e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2011
OR
o 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 and 333-148108
Claires 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) |
Registrants 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 x No o
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 o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer x
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller
reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No x
As of June 1, 2011, 100 shares of the Registrants common stock, $0.001 par value, were
outstanding.
CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
2
PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
January 29, 2011 |
|
|
|
(In thousands, except share and per share amounts) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash of $25,966 and
$23,864, respectively |
|
$ |
246,134 |
|
|
$ |
279,766 |
|
Inventories |
|
|
133,237 |
|
|
|
136,148 |
|
Prepaid expenses |
|
|
34,938 |
|
|
|
21,449 |
|
Other current assets |
|
|
22,748 |
|
|
|
24,658 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
437,057 |
|
|
|
462,021 |
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
|
196,977 |
|
|
|
186,514 |
|
Leasehold improvements |
|
|
264,152 |
|
|
|
248,030 |
|
|
|
|
|
|
|
|
|
|
|
461,129 |
|
|
|
434,544 |
|
Less accumulated depreciation and amortization |
|
|
(252,646 |
) |
|
|
(233,511 |
) |
|
|
|
|
|
|
|
|
|
|
208,483 |
|
|
|
201,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased property under capital lease: |
|
|
|
|
|
|
|
|
Land and building |
|
|
18,055 |
|
|
|
18,055 |
|
Less accumulated depreciation and amortization |
|
|
(1,128 |
) |
|
|
(903 |
) |
|
|
|
|
|
|
|
|
|
|
16,927 |
|
|
|
17,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,550,056 |
|
|
|
1,550,056 |
|
Intangible assets, net of accumulated amortization of $42,962 and
$38,747, respectively |
|
|
562,031 |
|
|
|
557,466 |
|
Deferred financing costs, net of accumulated amortization of
$47,905 and $41,659, respectively |
|
|
40,341 |
|
|
|
36,434 |
|
Other assets |
|
|
46,817 |
|
|
|
42,287 |
|
|
|
|
2,199,245 |
|
|
|
2,186,243 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,861,712 |
|
|
$ |
2,866,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
|
$ |
62,796 |
|
|
$ |
76,154 |
|
Trade accounts payable |
|
|
60,377 |
|
|
|
54,355 |
|
Income taxes payable |
|
|
8,436 |
|
|
|
11,744 |
|
Accrued interest payable |
|
|
29,232 |
|
|
|
16,783 |
|
Accrued expenses and other current liabilities |
|
|
88,557 |
|
|
|
107,115 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
249,398 |
|
|
|
266,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
2,444,779 |
|
|
|
2,236,842 |
|
Revolving credit facility |
|
|
|
|
|
|
194,000 |
|
Obligation under capital lease |
|
|
17,290 |
|
|
|
17,290 |
|
Deferred tax liability |
|
|
121,479 |
|
|
|
121,776 |
|
Deferred rent expense |
|
|
27,471 |
|
|
|
26,637 |
|
Unfavorable lease obligations and other long-term liabilities |
|
|
28,003 |
|
|
|
30,268 |
|
|
|
|
|
|
|
|
|
|
|
2,639,022 |
|
|
|
2,626,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit: |
|
|
|
|
|
|
|
|
Common stock par value $0.001 per share; authorized 1,000 shares;
issued and outstanding 100 shares |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
622,073 |
|
|
|
621,099 |
|
Accumulated other comprehensive income, net of tax |
|
|
19,846 |
|
|
|
1,416 |
|
Accumulated deficit |
|
|
(668,627 |
) |
|
|
(649,030 |
) |
|
|
|
|
|
|
|
|
|
|
(26,708 |
) |
|
|
(26,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
2,861,712 |
|
|
$ |
2,866,449 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Net sales |
|
$ |
346,446 |
|
|
$ |
322,077 |
|
Cost of sales, occupancy and buying expenses |
|
|
171,359 |
|
|
|
158,751 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
175,087 |
|
|
|
163,326 |
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
126,722 |
|
|
|
118,019 |
|
Depreciation and amortization |
|
|
17,054 |
|
|
|
16,366 |
|
Severance and transaction-related costs |
|
|
343 |
|
|
|
102 |
|
Other expense, net |
|
|
5,311 |
|
|
|
1,230 |
|
|
|
|
|
|
|
|
|
|
|
149,430 |
|
|
|
