Unsecured Notes. The Second Lien 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 ABL Credit Facility and U.S. Credit Facility. The First Lien Notes are unconditionally guaranteed, jointly and severally, by all wholly-owned domestic current and future subsidiaries of Claire’s Stores, Inc. (subject to certain exceptions, including CLSIP LLC and CLSIP Holdings LLC). As of August 4, 2018, Claire’s Stores, Inc. owned 100% of its domestic subsidiaries that guarantee the 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 unaudited 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.

Unaudited Condensed Consolidating Balance Sheet

August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash	$	23,551		$	10,774		$	35,120		$	—		$	69,445
Inventories		—			88,422			59,909			—			148,331
Prepaid expenses		8,300			12,635			15,954			—			36,889
Other current assets		418			12,982			8,337			—			21,737
Total current assets		32,269			124,813			119,320			—			276,402
Property and equipment:
Furniture, fixtures and equipment		3,239			125,068			79,981			—			208,288
Leasehold improvements		1,315			165,818			111,971			—			279,104
		4,554			290,886			191,952			—			487,392
Accumulated depreciation and amortization		(3,834	)		(236,189	)		(147,608	)		—			(387,631	)
		720			54,697			44,344			—			99,761
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,667	)		—			—			(7,667	)
		—			10,388			—			—			10,388
Intercompany receivables		—			368,135			105,026			(473,161	)		—
Investment in subsidiaries		1,729,045			(40,870	)		—			(1,688,175	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,657			197,022			(84,634	)		450,145
Other assets		8,000			6,169			46,938			—			61,107
		1,925,145			1,470,608			494,044			(2,245,970	)		1,643,827
Total assets	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	—		$	—		$	84,732		$	—		$	84,732
Debtor-in-possession term loan		60,000			—			—			—			60,000
Trade accounts payable		2,323			16,226			36,723			—			55,272
Income taxes payable		—			7,849			6,247			—			14,096
Accrued interest payable		140			395			548			—			1,083
Accrued expenses and other current liabilities		27,113			34,794			39,309			—			101,216
Total current liabilities		89,576			59,264			167,559			—			316,399
Intercompany payables		473,161			—			—			(473,161	)		—
Long-term debt, net		—			143,810			65,037			—			208,847
Revolving credit facility, net		—			—			—			—			—
Obligation under capital lease		—			15,718			—			—			15,718
Deferred tax liability		—			24,795			4,384			—			29,179
Deferred rent expense		—			20,692			10,865			—			31,557
Other long-term liabilities		—			8,646			—			—			8,646
		473,161			213,661			80,286			(473,161	)		293,947
Liabilities subject to compromise		1,880,580			24,635			—			—			1,905,215
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,794			1,520,543			766,993			(2,287,536	)		630,794
Accumulated other comprehensive income (loss), net of tax		(40,364	)		(4,784	)		(36,187	)		40,971			(40,364	)
Accumulated deficit		(1,075,613	)		(153,180	)		(320,945	)		474,125			(1,075,613	)
		(485,183	)		1,362,946			409,863			(1,772,809	)		(485,183	)
Total liabilities and stockholder’s equity (deficit)	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378

Unaudited Condensed Consolidating Balance Sheet

February 3, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	4,203		$	9,644		$	28,599		$	—		$	42,446
Inventories		—			76,469			58,221			—			134,690
Prepaid expenses		2,638			13,740			15,906			—			32,284
Other current assets		1,281			13,111			12,466			—			26,858
Total current assets		8,122			112,964			115,192			—			236,278
Property and equipment:
Furniture, fixtures and equipment		3,075			133,664			86,905			—			223,644
Leasehold improvements		1,315			177,520			122,503			—			301,338
		4,390			311,184			209,408			—			524,982
Accumulated depreciation and amortization		(3,640	)		(245,778	)		(155,866	)		—			(405,284	)
		750			65,406			53,542			—			119,698
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,216	)		—			—			(7,216	)
		—			10,839			—			—			10,839
Intercompany receivables		—			299,768			121,143			(420,911	)		—
Investment in subsidiaries		1,688,098			(42,369	)		—			(1,645,729	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,678			203,934			(84,634	)		457,078
Other assets		1,140			3,647			39,468			—			44,255
		1,877,338			1,398,241			509,603			(2,151,274	)		1,633,908
Total assets	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	1,843,582		$	—		$	50,457		$	—		$	1,894,039
Trade accounts payable		3,231			21,090			38,644			—			62,965
Income taxes payable		—			484			3,565			—			4,049
Accrued interest payable		55,808			—			374			—			56,182
Accrued expenses and other current liabilities		17,954			34,494			42,486			—			94,934
Total current liabilities		1,920,575			56,068			135,526			—			2,112,169
Intercompany payables		420,911			—			—			(420,911	)		—
Long-term debt, net		—			143,929			106,426			—			250,355
Obligation under capital lease		—			15,970			—			—			15,970
Deferred tax liability		—			25,963			6,651			—			32,614
Deferred rent expense		—			22,834			12,017			—			34,851
Unfavorable lease obligations and other long-term liabilities		—			10,040			—			—			10,040
		420,911			218,736			125,094			(420,911	)		343,830
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,719			1,520,543			766,993			(2,287,536	)		630,719
Accumulated other comprehensive income (loss), net of tax		(25,302	)		(3,156	)		(23,326	)		26,482			(25,302	)
Accumulated deficit		(1,060,693	)		(205,108	)		(325,952	)		531,060			(1,060,693	)
		(455,276	)		1,312,646			417,717			(1,730,363	)		(455,276	)
Total liabilities and stockholder’s equity (deficit)	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	184,157		$	130,291		$	—		$	314,448
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		2,828			86,826			65,069			—			154,723
Gross profit (deficit)		(2,828	)		97,331			65,222			—			159,725
Other expenses:
Selling, general and administrative		5,536			57,385			48,538			—			111,459
Depreciation and amortization		96			9,106			4,507			—			13,709
Severance and transaction-related costs		209			55			365			—			629
Other (income) expense		(1,541	)		(2,810	)		1,003			—			(3,348	)
		4,300			63,736			54,413			—			122,449
Operating income (loss)		(7,128	)		33,595			10,809			—			37,276
Reorganization items, net		24,832			5,621			—			—			30,453
Interest expense, net		1,406			929			2,737			—			5,072
Income (loss) before income taxes		(33,366	)		27,045			8,072			—			1,751
Income tax expense		—			2,945			2,095			—			5,040
Income (loss) from continuing operations		(33,366	)		24,100			5,977			—			(3,289	)
Equity in earnings (loss) of subsidiaries		30,077			736			—			(30,813	)		—
Net income (loss)		(3,289	)		24,836			5,977			(30,813	)		(3,289	)
Foreign currency translation adjustments		(1,067	)		(140	)		(520	)		660			(1,067	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(4,952	)		(262	)		(4,952	)		5,214			(4,952	)
Other comprehensive income (loss)		(6,019	)		(402	)		(5,472	)		5,874			(6,019	)
Comprehensive income (loss)	$	(9,308	)	$	24,434		$	505		$	(24,939	)	$	(9,308	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	180,868		$	135,769		$	—		$	316,637
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		3,017			89,864			68,702			—			161,583
Gross (deficit) profit		(3,017	)		91,004			67,067			—			155,054
Other expenses:
Selling, general and administrative		5,967			58,717			48,090			—			112,774
Depreciation and amortization		181			6,379			4,330			—			10,890
Severance and transaction-related costs		234			16			139			—			389
Other income, net		(918	)		(112	)		(1,141	)		—			(2,171	)
		5,464			65,000			51,418			—			121,882
Operating (loss) income		(8,481	)		26,004			15,649			—			33,172
Interest expense, net		40,071			535			2,788			—			43,394
(Loss) income before income taxes		(48,552	)		25,469			12,861			—			(10,222	)
Income tax expense		—			121			10,145			—			10,266
(Loss) income from continuing operations		(48,552	)		25,348			2,716			—			(20,488	)
Equity in earnings (loss) of subsidiaries		28,064			(2,203	)		—			(25,861	)		—
Net (loss) income		(20,488	)		23,145			2,716			(25,861	)		(20,488	)
Foreign currency translation adjustments		4,523			1,080			(196	)		(884	)		4,523
Net gain (loss) on intra-entity foreign currency transactions, net of tax		7,593			2,199			7,588			(9,787	)		7,593
Other comprehensive income (loss)		12,116			3,279			7,392			(10,671	)		12,116
Comprehensive (loss) income	$	(8,372	)	$	26,424		$	10,108		$	(36,532	)	$	(8,372	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	376,611		$	248,843		$	—		$	625,454
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,642			173,277			130,452			—			310,371
Gross profit (deficit)		(6,642	)		203,334			118,391			—			315,083
Other expenses:
Selling, general and administrative		20,936			115,617			100,687			—			237,240
Depreciation and amortization		194			17,195			9,514			—			26,903
Severance and transaction-related costs		209			139			657			—			1,005
Other (income) expense		(12,321	)		1,557			3,410			—			(7,354	)
		9,018			134,508			114,268			—			257,794
Operating income (loss)		(15,660	)		68,826			4,123			—			57,289
Reorganization items, net		34,841			5,621			—			—			40,462
Interest expense, net		20,430			4,326			5,205			—			29,961
Income (loss) before income taxes		(70,931	)		58,879			(1,082	)		—			(13,134	)
Income tax benefit		—			7,872			(6,086	)		—			1,786
Income (loss) from continuing operations		(70,931	)		51,007			5,004			—			(14,920	)
Equity in earnings (loss) of subsidiaries		56,011			921			—			(56,932	)		—
Net income (loss)		(14,920	)		51,928			5,004			(56,932	)		(14,920	)
Foreign currency translation adjustments		(3,602	)		(566	)		(1,404	)		1,970			(3,602	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(11,460	)		(1,062	)		(11,457	)		12,519			(11,460	)
Other comprehensive income (loss)		(15,062	)		(1,628	)		(12,861	)		14,489			(15,062	)
Comprehensive income (loss)	$	(29,982	)	$	50,300		$	(7,857	)	$	(42,443	)	$	(29,982	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	362,938		$	253,320		$	—		$	616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,179			176,063			131,129			—			313,371
Gross profit (deficit)		(6,179	)		186,875			122,191			—			302,887
Other expenses:
Selling, general and administrative		11,720			116,002			95,564			—			223,286
Depreciation and amortization		372			12,705			9,016			—			22,093
Severance and transaction-related costs		234			73			225			—			532
Other income, net		(2,855	)		(304	)		(1,713	)		—			(4,872	)
		9,471			128,476			103,092			—			241,039
Operating income (loss)		(15,650	)		58,399			19,099			—			61,848
Interest expense, net		80,341			1,061			5,572			—			86,974
Income (loss) before income taxes		(95,991	)		57,338			13,527			—			(25,126	)
Income tax expense (benefit)		—			(943	)		3,063			—			2,120
Income (loss) from continuing operations		(95,991	)		58,281			10,464			—			(27,246	)
Equity in earnings (loss) of subsidiaries		68,745			(2,157	)		—			(66,588	)		—
Net income (loss)		(27,246	)		56,124			10,464			(66,588	)		(27,246	)
Foreign currency translation adjustments		4,567			668			1,641			(2,309	)		4,567
Net gain (loss) on intra-entity foreign currency transactions, net of tax		9,474			1,343			9,471			(10,814	)		9,474
Other comprehensive income (loss)		14,041			2,011			11,112			(13,123	)		14,041
Comprehensive income (loss)	$	(13,205	)	$	58,135		$	21,576		$	(79,711	)	$	(13,205	)

Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(14,920	)	$	51,928		$	5,004		$	(56,932	)	$	(14,920	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(56,011	)		(921	)		—			56,932			—
Depreciation and amortization		194			17,195			9,514			—			26,903
Reorganization items, net		34,841			5,621			—			—			40,462
Amortization of lease rights and other assets		—			—			2,517			—			2,517
Amortization of debt issuance costs		898			—			715			—			1,613
Accretion of debt premium		(360	)		—			—			—			(360	)
Non-cash pay-in-kind interest expense		—			2,889			—			—			2,889
Net accretion of unfavorable lease obligations		—			7			2			—			9
Loss on sale/retirement of property and equipment, net		—			44			2			—			46
Stock-based compensation expense		70			—			5			—			75
(Increase) decrease in:
Inventories		—			(11,953	)		(5,992	)		—			(17,945	)
Prepaid expenses		(5,662	)		1,105			(2,573	)		—			(7,130	)
Other assets		(5,998	)		(949	)		486			—			(6,461	)
Increase (decrease) in:
Trade accounts payable		(19,578	)		11,502			954			—			(7,122	)
Income taxes payable		—			7,340			4,909			—			12,249
Accrued interest payable		17,386			395			174			—			17,955
Accrued expenses and other liabilities		(7,648	)		1,846			(326	)		—			(6,128	)
Deferred income taxes		—			(2,586	)		(12,701	)		—			(15,287	)
Deferred rent expense		—			(2,142	)		(318	)		—			(2,460	)
Net cash provided by (used in) operating activities		(56,788	)		81,321			2,372			—			26,905
Cash flows from investing activities:
Acquisition of property and equipment		(164	)		(6,389	)		(2,474	)		—			(9,027	)
Acquisition of intangible assets/lease rights		—			(20	)		(80	)		—			(100	)
Net cash used in investing activities		(164	)		(6,409	)		(2,544	)		—			(9,127	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000			—			—			—			57,000
Repayments under debtor-in-possession credit facility		(57,000	)		—			—			—			(57,000	)
Proceeds from debtor-in-possession term loans		60,000			—			—			—			60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)		—			—			—			(4,470	)
Proceeds from revolving credit facilities		43,000			—			—			—			43,000
Payments on revolving credit facilities		(74,000	)		—			—			—			(74,000	)
Payment on current portion of long-term debt		—			—			(6,000	)		—			(6,000	)
Payments of unamortized interest related to long-term debt		(925	)		(3,008	)		(1,388	)		—			(5,321	)
Payment of debt issuance costs		—			—			(2	)		—			(2	)
Principal payments on capital lease		—			(200	)		—			—			(200	)
Intercompany activity, net		52,695			(68,367	)		15,672			—			—
Net cash provided by (used in) financing activities		76,300			(71,575	)		8,282			—			13,007
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			(2,207	)		(1,579	)		—			(3,786	)
Net increase (decrease) in cash and cash equivalents		19,348			1,130			6,521			—			26,999
Cash and cash equivalents, at beginning of period		4,203			9,644			28,599			—			42,446
Cash and cash equivalents, at end of period		23,551			10,774			35,120			—			69,445

Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(27,246	)	$	56,124		$	10,464		$	(66,588	)	$	(27,246	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(68,745	)		2,157			—			66,588			—
Depreciation and amortization		372			12,705			9,016			—			22,093
Amortization of lease rights and other assets		—			—			1,862			—			1,862
Amortization of debt issuance costs		3,781			—			531			—			4,312
Accretion of debt premium		(1,457	)		—			—			—			(1,457	)
Non-cash pay-in-kind interest expense		—			—			750			—			750
Net accretion of unfavorable lease obligations		—			(56	)		1			—			(55	)
Loss on sale/retirement of property and equipment, net		—			126			2			—			128
Stock-based compensation expense		139			—			17			—			156
(Increase) decrease in:
Inventories		—			(12,077	)		(10,006	)		—			(22,083	)
Prepaid expenses		(675	)		(84	)		(1,167	)		—			(1,926	)
Other assets		(268	)		(23	)		216			—			(75	)
Increase (decrease) in:
Trade accounts payable		(912	)		2,811			(2,608	)		—			(709	)
Income taxes payable		—			(967	)		688			—			(279	)
Accrued interest payable		73			—			(228	)		—			(155	)
Accrued expenses and other liabilities		(2,683	)		(365	)		(3,946	)		—			(6,994	)
Deferred income taxes		—			—			(359	)		—			(359	)
Deferred rent expense		—			(712	)		(484	)		—			(1,196	)
Net cash provided by (used in) operating activities		(97,621	)		59,639			4,749			—			(33,233	)
Cash flows from investing activities:
Acquisition of property and equipment		—			(5,111	)		(2,990	)		—			(8,101	)
Acquisition of intangible assets/lease rights		—			(38	)		—			—			(38	)
Net cash used in investing activities		—			(5,149	)		(2,990	)		—			(8,139	)
Cash flows from financing activities:
Proceeds from revolving credit facilities		81,000			—			—			—			81,000
Payments on revolving credit facilities		(41,200	)		—			—			—			(41,200	)
Payment on current portion of long-term debt		(18,420	)		—			—			—			(18,420	)
Payments of unamortized interest related to long-term debt		(743	)		(2,415	)		(1,114	)		—			(4,272	)
Payment of debt issuance costs		—			—			(386	)		—			(386	)
Principal payments on capital lease		—			(156	)		—			—			(156	)
Intercompany activity, net		79,605			(53,034	)		(26,571	)		—			—
Net cash provided by (used in) financing activities		100,242			(55,605	)		(28,071	)		—			16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			2,928			(2,725	)		—			203
Net increase (decrease) in cash and cash equivalents		2,621			1,813			(29,037	)		—			(24,603	)
Cash and cash equivalents, at beginning of period		3,038			3,005			49,749			—			55,792
Cash and cash equivalents, at end of period	$	5,659		$	4,818		$	20,712		$	—		$	31,189

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Bankruptcy Filing (Tables)

6 Months Ended

Aug. 04, 2018

Summary of Liabilities Subject to Compromise

Liabilities Subject to Compromise as of August 4, 2018 included the following components (in thousands):

	August 4, 2018
Debt (1)	$	1,806,363
Accrued interest on debt subject to compromise		73,054
Accounts payable, accrued expense and other liabilities		25,798
Total liabilities subject to compromise	$	1,905,215

(1) See Note 5 – Debt for details of pre-petition debt reported as liabilities subject to compromise.

Summary of Reorganization Items, Net

Reorganization items, net represent amounts incurred after the Commencement Date as a direct result of the Bankruptcy and are comprised of the following for the three and six months ended August 4, 2018 (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
Professional fees	$	22,744	$	33,697
Rejection of leases and other		7,277		7,277
Debtor-in-possession financing costs		432		4,470
Write-off of pre-petition debt issuance costs, debt premium, and adjustment in carrying value		—		(4,982	)
Total reorganization items, net	$	30,453	$	40,462

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Debt (Tables)

6 Months Ended

Aug. 04, 2018

Components of Debt

Debt as of August 4, 2018 and February 3, 2018 included the following components (in thousands):

	August 4, 2018			February 3, 2018
Short-term borrowings:
Debtor-in-possession facility	$	60,000		$	—
Current portion of long-term debt:
Claire’s Gibraltar Intermediate secured term loan due 2019	$	51,500		$	51,500
Claire’s Gibraltar unsecured term loan due 2019		34,000			—
9.0% Senior secured first lien notes due 2019		—			1,125,000
8.875% Senior secured second lien notes due 2019		—			222,300
6.125% Senior secured first lien notes due 2020		—			210,000
7.75% Senior notes due 2020		—			216,742
9.0% Claire’s Stores term loan due 2021		—			31,804
U.S. asset based lending credit facility due 2019		—			31,000
Unamortized premium (1)		—			3,642
Adjustment to carrying value (1)		—			12,483
Unamortized debt issuance cost (1)		(768	)		(10,432	)
Total current portion of long-term debt, net (1)	$	84,732		$	1,894,039
Debt subject to compromise:
9.0% Senior secured first lien notes due 2019	$	1,125,000		$	—
8.875% Senior secured second lien notes due 2019		222,300			—
6.125% Senior secured first lien notes due 2020		210,000			—
7.75% Senior notes due 2020		216,742			—
9.0% Claire’s Stores term loan due 2021		32,321			—
Total debt subject to compromise	$	1,806,363		$	—
Long-term debt:
Claire’s Gibraltar unsecured term loan due 2019	$	—		$	40,000
11.0% CLSIP term loan due 2021 (2)		107,926			103,356
9.0% Claire’s Gibraltar term loans due 2021		48,477			47,701
Adjustment to carrying value		52,444			59,298
Total long-term debt, net	$	208,847		$	250,355
Obligation under capital lease (including current portion)	$	16,188		$	16,388

(1) LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 – Bankruptcy Filing for additional details.

(2) See CLSIP Forbearance Agreement below for discussion of increased interest rate.

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Aug. 04, 2018

Components of Accumulated Other Comprehensive Loss, Net of Tax

The following summary sets forth the components of accumulated other comprehensive loss, net of tax as follows (in thousands, net of tax):

	Total (1)
Balance as of February 3, 2018	$	(25,302	)
Other comprehensive loss		(15,062	)
Balance as of August 4, 2018	$	(40,364	)

(1) Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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Stock Options and Stock-Based Compensation (Tables)

6 Months Ended

Aug. 04, 2018

Summary of Activity in Stock Option Plan

The following is a summary of activity in the Company’s stock option plan for the six months ended August 4, 2018:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding as of February 3, 2018		3,224,326		$	5.18
Options granted		—
Options exercised		—
Options forfeited		(17,511	)	$	2.83
Options expired		(154,887	)	$	9.48
Outstanding as of August 4, 2018		3,051,928		$	4.98		3.6
Options vested and expected to vest as of August 4, 2018		2,938,253		$	5.10		3.5
Exercisable as of August 4, 2018		1,892,324		$	6.09		3.1

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Segment Information (Tables)

6 Months Ended

Aug. 04, 2018

Net Sales, Depreciation and Amortization and Operating Income

Net sales, depreciation and amortization and operating income for the three and six months ended August 4, 2018 and July 29, 2017 are as follows (in thousands):

	Three Months Ended August 4, 2018		Three Months Ended July 29, 2017			Six Months Ended August 4, 2018			Six Months Ended July 29, 2017
Net sales:
North America	$	199,454	$	196,033		$	406,388		$	391,993
Europe		114,994		120,604			219,066			224,265
Total net sales		314,448		316,637			625,454			616,258
Depreciation and amortization:
North America		9,623		7,028			18,276			14,130
Europe		4,086		3,862			8,627			7,963
Total depreciation and amortization		13,709		10,890			26,903			22,093
Operating income for reportable segments:
North America		28,511		16,306			55,139			42,016
Europe		9,394		17,255			3,155			20,364
Total operating income for reportable segments		37,905		33,561			58,294			62,380
Severance and transaction-related costs		629		389			1,005			532
Consolidated operating income		37,276		33,172			57,289			61,848
Reorganization items, net		30,453		—			40,462			—
Interest expense, net		5,072		43,394			29,961			86,974
Consolidated income (loss) before income tax expense	$	1,751	$	(10,222	)	$	(13,134	)	$	(25,126	)

Schedule of Net Sales by Channel Type and by Segment

Net sales by channel type and by segment for the three and six months ended August 4, 2018 are as follows (in thousands):