135,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
25,657 |
|
|
|
27,609 |
|
Gain on early debt extinguishment |
|
|
249 |
|
|
|
4,487 |
|
Interest expense, net |
|
|
46,235 |
|
|
|
42,763 |
|
|
|
|
|
|
|
|
Loss before income tax (benefit) expense |
|
|
(20,329 |
) |
|
|
(10,667 |
) |
Income tax (benefit) expense |
|
|
(732 |
) |
|
|
1,633 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,597 |
) |
|
$ |
(12,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,597 |
) |
|
$ |
(12,300 |
) |
Foreign currency translation and interest rate
swap adjustments, net of tax |
|
|
18,431 |
|
|
|
(2,522 |
) |
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(1,166 |
) |
|
$ |
(14,822 |
) |
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(19,597 |
) |
|
$ |
(12,300 |
) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
17,054 |
|
|
|
16,366 |
|
Amortization of lease rights and other assets |
|
|
785 |
|
|
|
1,028 |
|
Amortization of debt issuance costs |
|
|
5,899 |
|
|
|
2,535 |
|
Payment of in kind interest expense |
|
|
9,035 |
|
|
|
9,651 |
|
Foreign currency exchange net loss on Euro Loan |
|
|
3,292 |
|
|
|
|
|
Net unfavorable accretion of lease obligations |
|
|
(275 |
) |
|
|
(476 |
) |
Loss on sale/retirement of property and equipment, net |
|
|
48 |
|
|
|
236 |
|
Gain on early debt extinguishment |
|
|
(249 |
) |
|
|
(4,487 |
) |
Stock compensation expense |
|
|
974 |
|
|
|
1,220 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Inventories |
|
|
6,683 |
|
|
|
(792 |
) |
Prepaid expenses |
|
|
(11,840 |
) |
|
|
1,439 |
|
Other assets |
|
|
(709 |
) |
|
|
6,052 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
3,693 |
|
|
|
3,799 |
|
Income taxes payable |
|
|
(3,847 |
) |
|
|
(2,329 |
) |
Accrued interest payable |
|
|
12,396 |
|
|
|
12,727 |
|
Accrued expenses and other liabilities |
|
|
(21,884 |
) |
|
|
(25 |
) |
Deferred income taxes |
|
|
(1,029 |
) |
|
|
474 |
|
Deferred rent expense |
|
|
214 |
|
|
|
787 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
643 |
|
|
|
35,905 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment, net |
|
|
(15,792 |
) |
|
|
(8,218 |
) |
Acquisition of intangible assets/lease rights |
|
|
(1,347 |
) |
|
|
(189 |
) |
Proceeds from sale of property |
|
|
|
|
|
|
16,765 |
|
Changes in restricted cash |
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(17,439 |
) |
|
|
8,358 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments of Credit facility |
|
|
(438,940 |
) |
|
|
(3,625 |
) |
Proceeds from Note |
|
|
450,000 |
|
|
|
|
|
Repurchases of Notes |
|
|
(24,014 |
) |
|
|
(16,849 |
) |
Payment of debt issuance costs |
|
|
(10,152 |
) |
|
|
|
|
Principal payments of capital leases |
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(23,106 |
) |
|
|
(21,239 |
) |
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents |
|
|
4,168 |
|
|
|
(1,721 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(35,734 |
) |
|
|
21,303 |
|
Cash and cash equivalents, at beginning of period |
|
|
255,902 |
|
|
|
198,708 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period |
|
|
220,168 |
|
|
|
220,011 |
|
Restricted cash, at end of period |
|
|
25,966 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, at end of period |
|
$ |
246,134 |
|
|
$ |
220,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
4,223 |
|
|
$ |
2,721 |
|
Interest paid |
|
|
18,912 |
|
|
|
17,838 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Property acquired under capital lease |
|
|
|
|
|
|
18,055 |
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements 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 January 29, 2011 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, retirement and
other post-retirement benefits, stock-based compensation, derivative and hedging activities,
residual values and other items. These estimates and assumptions are based on managements 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, 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 Companys business, the results of
operations for interim periods of the year are not necessarily indicative of the results of
operations on an annualized basis.