	Three Months Ended August 4, 2018		Six Months Ended August 4, 2018
North America:
Company-operated net sales	$	186,518	$	376,453
Other net sales		12,936		29,935
Total net sales		199,454		406,388
Europe:
Company-operated net sales		108,419		205,089
Other net sales		6,575		13,977
Total net sales		114,994		219,066
Consolidated:
Company-operated net sales		294,937		581,542
Other net sales		19,511		43,912
Total net sales	$	314,448	$	625,454

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Condensed Combined Debtor-In-Possession Financial Information (Tables)

6 Months Ended

Aug. 04, 2018

Schedule of Debtor-in-Possession Condensed Financial Statements

ASSETS
Current assets:
Cash	$	27,825
Inventories		88,422
Prepaid expenses		20,935
Other current assets		13,400
Total current assets		150,582
Property and equipment:
Furniture, fixtures and equipment		128,307
Leasehold improvements		167,133
		295,440
Accumulated depreciation and amortization		(240,023	)
		55,417
Leased property under capital lease:
Land and building		18,055
Accumulated depreciation and amortization		(7,667	)
		10,388
Investment in non-filing entities		409,863
Goodwill		987,517
Intangible assets, net		188,223
Other assets		14,169
		1,599,772
Total assets	$	1,816,159
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current liabilities:
Debtor-in-possession term loan	$	60,000
Trade accounts payable		18,549
Income taxes payable		7,849
Accrued interest payable		140
Accrued expenses and other current liabilities		61,907
Total current liabilities		148,445
Intercompany payables		174,547
Obligation under capital lease		15,718
Deferred tax liability		24,795
Deferred rent expense		20,692
Other long-term liabilities		8,646
		244,398
Liabilities subject to compromise		1,905,215
Stockholder’s deficit:
Common stock		—
Additional paid in capital		630,794
Accumulated other comprehensive loss, net of tax		(40,364	)
Accumulated deficit		(1,072,329	)
		(481,899	)
Total liabilities and stockholder’s deficit	$	1,816,159

Debtors Unaudited Condensed Combined Statement of Operations and Comprehensive Income

(in thousands)

	Three Months Ended August 4, 2018			Six Months Ended August 4, 2018
Net sales	$	184,157		$	376,611
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		89,654			179,919
Gross profit		94,503			196,692
Other expenses:
Selling, general and administrative		62,921			136,553
Depreciation and amortization		9,202			17,389
Severance and transaction-related costs		264			348
Other income		(4,351	)		(10,764	)
		68,036			143,526
Operating income		26,467			53,166
Reorganization items, net		30,453			40,462
Interest expense, net		1,940			21,472
Loss before income taxes		(5,926	)		(8,768	)
Income tax expense		2,945			7,872
Loss from continuing operations		(8,871	)		(16,640	)
Equity in earnings of subsidiaries		24,836			51,928
Equity in earnings of non-filing entities		5,977			5,004
Net income		21,942			40,292
Foreign currency translation adjustments		(1,207	)		(4,168	)
Net loss on intra-entity foreign currency transactions, net of tax		(5,214	)		(12,522	)
Other comprehensive loss		(6,421	)		(16,690	)
Comprehensive income	$	15,521		$	23,602

Debtors Unaudited Condensed Combined Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

Cash flows from operating activities:
Net income	$	40,292
Adjustments to reconcile net income to net cash used in operating activities:
Equity in earnings of subsidiaries		(51,928	)
Equity in earnings of non-filing entities		(5,004	)
Depreciation and amortization		17,389
Reorganization items, net		40,462
Amortization of debt issuance costs		898
Accretion of debt premium		(360	)
Net accretion of unfavorable lease obligations		7
Loss on sale/retirement of property and equipment, net		44
Stock-based compensation expense		70
(Increase) decrease in:
Inventories		(11,953	)
Prepaid expenses		(4,557	)
Other assets		(6,947	)
Increase (decrease) in:
Trade accounts payable		(8,076	)
Income taxes payable		7,340
Accrued interest payable		17,386
Accrued expenses and other liabilities		(5,802	)
Deferred income taxes		(2,586	)
Deferred rent expense		(2,142	)
Net cash provided by operating activities		24,533
Cash flows from investing activities:
Acquisition of property and equipment		(6,553	)
Acquisition of intangible assets/lease rights		(20	)
Net cash used in investing activities		(6,573	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000
Repayments under debtor-in-possession credit facility		(57,000	)
Proceeds from debtor-in-possession term loans		60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)
Proceeds from revolving credit facilities		43,000
Payments on revolving credit facilities		(74,000	)
Payments of unamortized interest related to long-term debt		(925	)
Principal payments on capital lease		(200	)
Intercompany activity, net		(18,680	)
Net cash provided by financing activities		4,725
Effect of foreign currency exchange rate changes on cash and cash equivalents		(2,207	)
Net increase in cash and cash equivalents		20,478
Cash and cash equivalents, at beginning of period		7,347
Cash and cash equivalents, at end of period		27,825

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Supplemental Financial Information (Tables)

6 Months Ended

Aug. 04, 2018

Condensed Consolidating Balance Sheet

Unaudited Condensed Consolidating Balance Sheet

August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash	$	23,551		$	10,774		$	35,120		$	—		$	69,445
Inventories		—			88,422			59,909			—			148,331
Prepaid expenses		8,300			12,635			15,954			—			36,889
Other current assets		418			12,982			8,337			—			21,737
Total current assets		32,269			124,813			119,320			—			276,402
Property and equipment:
Furniture, fixtures and equipment		3,239			125,068			79,981			—			208,288
Leasehold improvements		1,315			165,818			111,971			—			279,104
		4,554			290,886			191,952			—			487,392
Accumulated depreciation and amortization		(3,834	)		(236,189	)		(147,608	)		—			(387,631	)
		720			54,697			44,344			—			99,761
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,667	)		—			—			(7,667	)
		—			10,388			—			—			10,388
Intercompany receivables		—			368,135			105,026			(473,161	)		—
Investment in subsidiaries		1,729,045			(40,870	)		—			(1,688,175	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,657			197,022			(84,634	)		450,145
Other assets		8,000			6,169			46,938			—			61,107
		1,925,145			1,470,608			494,044			(2,245,970	)		1,643,827
Total assets	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	—		$	—		$	84,732		$	—		$	84,732
Debtor-in-possession term loan		60,000			—			—			—			60,000
Trade accounts payable		2,323			16,226			36,723			—			55,272
Income taxes payable		—			7,849			6,247			—			14,096
Accrued interest payable		140			395			548			—			1,083
Accrued expenses and other current liabilities		27,113			34,794			39,309			—			101,216
Total current liabilities		89,576			59,264			167,559			—			316,399
Intercompany payables		473,161			—			—			(473,161	)		—
Long-term debt, net		—			143,810			65,037			—			208,847
Revolving credit facility, net		—			—			—			—			—
Obligation under capital lease		—			15,718			—			—			15,718
Deferred tax liability		—			24,795			4,384			—			29,179
Deferred rent expense		—			20,692			10,865			—			31,557
Other long-term liabilities		—			8,646			—			—			8,646
		473,161			213,661			80,286			(473,161	)		293,947
Liabilities subject to compromise		1,880,580			24,635			—			—			1,905,215
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,794			1,520,543			766,993			(2,287,536	)		630,794
Accumulated other comprehensive income (loss), net of tax		(40,364	)		(4,784	)		(36,187	)		40,971			(40,364	)
Accumulated deficit		(1,075,613	)		(153,180	)		(320,945	)		474,125			(1,075,613	)
		(485,183	)		1,362,946			409,863			(1,772,809	)		(485,183	)
Total liabilities and stockholder’s equity (deficit)	$	1,958,134		$	1,660,506		$	657,708		$	(2,245,970	)	$	2,030,378

Unaudited Condensed Consolidating Balance Sheet

February 3, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	4,203		$	9,644		$	28,599		$	—		$	42,446
Inventories		—			76,469			58,221			—			134,690
Prepaid expenses		2,638			13,740			15,906			—			32,284
Other current assets		1,281			13,111			12,466			—			26,858
Total current assets		8,122			112,964			115,192			—			236,278
Property and equipment:
Furniture, fixtures and equipment		3,075			133,664			86,905			—			223,644
Leasehold improvements		1,315			177,520			122,503			—			301,338
		4,390			311,184			209,408			—			524,982
Accumulated depreciation and amortization		(3,640	)		(245,778	)		(155,866	)		—			(405,284	)
		750			65,406			53,542			—			119,698
Leased property under capital lease:
Land and building		—			18,055			—			—			18,055
Accumulated depreciation and amortization		—			(7,216	)		—			—			(7,216	)
		—			10,839			—			—			10,839
Intercompany receivables		—			299,768			121,143			(420,911	)		—
Investment in subsidiaries		1,688,098			(42,369	)		—			(1,645,729	)		—
Goodwill		—			987,517			145,058			—			1,132,575
Intangible assets, net		188,100			149,678			203,934			(84,634	)		457,078
Other assets		1,140			3,647			39,468			—			44,255
		1,877,338			1,398,241			509,603			(2,151,274	)		1,633,908
Total assets	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt, net	$	1,843,582		$	—		$	50,457		$	—		$	1,894,039
Trade accounts payable		3,231			21,090			38,644			—			62,965
Income taxes payable		—			484			3,565			—			4,049
Accrued interest payable		55,808			—			374			—			56,182
Accrued expenses and other current liabilities		17,954			34,494			42,486			—			94,934
Total current liabilities		1,920,575			56,068			135,526			—			2,112,169
Intercompany payables		420,911			—			—			(420,911	)		—
Long-term debt, net		—			143,929			106,426			—			250,355
Obligation under capital lease		—			15,970			—			—			15,970
Deferred tax liability		—			25,963			6,651			—			32,614
Deferred rent expense		—			22,834			12,017			—			34,851
Unfavorable lease obligations and other long-term liabilities		—			10,040			—			—			10,040
		420,911			218,736			125,094			(420,911	)		343,830
Stockholder’s equity (deficit):
Common stock		—			367			2			(369	)		—
Additional paid in capital		630,719			1,520,543			766,993			(2,287,536	)		630,719
Accumulated other comprehensive income (loss), net of tax		(25,302	)		(3,156	)		(23,326	)		26,482			(25,302	)
Accumulated deficit		(1,060,693	)		(205,108	)		(325,952	)		531,060			(1,060,693	)
		(455,276	)		1,312,646			417,717			(1,730,363	)		(455,276	)
Total liabilities and stockholder’s equity (deficit)	$	1,886,210		$	1,587,450		$	678,337		$	(2,151,274	)	$	2,000,723