The Unaudited Condensed Consolidated Financial Statements include certain reclassifications of
prior period amounts in order to conform to current period presentation.
2. Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs)
to provide a consistent definition of fair value and ensure that fair value measurements and
disclosure requirements are similar between U.S. GAAP and IFRSs. This guidance changes certain
fair value measurement principles and enhances the disclosure requirements for fair value
measurements. The amendments in this ASU are effective for interim and annual periods beginning
after December 15, 2011 and are applied prospectively. Early application by public entities is not
permitted. The Company does not expect adoption of ASU 2011-04 will have a material impact on the
Companys financial position, results of operations or cash flows.
6
3. 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 Companys 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 following tables summarize the Companys assets (liabilities) measured at fair value on a
recurring basis segregated among the appropriate levels within the fair value hierarchy (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at April 30, 2011 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Identical Assets |
|
|
Other Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
(Liabilities) |
|
|
Inputs |
|
|
Inputs |
|
|
|
Carrying Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Interest rate swap |
|
$ |
(1,462 |
) |
|
$ |
|
|
|
$ |
(1,462 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 29, 2011 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
Identical Assets |
|
|
Other Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
(Liabilities) |
|
|
Inputs |
|
|
Inputs |
|
|
|
Carrying Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Interest rate swaps |
|
$ |
(1,165 |
) |
|
$ |
|
|
|
$ |
(1,165 |
) |
|
$ |
|
|
The fair value of the Companys interest rate swaps represent the estimated amounts the Company
would receive or pay to terminate those contracts at the reporting date based upon pricing or
valuation models applied to current market information. The interest rate swaps are valued using
the market standard methodology of netting the discounted future fixed cash payments and the
discounted expected variable cash receipts. The variable cash receipts are based on an expectation
of future interest rates derived from observed market interest rate curves. The Company included
credit valuation adjustment risk in the calculation of fair value for the Swaps entered into in
July 2007. The Swap entered into on July 28, 2010 is collateralized by cash and thus the Company
does not make any credit-related valuation adjustments. The Company mitigates derivative credit
risk by transacting with highly rated counterparties. The Company does not enter into derivative
financial instruments for trading or speculative purposes.
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
The Companys 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.
7
Financial Instruments Not Measured at Fair Value
The Companys financial instruments consist primarily of cash and cash equivalents, restricted
cash, accounts receivable, current liabilities, short-term debt, long-term debt, and the revolving
credit facility. Cash and cash equivalents, restricted cash, 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 Companys cash equivalent instruments are valued using quoted market prices
and are primarily U.S. Treasury securities. The estimated fair value of the Companys long-term
debt was approximately $2.37 billion at April 30, 2011, compared to a carrying value of $2.44
billion at that date. The estimated fair value of the Companys long-term debt, including the
current portion, and the revolving credit facility was approximately $2.36 billion at January 29,
2011, compared to a carrying value of $2.45 billion at that date. For publicly-traded debt, the
fair value (estimated market value) is based on market prices. For other debt, fair value is
estimated based on quoted prices for similar instruments.