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	184,157		$	130,291		$	—		$	314,448
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		2,828			86,826			65,069			—			154,723
Gross profit (deficit)		(2,828	)		97,331			65,222			—			159,725
Other expenses:
Selling, general and administrative		5,536			57,385			48,538			—			111,459
Depreciation and amortization		96			9,106			4,507			—			13,709
Severance and transaction-related costs		209			55			365			—			629
Other (income) expense		(1,541	)		(2,810	)		1,003			—			(3,348	)
		4,300			63,736			54,413			—			122,449
Operating income (loss)		(7,128	)		33,595			10,809			—			37,276
Reorganization items, net		24,832			5,621			—			—			30,453
Interest expense, net		1,406			929			2,737			—			5,072
Income (loss) before income taxes		(33,366	)		27,045			8,072			—			1,751
Income tax expense		—			2,945			2,095			—			5,040
Income (loss) from continuing operations		(33,366	)		24,100			5,977			—			(3,289	)
Equity in earnings (loss) of subsidiaries		30,077			736			—			(30,813	)		—
Net income (loss)		(3,289	)		24,836			5,977			(30,813	)		(3,289	)
Foreign currency translation adjustments		(1,067	)		(140	)		(520	)		660			(1,067	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(4,952	)		(262	)		(4,952	)		5,214			(4,952	)
Other comprehensive income (loss)		(6,019	)		(402	)		(5,472	)		5,874			(6,019	)
Comprehensive income (loss)	$	(9,308	)	$	24,434		$	505		$	(24,939	)	$	(9,308	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Three Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	180,868		$	135,769		$	—		$	316,637
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		3,017			89,864			68,702			—			161,583
Gross (deficit) profit		(3,017	)		91,004			67,067			—			155,054
Other expenses:
Selling, general and administrative		5,967			58,717			48,090			—			112,774
Depreciation and amortization		181			6,379			4,330			—			10,890
Severance and transaction-related costs		234			16			139			—			389
Other income, net		(918	)		(112	)		(1,141	)		—			(2,171	)
		5,464			65,000			51,418			—			121,882
Operating (loss) income		(8,481	)		26,004			15,649			—			33,172
Interest expense, net		40,071			535			2,788			—			43,394
(Loss) income before income taxes		(48,552	)		25,469			12,861			—			(10,222	)
Income tax expense		—			121			10,145			—			10,266
(Loss) income from continuing operations		(48,552	)		25,348			2,716			—			(20,488	)
Equity in earnings (loss) of subsidiaries		28,064			(2,203	)		—			(25,861	)		—
Net (loss) income		(20,488	)		23,145			2,716			(25,861	)		(20,488	)
Foreign currency translation adjustments		4,523			1,080			(196	)		(884	)		4,523
Net gain (loss) on intra-entity foreign currency transactions, net of tax		7,593			2,199			7,588			(9,787	)		7,593
Other comprehensive income (loss)		12,116			3,279			7,392			(10,671	)		12,116
Comprehensive (loss) income	$	(8,372	)	$	26,424		$	10,108		$	(36,532	)	$	(8,372	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	376,611		$	248,843		$	—		$	625,454
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,642			173,277			130,452			—			310,371
Gross profit (deficit)		(6,642	)		203,334			118,391			—			315,083
Other expenses:
Selling, general and administrative		20,936			115,617			100,687			—			237,240
Depreciation and amortization		194			17,195			9,514			—			26,903
Severance and transaction-related costs		209			139			657			—			1,005
Other (income) expense		(12,321	)		1,557			3,410			—			(7,354	)
		9,018			134,508			114,268			—			257,794
Operating income (loss)		(15,660	)		68,826			4,123			—			57,289
Reorganization items, net		34,841			5,621			—			—			40,462
Interest expense, net		20,430			4,326			5,205			—			29,961
Income (loss) before income taxes		(70,931	)		58,879			(1,082	)		—			(13,134	)
Income tax benefit		—			7,872			(6,086	)		—			1,786
Income (loss) from continuing operations		(70,931	)		51,007			5,004			—			(14,920	)
Equity in earnings (loss) of subsidiaries		56,011			921			—			(56,932	)		—
Net income (loss)		(14,920	)		51,928			5,004			(56,932	)		(14,920	)
Foreign currency translation adjustments		(3,602	)		(566	)		(1,404	)		1,970			(3,602	)
Net gain (loss) on intra-entity foreign currency transactions, net of tax		(11,460	)		(1,062	)		(11,457	)		12,519			(11,460	)
Other comprehensive income (loss)		(15,062	)		(1,628	)		(12,861	)		14,489			(15,062	)
Comprehensive income (loss)	$	(29,982	)	$	50,300		$	(7,857	)	$	(42,443	)	$	(29,982	)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Loss

For The Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	362,938		$	253,320		$	—		$	616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)		6,179			176,063			131,129			—			313,371
Gross profit (deficit)		(6,179	)		186,875			122,191			—			302,887
Other expenses:
Selling, general and administrative		11,720			116,002			95,564			—			223,286
Depreciation and amortization		372			12,705			9,016			—			22,093
Severance and transaction-related costs		234			73			225			—			532
Other income, net		(2,855	)		(304	)		(1,713	)		—			(4,872	)
		9,471			128,476			103,092			—			241,039
Operating income (loss)		(15,650	)		58,399			19,099			—			61,848
Interest expense, net		80,341			1,061			5,572			—			86,974
Income (loss) before income taxes		(95,991	)		57,338			13,527			—			(25,126	)
Income tax expense (benefit)		—			(943	)		3,063			—			2,120
Income (loss) from continuing operations		(95,991	)		58,281			10,464			—			(27,246	)
Equity in earnings (loss) of subsidiaries		68,745			(2,157	)		—			(66,588	)		—
Net income (loss)		(27,246	)		56,124			10,464			(66,588	)		(27,246	)
Foreign currency translation adjustments		4,567			668			1,641			(2,309	)		4,567
Net gain (loss) on intra-entity foreign currency transactions, net of tax		9,474			1,343			9,471			(10,814	)		9,474
Other comprehensive income (loss)		14,041			2,011			11,112			(13,123	)		14,041
Comprehensive income (loss)	$	(13,205	)	$	58,135		$	21,576		$	(79,711	)	$	(13,205	)

Condensed Consolidating Statement of Cash Flows

Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended August 4, 2018

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(14,920	)	$	51,928		$	5,004		$	(56,932	)	$	(14,920	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(56,011	)		(921	)		—			56,932			—
Depreciation and amortization		194			17,195			9,514			—			26,903
Reorganization items, net		34,841			5,621			—			—			40,462
Amortization of lease rights and other assets		—			—			2,517			—			2,517
Amortization of debt issuance costs		898			—			715			—			1,613
Accretion of debt premium		(360	)		—			—			—			(360	)
Non-cash pay-in-kind interest expense		—			2,889			—			—			2,889
Net accretion of unfavorable lease obligations		—			7			2			—			9
Loss on sale/retirement of property and equipment, net		—			44			2			—			46
Stock-based compensation expense		70			—			5			—			75
(Increase) decrease in:
Inventories		—			(11,953	)		(5,992	)		—			(17,945	)
Prepaid expenses		(5,662	)		1,105			(2,573	)		—			(7,130	)
Other assets		(5,998	)		(949	)		486			—			(6,461	)
Increase (decrease) in:
Trade accounts payable		(19,578	)		11,502			954			—			(7,122	)
Income taxes payable		—			7,340			4,909			—			12,249
Accrued interest payable		17,386			395			174			—			17,955
Accrued expenses and other liabilities		(7,648	)		1,846			(326	)		—			(6,128	)
Deferred income taxes		—			(2,586	)		(12,701	)		—			(15,287	)
Deferred rent expense		—			(2,142	)		(318	)		—			(2,460	)
Net cash provided by (used in) operating activities		(56,788	)		81,321			2,372			—			26,905
Cash flows from investing activities:
Acquisition of property and equipment		(164	)		(6,389	)		(2,474	)		—			(9,027	)
Acquisition of intangible assets/lease rights		—			(20	)		(80	)		—			(100	)
Net cash used in investing activities		(164	)		(6,409	)		(2,544	)		—			(9,127	)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility		57,000			—			—			—			57,000
Repayments under debtor-in-possession credit facility		(57,000	)		—			—			—			(57,000	)
Proceeds from debtor-in-possession term loans		60,000			—			—			—			60,000
Debt issuance costs related to debtor-in-possession financing		(4,470	)		—			—			—			(4,470	)
Proceeds from revolving credit facilities		43,000			—			—			—			43,000
Payments on revolving credit facilities		(74,000	)		—			—			—			(74,000	)
Payment on current portion of long-term debt		—			—			(6,000	)		—			(6,000	)
Payments of unamortized interest related to long-term debt		(925	)		(3,008	)		(1,388	)		—			(5,321	)
Payment of debt issuance costs		—			—			(2	)		—			(2	)
Principal payments on capital lease		—			(200	)		—			—			(200	)
Intercompany activity, net		52,695			(68,367	)		15,672			—			—
Net cash provided by (used in) financing activities		76,300			(71,575	)		8,282			—			13,007
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			(2,207	)		(1,579	)		—			(3,786	)
Net increase (decrease) in cash and cash equivalents		19,348			1,130			6,521			—			26,999
Cash and cash equivalents, at beginning of period		4,203			9,644			28,599			—			42,446
Cash and cash equivalents, at end of period		23,551			10,774			35,120			—			69,445

Unaudited Condensed Consolidating Statement of Cash Flows

Six Months Ended July 29, 2017

(in thousands)

							Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(27,246	)	$	56,124		$	10,464		$	(66,588	)	$	(27,246	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries		(68,745	)		2,157			—			66,588			—
Depreciation and amortization		372			12,705			9,016			—			22,093
Amortization of lease rights and other assets		—			—			1,862			—			1,862
Amortization of debt issuance costs		3,781			—			531			—			4,312
Accretion of debt premium		(1,457	)		—			—			—			(1,457	)
Non-cash pay-in-kind interest expense		—			—			750			—			750
Net accretion of unfavorable lease obligations		—			(56	)		1			—			(55	)
Loss on sale/retirement of property and equipment, net		—			126			2			—			128
Stock-based compensation expense		139			—			17			—			156
(Increase) decrease in:
Inventories		—			(12,077	)		(10,006	)		—			(22,083	)
Prepaid expenses		(675	)		(84	)		(1,167	)		—			(1,926	)
Other assets		(268	)		(23	)		216			—			(75	)
Increase (decrease) in:
Trade accounts payable		(912	)		2,811			(2,608	)		—			(709	)
Income taxes payable		—			(967	)		688			—			(279	)
Accrued interest payable		73			—			(228	)		—			(155	)
Accrued expenses and other liabilities		(2,683	)		(365	)		(3,946	)		—			(6,994	)
Deferred income taxes		—			—			(359	)		—			(359	)
Deferred rent expense		—			(712	)		(484	)		—			(1,196	)
Net cash provided by (used in) operating activities		(97,621	)		59,639			4,749			—			(33,233	)
Cash flows from investing activities:
Acquisition of property and equipment		—			(5,111	)		(2,990	)		—			(8,101	)
Acquisition of intangible assets/lease rights		—			(38	)		—			—			(38	)
Net cash used in investing activities		—			(5,149	)		(2,990	)		—			(8,139	)
Cash flows from financing activities:
Proceeds from revolving credit facilities		81,000			—			—			—			81,000
Payments on revolving credit facilities		(41,200	)		—			—			—			(41,200	)
Payment on current portion of long-term debt		(18,420	)		—			—			—			(18,420	)
Payments of unamortized interest related to long-term debt		(743	)		(2,415	)		(1,114	)		—			(4,272	)
Payment of debt issuance costs		—			—			(386	)		—			(386	)
Principal payments on capital lease		—			(156	)		—			—			(156	)
Intercompany activity, net		79,605			(53,034	)		(26,571	)		—			—
Net cash provided by (used in) financing activities		100,242			(55,605	)		(28,071	)		—			16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			2,928			(2,725	)		—			203
Net increase (decrease) in cash and cash equivalents		2,621			1,813			(29,037	)		—			(24,603	)
Cash and cash equivalents, at beginning of period		3,038			3,005			49,749			—			55,792
Cash and cash equivalents, at end of period	$	5,659		$	4,818		$	20,712		$	—		$	31,189

XML

Bankruptcy Filling - Additional Information (Detail)	6 Months Ended
	Aug. 04, 2018 USD ($) Leases	Mar. 22, 2018 USD ($)
Bankruptcy Filing [Line Items]
Bankruptcy, description of proceedings	Following the Commencement Date, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain pre-petition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical and foreign vendors, honor insurance-related obligations, and pay certain pre-petition taxes and related fees on a final basis. The Bankruptcy Court also approved the DIP Facility on a final basis.
Bankruptcy court approval for the rejection of leases | Leases	140
Debtors rejected leases | Leases	83
Debtor-in-possession financing, amount	$ 135,000,000
Key Employee Incentive Plan [Member] | Maximum
Bankruptcy Filing [Line Items]
Payment to debtors' management team members	1,500,000
Key Employee Retention Program [Member] | Maximum
Bankruptcy Filing [Line Items]
Payment to debtors' management team members	1,500,000
DIP ABL Loan
Bankruptcy Filing [Line Items]
Debtor-in-possession financing, amount	75,000,000	$ 75,000,000
D I P Term Loan
Bankruptcy Filing [Line Items]
Debtor-in-possession financing, amount	$ 60,000,000	$ 60,000,000

XML

Summary of Liabilities Subject to Compromise (Detail) $ in Thousands	Aug. 04, 2018 USD ($)
Schedule of Liabilities Subject to Compromise [Line Items]
Debt	$ 1,806,363	[1]
Accrued interest on debt subject to compromise	73,054
Accounts payable, accrued expense and other liabilities	25,798
Total liabilities subject to compromise	$ 1,905,215

[1] See Note 5 - Debt for details of pre-petition debt reported as liabilities subject to compromise.

XML

Summary of Reorganization Items, Net (Detail) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Aug. 04, 2018	Aug. 04, 2018
Reorganization Items [Line Items]
Professional fees	$ 22,744	$ 33,697
Rejection of leases and other	7,277	7,277
Debtor-in-possession financing costs	432	4,470
Write-off of pre-petition debt issuance costs, debt premium, and adjustment in carrying value		(4,982)
Total reorganization items, net	$ 30,453	$ 40,462

XML

Fair Value Measurements - Additional Information (Detail) - USD ($) $ in Millions	Aug. 04, 2018	Feb. 03, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, fair value	$ 1,120	$ 1,280
Long term debt, carrying value	$ 2,100	$ 2,120

XML

Components of Debt (Detail) - USD ($) $ in Thousands		Aug. 04, 2018	Feb. 03, 2018
Debt Instrument [Line Items]
Debtor-in-possession facility		$ 60,000
Unamortized premium	[1]		$ 3,642
Adjustment to carrying value	[1]		12,483
Unamortized debt issuance cost	[1]	(768)	(10,432)
Total current portion of long-term debt, net	[1]	84,732	1,894,039
Total debt subject to compromise	[2]	1,806,363
Adjustment to carrying value		52,444	59,298
Total long-term debt, net		208,847	250,355
Obligation under capital lease (including current portion)		16,188	16,388
Claire's Gibraltar Intermediate secured term loan due 2019
Debt Instrument [Line Items]
Debt instrument carrying amount, current		51,500	51,500
Claire's Gibraltar unsecured term loan due 2019
Debt Instrument [Line Items]
Debt instrument carrying amount, current		34,000
Debt instrument carrying amount, non current			40,000
9.0% Senior secured first lien notes due 2019
Debt Instrument [Line Items]
Debt instrument carrying amount, current			1,125,000
Total debt subject to compromise		1,125,000
8.875% Senior secured second lien notes due 2019
Debt Instrument [Line Items]
Debt instrument carrying amount, current			222,300
Total debt subject to compromise		222,300
6.125% Senior secured first lien notes due 2020
Debt Instrument [Line Items]
Debt instrument carrying amount, current			210,000
Total debt subject to compromise		210,000
7.75% Senior notes due 2020
Debt Instrument [Line Items]
Debt instrument carrying amount, current			216,742
Total debt subject to compromise		216,742
9.0% Claire's Stores term loan due 2021
Debt Instrument [Line Items]
Debt instrument carrying amount, current			31,804
Total debt subject to compromise		32,321
Asset Based Lending Credit Facility | U.S. Credit Facility
Debt Instrument [Line Items]
Debt instrument carrying amount, current			31,000
11.0% CLSIP term loan due 2021
Debt Instrument [Line Items]
Debt instrument carrying amount, non current	[3]	107,926	103,356
9.0% Claire's Gibraltar term loans due 2021
Debt Instrument [Line Items]
Debt instrument carrying amount, non current		$ 48,477	$ 47,701

[1] LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 - Bankruptcy Filing for additional details.

[2] See Note 5 - Debt for details of pre-petition debt reported as liabilities subject to compromise.

[3] See CLSIP Forbearance Agreement below for discussion of increased interest rate.

XML

Components of Debt (Parenthetical) (Detail) - USD ($) $ in Millions		6 Months Ended	12 Months Ended
		Aug. 04, 2018	Feb. 03, 2018
Debt Instrument [Line Items]
Write off of debt issuance costs		$ 5.0
Claire's Gibraltar unsecured term loan due 2019
Debt Instrument [Line Items]
Long-term Debt, due date		2019	2019
9.0% Senior secured first lien notes due 2019
Debt Instrument [Line Items]
Long-term Debt, interest rate		9.00%	9.00%
Long-term Debt, due date		2019	2019
8.875% Senior secured second lien notes due 2019
Debt Instrument [Line Items]
Long-term Debt, interest rate		8.875%	8.875%
Long-term Debt, due date		2019	2019
6.125% Senior secured first lien notes due 2020
Debt Instrument [Line Items]
Long-term Debt, interest rate		6.125%	6.125%
Long-term Debt, due date		2020	2020
7.75% Senior notes due 2020
Debt Instrument [Line Items]
Long-term Debt, interest rate		7.75%	7.75%
Long-term Debt, due date		2020	2020
9.0% Claire's Stores term loan due 2021
Debt Instrument [Line Items]
Long-term Debt, interest rate		9.00%	9.00%
Long-term Debt, due date		2021	2021
11.0% CLSIP term loan due 2021
Debt Instrument [Line Items]
Long-term Debt, interest rate	[1]	11.00%	11.00%
Long-term Debt, due date	[1]	2021	2021
9.0% Claire's Gibraltar term loans due 2021
Debt Instrument [Line Items]
Long-term Debt, interest rate		9.00%	9.00%
Long-term Debt, due date		2021	2021
U.S. Credit Facility | Asset Based Lending Credit Facility
Debt Instrument [Line Items]
Long-term Debt, due date			2019

[1] See CLSIP Forbearance Agreement below for discussion of increased interest rate.

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Debt - Additional Information (Detail) - USD ($)			1 Months Ended	6 Months Ended
		Mar. 22, 2018	Mar. 31, 2018	Aug. 04, 2018	Jul. 29, 2017	Apr. 19, 2018	Feb. 03, 2018
Debt Instrument [Line Items]
Bankruptcy date, petition for bankruptcy filed		Mar. 19, 2018
Debtor-in-possession financing, amount				$ 135,000,000
Description of DIP Facility maturity				The DIP Facility will mature, subject to the satisfaction of certain conditions, on the earliest of (i) the one year anniversary of the DIP Closing Date, (ii) the effective date of a plan of reorganization, (iii) the date of closing of a sale of all or substantially all of the Company’s assets pursuant to Section 363 of the Bankruptcy Code, (iv) the date on which acceleration of the outstanding loans, and the terminations of the commitments, occurs under the DIP Facility and (v) certain dates specified in connection with the Chapter 11 Cases and orders issued in connection therewith.
Availability under the DIP ABL Loan, net of applicable reserves				$ 60,000,000
Contractual interest expense related to LSTC				58,500,000
Reduction in indebtedness under credit facility				6,000,000	$ 18,420,000
Europe Bank Credit Facilities
Debt Instrument [Line Items]
Credit facilities borrowing capacity				1,900,000
Reduction in indebtedness under credit facility				1,700,000
Line Of Credit Facility Remaining Borrowing Capacity				200,000
DIP ABL Loan
Debt Instrument [Line Items]
Debtor-in-possession financing, amount		$ 75,000,000		75,000,000
DIP ABL Loan available for issuance of standby letters of credit		10,000,000
Availability under the DIP ABL Loan, net of applicable reserves				65,600,000
D I P Term Loan
Debt Instrument [Line Items]
Debtor-in-possession financing, amount		$ 60,000,000		$ 60,000,000
ABL Credit Facility | Revolving credit facilities
Debt Instrument [Line Items]
Aggregate amount of debt repaid			$ 71,000,000
11.0% CLSIP term loan due 2021
Debt Instrument [Line Items]
Long-term Debt, interest rate	[1]			11.00%			11.00%
CLSIP Forbearance Agreement | 11.0% CLSIP term loan due 2021
Debt Instrument [Line Items]
Long-term Debt, interest rate						11.00%

[1] See CLSIP Forbearance Agreement below for discussion of increased interest rate.

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Components of Accumulated Other Comprehensive Loss, Net of Tax (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018		Jul. 29, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance				$ (455,276)
Other comprehensive loss		$ (6,019)	$ 12,116	(15,062)	[1]	$ 14,041
Ending balance		(485,183)		(485,183)
Accumulated other comprehensive loss, net
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	[1]			(25,302)
Ending balance	[1]	$ (40,364)		$ (40,364)

[1] Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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Components of Accumulated Other Comprehensive Loss, Net of Tax (Parenthetical) (Detail) $ in Millions	6 Months Ended
	Aug. 04, 2018 USD ($)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other income associated with expired derivative instruments	$ 5.7

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Summary of Activity in Stock Option Plan (Detail)	6 Months Ended
	Aug. 04, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding as of February 3, 2018 | shares	3,224,326
Options granted | shares	0
Options exercised | shares	0
Options forfeited | shares	(17,511)
Options expired | shares	(154,887)
Outstanding as of August 4, 2018 | shares	3,051,928
Options vested and expected to vest as of August 4, 2018 | shares	2,938,253
Exercisable at end of period | shares	1,892,324
Outstanding as of January 28, 2017, Weighted-Average Exercise Price | $ / shares	$ 5.18
Options granted, Weighted-Average Exercise Price | $ / shares	0
Options exercised, Weighted-Average Exercise Price | $ / shares	0
Options forfeited, Weighted-Average Exercise Price | $ / shares	2.83
Options expired, Weighted-Average Exercise Price | $ / shares	9.48
Outstanding as of August 4, 2018 | $ / shares	4.98
Options vested and expected to vest as of August 4, 2018, Weighted-Average Exercise Price | $ / shares	5.10
Exercisable as of August 4, 2018, Weighted Average Exercise Price | $ / shares	$ 6.09
Outstanding as of August 4, 2018, Weighted Average Remaining Contractual Term	3 years 7 months 6 days
Options vested and expected to vest as of August 4, 2018, Weighted Average Remaining Contractual Term	3 years 6 months
Exercisable as of August 4, 2018, Weighted Average Remaining Contractual Term	3 years 1 month 6 days

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Stock Options and Stock-Based Compensation - Additional Information (Detail) - $ / shares	6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average grant date fair value of options granted		$ 0.39
Options granted	0

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Income Taxes - Additional Information (Detail)	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Income Tax Disclosure [Line Items]
U.S. income taxes at statutory federal rate			21.00%	35.00%
Effective income tax rate	287.80%	(100.40%)	(13.60%)	(8.40%)

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Related Party Transactions - Additional Information (Detail) - USD ($)		3 Months Ended		6 Months Ended
	Jun. 06, 2017	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017	Feb. 03, 2018
Related Party Transaction [Line Items]
Indebtedness held by Parent and affiliates		$ 68,600,000		$ 68,600,000		$ 65,600,000
Accrued interest payable associated with indebtedness held by parent and affiliates		0		0		$ 0
Interest expense related to indebtedness held by Parent and affiliates		$ 0	$ 0	$ 0	$ 0
Compensation for services	$ 32,000
Notice period for agreement termination	30 days
Apollo Management and Sponsors
Related Party Transaction [Line Items]
Management services agreement fee per year	$ 3,000,000