4. Debt
Debt as of April 30, 2011 and January 29, 2011 included the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011 |
|
|
January 29, 2011 |
|
Short-term debt and current portion of long-term debt: |
|
|
|
|
|
|
|
|
Note payable to bank due 2012 |
|
$ |
62,796 |
|
|
$ |
57,703 |
|
Current portion of long-term debt |
|
|
|
|
|
|
18,451 |
|
|
|
|
|
|
|
|
Total short-term debt and current portion of long-term debt |
|
$ |
62,796 |
|
|
$ |
76,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
Senior secured term loan facility due 2014 |
|
$ |
1,154,310 |
|
|
$ |
1,399,250 |
|
Senior notes due 2015 |
|
|
226,000 |
|
|
|
236,000 |
|
Senior toggle notes due 2015 |
|
|
354,857 |
|
|
|
360,431 |
|
Senior subordinated notes due 2017 |
|
|
259,612 |
|
|
|
259,612 |
|
Senior secured second lien notes due 2019 |
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,444,779 |
|
|
|
2,255,293 |
|
Less: current portion of long-term debt |
|
|
|
|
|
|
(18,451 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
2,444,779 |
|
|
$ |
2,236,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured revolving credit facility due 2013 |
|
$ |
|
|
|
$ |
194,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases |
|
$ |
17,290 |
|
|
$ |
17,290 |
|
|
|
|
|
|
|
|
See Note 3 for related fair value disclosure on debt.
Short-term Debt
In January 2011, we entered into a Euro () denominated loan (the Euro Loan) in the amount of
42.4 million that is due on January 24, 2012. The Euro Loan bears interest at the three month
Euro Interbank Offered Rate (EURIBOR) rate plus 8.00% per year and is payable quarterly. As of
April 30, 2011, there was 42.4 million, or the equivalent of $62.8 million, outstanding under the
Euro Loan. The net proceeds of the borrowing were used for general corporate purposes.
The obligations under the Euro Loan are secured by a cash deposit in the amount of 15.0 million,
or the equivalent of $22.2 million at April 30, 2011, and a perfected first lien security interest
in all of the issued and outstanding equity interest of one of our international subsidiaries,
Claires Holdings S.a.r.l. The cash deposit is classified as Cash and cash equivalents and
restricted cash in our Unaudited Condensed Consolidated Balance
Sheets.
8
Senior Secured Second Lien Notes
On March 4, 2011, the Company issued $450.0 million aggregate principal amount of 8.875% senior
secured second lien notes that mature on March 15, 2019 (the Senior Secured Second Lien Notes).
Interest on the Senior Secured Second Lien Notes is payable semi-annually to holders of record at
the close of business on March 1 or September 1 immediately preceding the interest payment date on
March 15 and September 15 of each year, commencing on September 15, 2011. The Senior Secured
Second Lien Notes are guaranteed on a second-priority senior secured basis by all of the Companys
existing and future direct or indirect wholly-owned domestic subsidiaries that guarantee the
Companys senior secured credit facility. The Senior Secured Second Lien Notes and related
guarantees are secured by a second-priority lien on substantially all of the assets that secure the
Companys and its subsidiary guarantors obligations under the Companys senior secured credit
facility. The Company used the proceeds of the offering of the Senior Secured Second Lien Notes to
reduce the entire $194.0 million outstanding under the Companys revolving credit facility (without
terminating the commitment), to repay $244.9 million of indebtedness under the Companys senior
secured term loan, and to pay $10.1 million in financing costs which have been recorded as Deferred
Financing Costs, Net in the accompanying Unaudited Condensed Consolidated Balance Sheets. As a result of our prepayment under the
senior secured term loan facility, we are no longer required to make any quarterly payments and
have a final payment due May 29, 2014.
Note Repurchases
The following is a summary of the Companys debt repurchase activity for the three months ended
April 30, 2011 and May 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2011 |
|
|
|
Principal |
|
|
Repurchase |
|
|
Recognized |
|
Notes Repurchased |
|
Amount |
|
|
Price |
|
|
Gain (Loss) (1) |
|
Senior Notes |
|
$ |
10,000 |
|
|
$ |
9,930 |
|
|
$ |
(98 |
) |
Senior Toggle Notes |
|
|
14,155 |
|
|
|
14,084 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,155 |
|
|
$ |
24,014 |
|
|
$ |
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred issuance cost write-offs of $168 for the Senior Notes and $179 for the Senior
Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 1, 2010 |
|
|
|
Principal |
|
|
Repurchase |
|
|
Recognized |
|
Notes Repurchased |
|
Amount |
|
|
Price |
|
|
Gain (1) |
|
Senior Toggle Notes |
|
$ |
6,000 |
|
|
$ |
4,985 |
|
|
$ |
1,087 |
|
Senior Subordinated Notes |
|
|
15,625 |
|
|
|
11,864 |
|
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,625 |
|
|
$ |
16,849 |
|
|
$ |
4,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred issuance cost write-offs of $104 and $361 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $176 for the Senior
Toggle Notes. |
Covenants
Our Senior Notes, Senior Toggle Notes, Senior Subordinated Notes and Senior Secured Second Lien
Notes (collectively, the Notes) and Euro Loan contain certain covenants that, among other things,
and subject to certain exceptions and other basket amounts, restrict our ability and the ability of
our subsidiaries to:
|
|
|
incur additional indebtedness; |
9
|
|
|
pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness; |
|
|
|
|
make certain investments; |
|
|
|
|
create or incur certain liens; |
|
|
|
|
create restrictions on the payment of dividends or other distributions to us from our
subsidiaries; |
|
|
|
|
transfer or sell assets; |
|
|
|
|
engage in certain transactions with our affiliates; and |
|
|
|
|
merge or consolidate with other companies or transfer all or substantially all of our
assets. |
None of these covenants, however, require the Company to maintain any particular financial ratio or
other measure of financial performance. As of April 30, 2011, we were in compliance with the
covenants under our Notes and Euro Loan.
5. Derivatives and Hedging Activities
The Company formally designates and documents the financial instrument as a hedge of a specific
underlying exposure, as well as the risk management objectives and strategies for undertaking the
hedge transaction. The Company formally assesses both at inception and at least quarterly
thereafter, whether the financial instruments that are used in hedging transactions are effective
at offsetting changes in cash flows of the related underlying exposure. The Company measures the
effectiveness of its cash flow hedges by evaluating the following criteria: (i) the re-pricing
dates of the derivative instrument match those of the debt obligation; (ii) the interest rates of
the derivative instrument and the debt obligation are based on the same interest rate index and
tenor; (iii) the variable interest rate of the derivative instrument does not contain a floor or
cap, or other provisions that cause a basis difference with the debt obligation; and (iv) the
likelihood of the counterparty not defaulting is assessed as being probable.
The Company primarily employs derivative financial instruments to manage its exposure to interest
rate changes and to limit the volatility and impact of interest rate changes on earnings and cash
flows. The Company does not enter into derivative financial instruments for trading or speculative
purposes. The Company faces credit risk if the counterparties to the financial instruments are
unable to perform their obligations. However, the Company seeks to mitigate derivative credit risk
by entering into transactions with counterparties that are significant and creditworthy financial
institutions. The Company monitors the credit ratings of the counterparties.
For derivatives that qualify as cash flow hedges, the Company reports the effective portion of the
change in fair value as a component of Accumulated other comprehensive income (loss), net of tax
in the Unaudited Condensed Consolidated Balance Sheets and reclassifies it into earnings in the same periods in which
the hedged item affects earnings, and within the same income statement line item as the impact of
the hedged item. The ineffective portion of the change in fair value of a cash flow hedge is
recognized in income immediately. No ineffective portion was recorded to earnings during the three
months ended April 30, 2011 and May 1, 2010, respectively, and all components of the derivative
gain or loss were included in the assessment of hedge effectiveness. For derivative financial
instruments which do not qualify as cash flow hedges, any changes in fair value would be recorded
in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company may at its discretion change the designation of any such hedging instrument agreements
prior to maturity. At that time, any gains or losses previously reported in accumulated other
comprehensive income (loss) on termination would amortize into interest expense or interest income
to correspond to the recognition of interest expense or interest income on the hedged debt. If
such debt instrument was also terminated, the gain or loss associated with the terminated
derivative included in accumulated other comprehensive income (loss) at the time of termination of
the debt would be recognized in the Consolidated Statements of Operations and Comprehensive Income
(Loss) at that time.