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Segment Information - Additional Information (Detail) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018 USD ($)	Jul. 29, 2017 USD ($)	Aug. 04, 2018 USD ($) Segment	Jul. 29, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments | Segment			2
Severance and transaction-related costs	$ 629	$ 389	$ 1,005	$ 532
North America
Segment Reporting Information [Line Items]
Severance and transaction-related costs	300	300	400	300
Europe
Segment Reporting Information [Line Items]
Severance and transaction-related costs	$ 300	$ 100	$ 600	$ 200

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Information about Company's Operation by Segment (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Segment Reporting Information [Line Items]
Net sales	$ 314,448	$ 316,637	$ 625,454	$ 616,258
Depreciation and amortization	13,709	10,890	26,903	22,093
Severance and transaction-related costs	629	389	1,005	532
Operating income	37,276	33,172	57,289	61,848
Reorganization items, net	30,453		40,462
Interest expense, net	5,072	43,394	29,961	86,974
Consolidated income (loss) before income tax expense	1,751	(10,222)	(13,134)	(25,126)
Operating Segments
Segment Reporting Information [Line Items]
Operating income	37,905	33,561	58,294	62,380
North America
Segment Reporting Information [Line Items]
Net sales	199,454	196,033	406,388	391,993
Depreciation and amortization	9,623	7,028	18,276	14,130
Severance and transaction-related costs	300	300	400	300
North America | Operating Segments
Segment Reporting Information [Line Items]
Operating income	28,511	16,306	55,139	42,016
Europe
Segment Reporting Information [Line Items]
Net sales	114,994	120,604	219,066	224,265
Depreciation and amortization	4,086	3,862	8,627	7,963
Severance and transaction-related costs	300	100	600	200
Europe | Operating Segments
Segment Reporting Information [Line Items]
Operating income	$ 9,394	$ 17,255	$ 3,155	$ 20,364

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Schedule of Net Sales by Channel Type and by Segment (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Disaggregation of Revenue [Line Items]
Net sales	$ 314,448	$ 316,637	$ 625,454	$ 616,258
Company-operated net sales
Disaggregation of Revenue [Line Items]
Net sales	294,937		581,542
Other net sales
Disaggregation of Revenue [Line Items]
Net sales	19,511		43,912
North America
Disaggregation of Revenue [Line Items]
Net sales	199,454	196,033	406,388	391,993
North America | Company-operated net sales
Disaggregation of Revenue [Line Items]
Net sales	186,518		376,453
North America | Other net sales
Disaggregation of Revenue [Line Items]
Net sales	12,936		29,935
Europe
Disaggregation of Revenue [Line Items]
Net sales	114,994	$ 120,604	219,066	$ 224,265
Europe | Company-operated net sales
Disaggregation of Revenue [Line Items]
Net sales	108,419		205,089
Europe | Other net sales
Disaggregation of Revenue [Line Items]
Net sales	$ 6,575		$ 13,977

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Debtors Condensed Combined Balance Sheet (Detail) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018
Current assets:
Cash	$ 69,445	$ 42,446
Inventories	148,331	134,690
Prepaid expenses	36,889	32,284
Other current assets	21,737	26,858
Total current assets	276,402	236,278
Property and equipment:
Furniture, fixtures and equipment	208,288	223,644
Leasehold improvements	279,104	301,338
Total property and equipment	487,392	524,982
Accumulated depreciation and amortization	(387,631)	(405,284)
Total property and equipment, net	99,761	119,698
Leased property under capital lease:
Land and building	18,055	18,055
Accumulated depreciation and amortization	(7,667)	(7,216)
Total leased property under capital lease	10,388	10,839
Goodwill	1,132,575	1,132,575
Intangible assets, net	450,145	457,078
Other assets	61,107	44,255
Total other noncurrent assets	1,643,827	1,633,908
Total assets	2,030,378	2,000,723
Current liabilities:
Debtor-in-possession term loan	60,000
Trade accounts payable	55,272	62,965
Income taxes payable	14,096	4,049
Accrued interest payable	1,083	56,182
Accrued expenses and other current liabilities	101,216	94,934
Total current liabilities	316,399	2,112,169
Obligation under capital lease	15,718	15,970
Deferred tax liability	29,179	32,614
Deferred rent expense	31,557	34,851
Other long-term liabilities	8,646
Total Non current liabilities	293,947	343,830
Liabilities subject to compromise	1,905,215
Stockholder's deficit:
Common stock	0	0
Additional paid in capital	630,794	630,719
Accumulated other comprehensive loss, net of tax	(40,364)	(25,302)
Accumulated deficit	(1,075,613)	(1,060,693)
Total stockholder's deficit	(485,183)	(455,276)
Total liabilities and stockholder's deficit	2,030,378	$ 2,000,723
Debtors
Current assets:
Cash	27,825
Inventories	88,422
Prepaid expenses	20,935
Other current assets	13,400
Total current assets	150,582
Property and equipment:
Furniture, fixtures and equipment	128,307
Leasehold improvements	167,133
Total property and equipment	295,440
Accumulated depreciation and amortization	(240,023)
Total property and equipment, net	55,417
Leased property under capital lease:
Land and building	18,055
Accumulated depreciation and amortization	(7,667)
Total leased property under capital lease	10,388
Investment in non-filing entities	409,863
Goodwill	987,517
Intangible assets, net	188,223
Other assets	14,169
Total other noncurrent assets	1,599,772
Total assets	1,816,159
Current liabilities:
Debtor-in-possession term loan	60,000
Trade accounts payable	18,549
Income taxes payable	7,849
Accrued interest payable	140
Accrued expenses and other current liabilities	61,907
Total current liabilities	148,445
Intercompany payables	174,547
Obligation under capital lease	15,718
Deferred tax liability	24,795
Deferred rent expense	20,692
Other long-term liabilities	8,646
Total Non current liabilities	244,398
Liabilities subject to compromise	1,905,215
Stockholder's deficit:
Common stock	0
Additional paid in capital	630,794
Accumulated other comprehensive loss, net of tax	(40,364)
Accumulated deficit	(1,072,329)
Total stockholder's deficit	(481,899)
Total liabilities and stockholder's deficit	$ 1,816,159

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Debtors Condensed Combined Statement of Operations and Comprehensive Income (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018		Jul. 29, 2017
Schedule Of Debtor In Possession [Line Items]
Net sales	$ 314,448	$ 316,637	$ 625,454		$ 616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	154,723	161,583	310,371		313,371
Gross profit	159,725	155,054	315,083		302,887
Other expenses:
Selling, general and administrative	111,459	112,774	237,240		223,286
Depreciation and amortization	13,709	10,890	26,903		22,093
Severance and transaction-related costs	629	389	1,005		532
Other (income) expense	(3,348)	(2,171)	(7,354)		(4,872)
Total other expenses	122,449	121,882	257,794		241,039
Operating income	37,276	33,172	57,289		61,848
Reorganization items, net	30,453		40,462
Interest expense, net	5,072	43,394	29,961		86,974
Loss before income taxes	1,751	(10,222)	(13,134)		(25,126)
Income tax expense	5,040	10,266	1,786		2,120
Loss from continuing operations	(3,289)	(20,488)	(14,920)		(27,246)
Net income (loss)	(3,289)	(20,488)	(14,920)		(27,246)
Foreign currency translation adjustments	(1,067)	4,523	(3,602)		4,567
Net loss on intra-entity foreign currency transactions, net of tax	(4,952)	7,593	(11,460)		9,474
Other comprehensive loss	(6,019)	12,116	(15,062)	[1]	14,041
Comprehensive income	(9,308)	$ (8,372)	(29,982)		$ (13,205)
Debtors
Schedule Of Debtor In Possession [Line Items]
Net sales	184,157		376,611
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	89,654		179,919
Gross profit	94,503		196,692
Other expenses:
Selling, general and administrative	62,921		136,553
Depreciation and amortization	9,202		17,389
Severance and transaction-related costs	264		348
Other (income) expense	(4,351)		(10,764)
Total other expenses	68,036		143,526
Operating income	26,467		53,166
Reorganization items, net	30,453		40,462
Interest expense, net	1,940		21,472
Loss before income taxes	(5,926)		(8,768)
Income tax expense	2,945		7,872
Loss from continuing operations	(8,871)		(16,640)
Equity in earnings of subsidiaries	24,836		51,928
Equity in earnings of non-filing entities	5,977		5,004
Net income (loss)	21,942		40,292
Foreign currency translation adjustments	(1,207)		(4,168)
Net loss on intra-entity foreign currency transactions, net of tax	(5,214)		(12,522)
Other comprehensive loss	(6,421)		(16,690)
Comprehensive income	$ 15,521		$ 23,602

[1] Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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Debtors Condensed Combined Statement of Cash Flows (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Cash flows from operating activities:
Net income (loss)	$ (3,289)	$ (20,488)	$ (14,920)	$ (27,246)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	13,709	10,890	26,903	22,093
Reorganization items, net	30,453		40,462
Amortization of debt issuance costs			1,613	4,312
Accretion of debt premium			(360)	(1,457)
Net accretion of unfavorable lease obligations			9	(55)
Loss on sale/retirement of property and equipment, net			46	128
Stock-based compensation expense			75	156
(Increase) decrease in:
Inventories			(17,945)	(22,083)
Prepaid expenses			(7,130)	(1,926)
Other assets			(6,461)	(75)
Increase (decrease) in:
Trade accounts payable			(7,122)	(709)
Income taxes payable			12,249	(279)
Accrued interest payable			17,955	(155)
Accrued expenses and other liabilities			(6,128)	(6,994)
Deferred income taxes			(15,287)	(359)
Deferred rent expense			(2,460)	(1,196)
Net cash provided by (used in) operating activities			26,905	(33,233)
Cash flows from investing activities:
Acquisition of property and equipment			(9,027)	(8,101)
Acquisition of intangible assets/lease rights			(100)	(38)
Net cash used in investing activities			(9,127)	(8,139)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility			57,000
Repayments under debtor-in-possession credit facility			(57,000)
Proceeds from debtor-in-possession term loans			60,000
Debt issuance costs related to debtor-in-possession financing	(432)		(4,470)
Proceeds from revolving credit facilities			43,000	81,000
Payments on revolving credit facilities			(74,000)	(41,200)
Payments of unamortized interest related to long-term debt			(5,321)	(4,272)
Principal payments on capital lease			(200)	(156)
Net cash provided by (used in) financing activities			13,007	16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents			(3,786)	203
Net increase in cash and cash equivalents			26,999	(24,603)
Cash and cash equivalents, at beginning of period			42,446	55,792
Cash and cash equivalents, at end of period	69,445	$ 31,189	69,445	$ 31,189
Debtors
Cash flows from operating activities:
Net income (loss)	21,942		40,292
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries	(24,836)		(51,928)
Equity in earnings of non-filing entities	(5,977)		(5,004)
Depreciation and amortization	9,202		17,389
Reorganization items, net	30,453		40,462
Amortization of debt issuance costs			898
Accretion of debt premium			(360)
Net accretion of unfavorable lease obligations			7
Loss on sale/retirement of property and equipment, net			44
Stock-based compensation expense			70
(Increase) decrease in:
Inventories			(11,953)
Prepaid expenses			(4,557)
Other assets			(6,947)
Increase (decrease) in:
Trade accounts payable			(8,076)
Income taxes payable			7,340
Accrued interest payable			17,386
Accrued expenses and other liabilities			(5,802)
Deferred income taxes			(2,586)
Deferred rent expense			(2,142)
Net cash provided by (used in) operating activities			24,533
Cash flows from investing activities:
Acquisition of property and equipment			(6,553)
Acquisition of intangible assets/lease rights			(20)
Net cash used in investing activities			(6,573)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility			57,000
Repayments under debtor-in-possession credit facility			(57,000)
Proceeds from debtor-in-possession term loans			60,000
Debt issuance costs related to debtor-in-possession financing			(4,470)
Proceeds from revolving credit facilities			43,000
Payments on revolving credit facilities			(74,000)
Payments of unamortized interest related to long-term debt			(925)
Principal payments on capital lease			(200)
Intercompany activity, net			(18,680)
Net cash provided by (used in) financing activities			4,725
Effect of foreign currency exchange rate changes on cash and cash equivalents			(2,207)
Net increase in cash and cash equivalents			20,478
Cash and cash equivalents, at beginning of period			7,347
Cash and cash equivalents, at end of period	$ 27,825		$ 27,825