10
On July 28, 2010, the Company entered into an interest rate swap agreement (the Swap) to manage
exposure to fluctuations in interest rate changes related to the senior secured term loan facility.
The Swap has been designated and accounted for as a cash flow hedge and expires on July 30, 2013.
The Swap represents a contract to exchange floating rate for fixed interest payments periodically
over the life of the Swap without exchange of the underlying notional amount. The Swap covers an
aggregate notional amount of $200.0 million of the outstanding principal balance of the senior
secured term loan facility and has a fixed rate of 1.2235%. The interest rate Swap results in the
Company paying a fixed rate plus the applicable margin then in effect for LIBOR borrowings
resulting in an interest rate of 3.97% at April 30, 2011, on a notional amount of $200.0 million of
the senior secured term loan.
The Company entered into three interest rate swap agreements in July 2007 (the 2007 Swaps) to
manage exposure to interest rate changes related to the senior secured term loan facility. The
2007 Swaps were designated and accounted for as cash flow hedges. Those 2007 Swaps expired on June
30, 2010. The 2007 Swaps covered an aggregate notional amount of $435.0 million of the outstanding
principal balance of the senior secured term loan facility. The fixed rates of the 2007 Swaps
ranged from 4.96% to 5.25%.
The Company does not make any credit-related valuation adjustments to the Swap entered into on July
28, 2010 because it is collateralized by cash, the balance of which is $3.8 million at April 30,
2011. The collateral requirement increases for declines in the three year LIBOR rate below
1.2235%. As of April 30, 2011, the three year LIBOR rate was 0.88% and each further 10 basis point
decline in rate would result in an additional collateral requirement of $0.6 million. Any
subsequent increases in the three year LIBOR rate will result in a release of the collateral. The
Company included credit-related valuation adjustments in the calculation of fair value for the 2007
Swaps.
At April 30, 2011 and January 29, 2011, the estimated fair values of the Companys derivative
financial instruments designated as interest rate cash flow hedges were liabilities of
approximately $1.5 million and $1.2 million, respectively, which were recorded in Accrued expenses
and other current liabilities in the Unaudited Condensed Consolidated Balance Sheets. These
amounts were also recorded, net of tax of approximately $5.7 million and $5.7 million,
respectively, as a component in Accumulated other comprehensive income (loss), net of tax in the
Unaudited Condensed Consolidated Balance Sheets. See Note 3 Fair Value Measurements for fair
value measurement of interest rate swaps.
The following tables provide a summary of the financial statement effect of the Companys
derivative financial instruments designated as interest rate cash flow hedges during the three
months ended April 30, 2011 and May 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
|
|
|
Amount of Gain or (Loss) |
|
(Loss) Reclassified |
|
Amount of Gain or (Loss) |
Derivatives in Cash |
|
Recognized in OCI on |
|
from Accumulated |
|
Reclassified from Accumulated |
Flow Hedging |
|
Derivative |
|
OCI into Income |
|
OCI into Income |
Relationships |
|
(Effective Portion) |
|
(Effective Portion) |
|
(Effective Portion) (1) |
|
|
Three months ended |
|
|
|
Three months ended |
|
|
April 30, |
|
May 1, |
|
|
|
April 30, |
|
May 1, |
|
|
2011 |
|
2010 |
|
|
|
2011 |
|
2010 |
Interest rate swaps
|
|
$ |
(297 |
) |
|
$ |
5,159 |
|
|
Interest expense, net
|
|
$ |
(465 |
) |
|
$ |
(5,332 |
) |
|
|
|
(1) |
|
Represents reclassification of amounts from accumulated other comprehensive income (loss) to earnings as interest
expense is recognized on the senior secured term loan facility. No ineffectiveness is associated with these interest
rate cash flow hedges. |
Over the next twelve months, the Company expects to reclassify net losses on the Companys interest
rate swaps recognized within Accumulated other comprehensive income (loss), net of tax of $1.9
million to interest expense.