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Supplemental Financial Information - Additional Information (Detail) - Issuer	Aug. 04, 2018	Mar. 15, 2013	Sep. 20, 2012	Mar. 12, 2012	Feb. 28, 2012
Debt Instrument [Line Items]
Percentage of ownership of domestic subsidiaries	100.00%
First Lien [Member]
Debt Instrument [Line Items]
Long-term Debt, interest rate		6.125%	9.00%	9.00%	9.00%

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Condensed Consolidating Balance Sheet (Detail) - USD ($) $ in Thousands		Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017	Jan. 28, 2017
Current assets:
Cash		$ 69,445	$ 42,446
Cash and cash equivalents		69,445	42,446	$ 31,189	$ 55,792
Inventories		148,331	134,690
Prepaid expenses		36,889	32,284
Other current assets		21,737	26,858
Total current assets		276,402	236,278
Property and equipment:
Furniture, fixtures and equipment		208,288	223,644
Leasehold improvements		279,104	301,338
Total property and equipment		487,392	524,982
Accumulated depreciation and amortization		(387,631)	(405,284)
Total property and equipment, net		99,761	119,698
Leased property under capital lease:
Land and building		18,055	18,055
Accumulated depreciation and amortization		(7,667)	(7,216)
Total leased property under capital lease		10,388	10,839
Goodwill		1,132,575	1,132,575
Intangible assets, net		450,145	457,078
Other assets		61,107	44,255
Total other noncurrent assets		1,643,827	1,633,908
Total assets		2,030,378	2,000,723
Current liabilities:
Current portion of long-term debt, net	[1]	84,732	1,894,039
Debtor-in-possession term loan		60,000
Trade accounts payable		55,272	62,965
Income taxes payable		14,096	4,049
Accrued interest payable		1,083	56,182
Accrued expenses and other current liabilities		101,216	94,934
Total current liabilities		316,399	2,112,169
Long-term debt, net		208,847	250,355
Revolving credit facility, net		0
Obligation under capital lease		15,718	15,970
Deferred tax liability		29,179	32,614
Deferred rent expense		31,557	34,851
Other long-term liabilities		8,646
Unfavorable lease obligations and other long-term liabilities		8,646	10,040
Total Non current liabilities		293,947	343,830
Liabilities subject to compromise		1,905,215
Stockholder's equity (deficit):
Common stock		0	0
Additional paid in capital		630,794	630,719
Accumulated other comprehensive income (loss), net of tax		(40,364)	(25,302)
Accumulated deficit		(1,075,613)	(1,060,693)
Total stockholder's deficit		(485,183)	(455,276)
Total liabilities and stockholder's deficit		2,030,378	2,000,723
Eliminations
Leased property under capital lease:
Intercompany receivables		(473,161)	(420,911)
Investment in subsidiaries		(1,688,175)	(1,645,729)
Intangible assets, net		(84,634)	(84,634)
Total other noncurrent assets		(2,245,970)	(2,151,274)
Total assets		(2,245,970)	(2,151,274)
Current liabilities:
Intercompany payables		(473,161)	(420,911)
Revolving credit facility, net		0
Total Non current liabilities		(473,161)	(420,911)
Stockholder's equity (deficit):
Common stock		(369)	(369)
Additional paid in capital		(2,287,536)	(2,287,536)
Accumulated other comprehensive income (loss), net of tax		40,971	26,482
Accumulated deficit		474,125	531,060
Total stockholder's deficit		(1,772,809)	(1,730,363)
Total liabilities and stockholder's deficit		(2,245,970)	(2,151,274)
Issuer
Current assets:
Cash		23,551
Cash and cash equivalents		23,551	4,203	5,659	3,038
Prepaid expenses		8,300	2,638
Other current assets		418	1,281
Total current assets		32,269	8,122
Property and equipment:
Furniture, fixtures and equipment		3,239	3,075
Leasehold improvements		1,315	1,315
Total property and equipment		4,554	4,390
Accumulated depreciation and amortization		(3,834)	(3,640)
Total property and equipment, net		720	750
Leased property under capital lease:
Investment in subsidiaries		1,729,045	1,688,098
Intangible assets, net		188,100	188,100
Other assets		8,000	1,140
Total other noncurrent assets		1,925,145	1,877,338
Total assets		1,958,134	1,886,210
Current liabilities:
Current portion of long-term debt, net			1,843,582
Debtor-in-possession term loan		60,000
Trade accounts payable		2,323	3,231
Accrued interest payable		140	55,808
Accrued expenses and other current liabilities		27,113	17,954
Total current liabilities		89,576	1,920,575
Intercompany payables		473,161	420,911
Revolving credit facility, net		0
Total Non current liabilities		473,161	420,911
Liabilities subject to compromise		1,880,580
Stockholder's equity (deficit):
Additional paid in capital		630,794	630,719
Accumulated other comprehensive income (loss), net of tax		(40,364)	(25,302)
Accumulated deficit		(1,075,613)	(1,060,693)
Total stockholder's deficit		(485,183)	(455,276)
Total liabilities and stockholder's deficit		1,958,134	1,886,210
Guarantors
Current assets:
Cash		10,774
Cash and cash equivalents		10,774	9,644	4,818	3,005
Inventories		88,422	76,469
Prepaid expenses		12,635	13,740
Other current assets		12,982	13,111
Total current assets		124,813	112,964
Property and equipment:
Furniture, fixtures and equipment		125,068	133,664
Leasehold improvements		165,818	177,520
Total property and equipment		290,886	311,184
Accumulated depreciation and amortization		(236,189)	(245,778)
Total property and equipment, net		54,697	65,406
Leased property under capital lease:
Land and building		18,055	18,055
Accumulated depreciation and amortization		(7,667)	(7,216)
Total leased property under capital lease		10,388	10,839
Intercompany receivables		368,135	299,768
Investment in subsidiaries		(40,870)	(42,369)
Goodwill		987,517	987,517
Intangible assets, net		149,657	149,678
Other assets		6,169	3,647
Total other noncurrent assets		1,470,608	1,398,241
Total assets		1,660,506	1,587,450
Current liabilities:
Trade accounts payable		16,226	21,090
Income taxes payable		7,849	484
Accrued interest payable		395
Accrued expenses and other current liabilities		34,794	34,494
Total current liabilities		59,264	56,068
Long-term debt, net		143,810	143,929
Revolving credit facility, net		0
Obligation under capital lease		15,718	15,970
Deferred tax liability		24,795	25,963
Deferred rent expense		20,692	22,834
Other long-term liabilities		8,646
Unfavorable lease obligations and other long-term liabilities			10,040
Total Non current liabilities		213,661	218,736
Liabilities subject to compromise		24,635
Stockholder's equity (deficit):
Common stock		367	367
Additional paid in capital		1,520,543	1,520,543
Accumulated other comprehensive income (loss), net of tax		(4,784)	(3,156)
Accumulated deficit		(153,180)	(205,108)
Total stockholder's deficit		1,362,946	1,312,646
Total liabilities and stockholder's deficit		1,660,506	1,587,450
Non-Guarantors
Current assets:
Cash		35,120
Cash and cash equivalents		35,120	28,599	$ 20,712	$ 49,749
Inventories		59,909	58,221
Prepaid expenses		15,954	15,906
Other current assets		8,337	12,466
Total current assets		119,320	115,192
Property and equipment:
Furniture, fixtures and equipment		79,981	86,905
Leasehold improvements		111,971	122,503
Total property and equipment		191,952	209,408
Accumulated depreciation and amortization		(147,608)	(155,866)
Total property and equipment, net		44,344	53,542
Leased property under capital lease:
Intercompany receivables		105,026	121,143
Goodwill		145,058	145,058
Intangible assets, net		197,022	203,934
Other assets		46,938	39,468
Total other noncurrent assets		494,044	509,603
Total assets		657,708	678,337
Current liabilities:
Current portion of long-term debt, net		84,732	50,457
Trade accounts payable		36,723	38,644
Income taxes payable		6,247	3,565
Accrued interest payable		548	374
Accrued expenses and other current liabilities		39,309	42,486
Total current liabilities		167,559	135,526
Long-term debt, net		65,037	106,426
Revolving credit facility, net		0
Deferred tax liability		4,384	6,651
Deferred rent expense		10,865	12,017
Total Non current liabilities		80,286	125,094
Stockholder's equity (deficit):
Common stock		2	2
Additional paid in capital		766,993	766,993
Accumulated other comprehensive income (loss), net of tax		(36,187)	(23,326)
Accumulated deficit		(320,945)	(325,952)
Total stockholder's deficit		409,863	417,717
Total liabilities and stockholder's deficit		$ 657,708	$ 678,337

[1] LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt will be adjusted as claims are approved. As of August 4, 2018, the Company wrote off $5.0 million of debt issuance costs, debt premium, and the adjustment to carrying value to present the debt at the outstanding face value. The write-offs are included within reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. See Note 2 - Bankruptcy Filing for additional details.

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018		Jul. 29, 2017
Net sales	$ 314,448	$ 316,637	$ 625,454		$ 616,258
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	154,723	161,583	310,371		313,371
Gross profit (deficit)	159,725	155,054	315,083		302,887
Other expenses:
Selling, general and administrative	111,459	112,774	237,240		223,286
Depreciation and amortization	13,709	10,890	26,903		22,093
Severance and transaction-related costs	629	389	1,005		532
Other (income) expense	(3,348)	(2,171)	(7,354)		(4,872)
Total other expenses	122,449	121,882	257,794		241,039
Operating income (loss)	37,276	33,172	57,289		61,848
Reorganization items, net	30,453		40,462
Interest expense, net	5,072	43,394	29,961		86,974
Income (loss) before income taxes	1,751	(10,222)	(13,134)		(25,126)
Income tax expense (benefit)	5,040	10,266	1,786		2,120
Income (loss) from continuing operations	(3,289)	(20,488)	(14,920)		(27,246)
Net income (loss)	(3,289)	(20,488)	(14,920)		(27,246)
Foreign currency translation adjustments	(1,067)	4,523	(3,602)		4,567
Net gain (loss) on intra-entity foreign currency transactions, net of tax	(4,952)	7,593	(11,460)		9,474
Other comprehensive income (loss)	(6,019)	12,116	(15,062)	[1]	14,041
Comprehensive income (loss)	(9,308)	(8,372)	(29,982)		(13,205)
Issuer
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	2,828	3,017	6,642		6,179
Gross profit (deficit)	(2,828)	(3,017)	(6,642)		(6,179)
Other expenses:
Selling, general and administrative	5,536	5,967	20,936		11,720
Depreciation and amortization	96	181	194		372
Severance and transaction-related costs	209	234	209		234
Other (income) expense	(1,541)	(918)	(12,321)		(2,855)
Total other expenses	4,300	5,464	9,018		9,471
Operating income (loss)	(7,128)	(8,481)	(15,660)		(15,650)
Reorganization items, net	24,832		34,841
Interest expense, net	1,406	40,071	20,430		80,341
Income (loss) before income taxes	(33,366)	(48,552)	(70,931)		(95,991)
Income (loss) from continuing operations	(33,366)	(48,552)	(70,931)		(95,991)
Equity in earnings (loss) of subsidiaries	30,077	28,064	56,011		68,745
Net income (loss)	(3,289)	(20,488)	(14,920)		(27,246)
Foreign currency translation adjustments	(1,067)	4,523	(3,602)		4,567
Net gain (loss) on intra-entity foreign currency transactions, net of tax	(4,952)	7,593	(11,460)		9,474
Other comprehensive income (loss)	(6,019)	12,116	(15,062)		14,041
Comprehensive income (loss)	(9,308)	(8,372)	(29,982)		(13,205)
Guarantors
Net sales	184,157	180,868	376,611		362,938
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	86,826	89,864	173,277		176,063
Gross profit (deficit)	97,331	91,004	203,334		186,875
Other expenses:
Selling, general and administrative	57,385	58,717	115,617		116,002
Depreciation and amortization	9,106	6,379	17,195		12,705
Severance and transaction-related costs	55	16	139		73
Other (income) expense	(2,810)	(112)	1,557		(304)
Total other expenses	63,736	65,000	134,508		128,476
Operating income (loss)	33,595	26,004	68,826		58,399
Reorganization items, net	5,621		5,621
Interest expense, net	929	535	4,326		1,061
Income (loss) before income taxes	27,045	25,469	58,879		57,338
Income tax expense (benefit)	2,945	121	7,872		(943)
Income (loss) from continuing operations	24,100	25,348	51,007		58,281
Equity in earnings (loss) of subsidiaries	736	(2,203)	921		(2,157)
Net income (loss)	24,836	23,145	51,928		56,124
Foreign currency translation adjustments	(140)	1,080	(566)		668
Net gain (loss) on intra-entity foreign currency transactions, net of tax	(262)	2,199	(1,062)		1,343
Other comprehensive income (loss)	(402)	3,279	(1,628)		2,011
Comprehensive income (loss)	24,434	26,424	50,300		58,135
Non-Guarantors
Net sales	130,291	135,769	248,843		253,320
Cost of sales, occupancy and buying expenses (exclusive of depreciation and amortization shown separately below)	65,069	68,702	130,452		131,129
Gross profit (deficit)	65,222	67,067	118,391		122,191
Other expenses:
Selling, general and administrative	48,538	48,090	100,687		95,564
Depreciation and amortization	4,507	4,330	9,514		9,016
Severance and transaction-related costs	365	139	657		225
Other (income) expense	1,003	(1,141)	3,410		(1,713)
Total other expenses	54,413	51,418	114,268		103,092
Operating income (loss)	10,809	15,649	4,123		19,099
Interest expense, net	2,737	2,788	5,205		5,572
Income (loss) before income taxes	8,072	12,861	(1,082)		13,527
Income tax expense (benefit)	2,095	10,145	(6,086)		3,063
Income (loss) from continuing operations	5,977	2,716	5,004		10,464
Net income (loss)	5,977	2,716	5,004		10,464
Foreign currency translation adjustments	(520)	(196)	(1,404)		1,641
Net gain (loss) on intra-entity foreign currency transactions, net of tax	(4,952)	7,588	(11,457)		9,471
Other comprehensive income (loss)	(5,472)	7,392	(12,861)		11,112
Comprehensive income (loss)	505	10,108	(7,857)		21,576
Eliminations
Other expenses:
Equity in earnings (loss) of subsidiaries	(30,813)	(25,861)	(56,932)		(66,588)
Net income (loss)	(30,813)	(25,861)	(56,932)		(66,588)
Foreign currency translation adjustments	660	(884)	1,970		(2,309)
Net gain (loss) on intra-entity foreign currency transactions, net of tax	5,214	(9,787)	12,519		(10,814)
Other comprehensive income (loss)	5,874	(10,671)	14,489		(13,123)
Comprehensive income (loss)	$ (24,939)	$ (36,532)	$ (42,443)		$ (79,711)

[1] Represents foreign currency items and $5.7 million of other income associated with expired derivative instruments.

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Condensed Consolidating Statement of Cash Flows (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Cash flows from operating activities:
Net income (loss)	$ (3,289)	$ (20,488)	$ (14,920)	$ (27,246)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	13,709	10,890	26,903	22,093
Reorganization items, net	30,453		40,462
Amortization of lease rights and other assets			2,517	1,862
Amortization of debt issuance costs			1,613	4,312
Accretion of debt premium			(360)	(1,457)
Non-cash pay-in-kind interest expense			2,889	750
Net accretion of unfavorable lease obligations			9	(55)
Loss on sale/retirement of property and equipment, net			46	128
Stock-based compensation expense			75	156
(Increase) decrease in:
Inventories			(17,945)	(22,083)
Prepaid expenses			(7,130)	(1,926)
Other assets			(6,461)	(75)
Increase (decrease) in:
Trade accounts payable			(7,122)	(709)
Income taxes payable			12,249	(279)
Accrued interest payable			17,955	(155)
Accrued expenses and other liabilities			(6,128)	(6,994)
Deferred income taxes			(15,287)	(359)
Deferred rent expense			(2,460)	(1,196)
Net cash provided by (used in) operating activities			26,905	(33,233)
Cash flows from investing activities:
Acquisition of property and equipment			(9,027)	(8,101)
Acquisition of intangible assets/lease rights			(100)	(38)
Net cash used in investing activities			(9,127)	(8,139)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility			57,000
Repayments under debtor-in-possession credit facility			(57,000)
Proceeds from debtor-in-possession term loans			60,000
Debt issuance costs related to debtor-in-possession financing	(432)		(4,470)
Proceeds from revolving credit facilities			43,000	81,000
Payments on revolving credit facilities			(74,000)	(41,200)
Payment on current portion of long-term debt			(6,000)	(18,420)
Payments of unamortized interest related to long-term debt			(5,321)	(4,272)
Payment of debt issuance costs			(2)	(386)
Principal payments on capital lease			(200)	(156)
Net cash provided by (used in) financing activities			13,007	16,566
Effect of foreign currency exchange rate changes on cash and cash equivalents			(3,786)	203
Net increase (decrease) in cash and cash equivalents			26,999	(24,603)
Cash and cash equivalents, at beginning of period			42,446	55,792
Cash and cash equivalents, at end of period	69,445	31,189	69,445	31,189
Eliminations
Cash flows from operating activities:
Net income (loss)	(30,813)	(25,861)	(56,932)	(66,588)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries	30,813	25,861	56,932	66,588
Issuer
Cash flows from operating activities:
Net income (loss)	(3,289)	(20,488)	(14,920)	(27,246)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries	(30,077)	(28,064)	(56,011)	(68,745)
Depreciation and amortization	96	181	194	372
Reorganization items, net	24,832		34,841
Amortization of debt issuance costs			898	3,781
Accretion of debt premium			(360)	(1,457)
Stock-based compensation expense			70	139
(Increase) decrease in:
Prepaid expenses			(5,662)	(675)
Other assets			(5,998)	(268)
Increase (decrease) in:
Trade accounts payable			(19,578)	(912)
Accrued interest payable			17,386	73
Accrued expenses and other liabilities			(7,648)	(2,683)
Net cash provided by (used in) operating activities			(56,788)	(97,621)
Cash flows from investing activities:
Acquisition of property and equipment			(164)
Net cash used in investing activities			(164)
Cash flows from financing activities:
Proceeds from debtor-in-possession credit facility			57,000
Repayments under debtor-in-possession credit facility			(57,000)
Proceeds from debtor-in-possession term loans			60,000
Debt issuance costs related to debtor-in-possession financing			(4,470)
Proceeds from revolving credit facilities			43,000	81,000
Payments on revolving credit facilities			(74,000)	(41,200)
Payment on current portion of long-term debt				(18,420)
Payments of unamortized interest related to long-term debt			(925)	(743)
Intercompany activity, net			52,695	79,605
Net cash provided by (used in) financing activities			76,300	100,242
Net increase (decrease) in cash and cash equivalents			19,348	2,621
Cash and cash equivalents, at beginning of period			4,203	3,038
Cash and cash equivalents, at end of period	23,551	5,659	23,551	5,659
Guarantors
Cash flows from operating activities:
Net income (loss)	24,836	23,145	51,928	56,124
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (equity) in earnings of subsidiaries	(736)	2,203	(921)	2,157
Depreciation and amortization	9,106	6,379	17,195	12,705
Reorganization items, net	5,621		5,621
Non-cash pay-in-kind interest expense			2,889
Net accretion of unfavorable lease obligations			7	(56)
Loss on sale/retirement of property and equipment, net			44	126
(Increase) decrease in:
Inventories			(11,953)	(12,077)
Prepaid expenses			1,105	(84)
Other assets			(949)	(23)
Increase (decrease) in:
Trade accounts payable			11,502	2,811
Income taxes payable			7,340	(967)
Accrued interest payable			395
Accrued expenses and other liabilities			1,846	(365)
Deferred income taxes			(2,586)
Deferred rent expense			(2,142)	(712)
Net cash provided by (used in) operating activities			81,321	59,639
Cash flows from investing activities:
Acquisition of property and equipment			(6,389)	(5,111)
Acquisition of intangible assets/lease rights			(20)	(38)
Net cash used in investing activities			(6,409)	(5,149)
Cash flows from financing activities:
Payments of unamortized interest related to long-term debt			(3,008)	(2,415)
Principal payments on capital lease			(200)	(156)
Intercompany activity, net			(68,367)	(53,034)
Net cash provided by (used in) financing activities			(71,575)	(55,605)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(2,207)	2,928
Net increase (decrease) in cash and cash equivalents			1,130	1,813
Cash and cash equivalents, at beginning of period			9,644	3,005
Cash and cash equivalents, at end of period	10,774	4,818	10,774	4,818
Non-Guarantors
Cash flows from operating activities:
Net income (loss)	5,977	2,716	5,004	10,464
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	4,507	4,330	9,514	9,016
Amortization of lease rights and other assets			2,517	1,862
Amortization of debt issuance costs			715	531
Non-cash pay-in-kind interest expense				750
Net accretion of unfavorable lease obligations			2	1
Loss on sale/retirement of property and equipment, net			2	2
Stock-based compensation expense			5	17
(Increase) decrease in:
Inventories			(5,992)	(10,006)
Prepaid expenses			(2,573)	(1,167)
Other assets			486	216
Increase (decrease) in:
Trade accounts payable			954	(2,608)
Income taxes payable			4,909	688
Accrued interest payable			174	(228)
Accrued expenses and other liabilities			(326)	(3,946)
Deferred income taxes			(12,701)	(359)
Deferred rent expense			(318)	(484)
Net cash provided by (used in) operating activities			2,372	4,749
Cash flows from investing activities:
Acquisition of property and equipment			(2,474)	(2,990)
Acquisition of intangible assets/lease rights			(80)
Net cash used in investing activities			(2,544)	(2,990)
Cash flows from financing activities:
Payment on current portion of long-term debt			(6,000)
Payments of unamortized interest related to long-term debt			(1,388)	(1,114)
Payment of debt issuance costs			(2)	(386)
Intercompany activity, net			15,672	(26,571)
Net cash provided by (used in) financing activities			8,282	(28,071)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(1,579)	(2,725)
Net increase (decrease) in cash and cash equivalents			6,521	(29,037)
Cash and cash equivalents, at beginning of period			28,599	49,749
Cash and cash equivalents, at end of period	$ 35,120	$ 20,712	$ 35,120	$ 20,712