11
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 to protect trademark 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. Stock Options and Stock-Based Compensation
The following is a summary of activity in the Companys stock option plan for the three months
ended April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
Number of |
|
Exercise |
|
Contractual |
|
|
Shares |
|
Price |
|
Term (Years) |
Outstanding at January 29, 2011
|
|
|
6,860,014 |
|
|
$ |
10.00 |
|
|
|
|
|
Options granted
|
|
|
111,500 |
|
|
$ |
10.00 |
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited or expired
|
|
|
(34,343 |
) |
|
$ |
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2011
|
|
|
6,937,171 |
|
|
$ |
10.00 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at April 30, 2011
|
|
|
6,334,811 |
|
|
$ |
10.00 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2011
|
|
|
2,264,868 |
|
|
$ |
10.00 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted during the three months ended April
30, 2011 and May 1, 2010 was $2.81 and $2.94, respectively.
During the three months ended April 30, 2011 and May 1, 2010, the Company recorded stock-based
compensation expense and additional paid-in capital relating to stock-based compensation of
approximately $1.0 million and $1.2 million, respectively. Stock-based compensation expense is
recorded in Selling, general and administrative expenses in the accompanying Unaudited Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss).
8. Income Taxes
The effective income tax rate was 3.6% for the three months ended April 30, 2011. This effective
income tax rate differed from the statutory federal tax rate of 35% primarily from increases in the
valuation allowance recorded for additional deferred tax assets generated primarily from operating
losses in the three months ended April 30, 2011 by the Companys U.S. operations.
The effective income tax rate was (15.3)% for the three months ended May 1, 2010. This effective
income tax rate differed from the statutory federal tax rate of 35% primarily from increases in the
valuation allowance recorded for additional deferred tax assets generated in the three months ended
May 1, 2010 by the Companys U.S. operations.
In April 2011, the Company received from the Canada Revenue Agency withholding tax assessments for
2003 through 2007 of approximately $5.0 million, including penalties and interest. In conjunction
with these assessments, a security deposit will be required in the amount of approximately $5.0
million until such time a final decision is made by the tax authority. The Company is objecting to
these assessments
12
and believes it will prevail at the appeals level; therefore, an accrual has not been recorded for
this item. In February 2011, the Internal Revenue Service concluded its tax examination of our
U.S. Federal income tax return for Fiscal 2007 and did not assess any additional tax liability.
9. Related Party Transactions
The Company paid store planning and retail design fees to a Company owned by a member of one of the
Companys executive officers. These fee are included in Furniture, fixtures and equipment in the
Companys Unaudited Condensed Consolidated Balance Sheets and Selling, general and administrative
expenses in the Companys Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss). For the three months ended April 30, 2011 and May 1, 2010, the
Company paid fees of approximately $0.5 million and $0.2 million, respectively. This arrangement
was approved by the Audit Committee of the Board of Directors.
The initial purchasers of the Senior Secured Second Lien Notes were Credit Suisse Securities (USA)
LLC, J.P. Morgan Securities LLC, Goldman Sachs & Co., and Morgan Joseph TriArtisan LLC. Apollo
Management, LLC, an affiliate of Apollo Management VI, L.P., has a non-controlling interest in
Morgan Joseph TriArtisan LLC and its affiliates. Additionally, a member of the Companys Board of
Directors is an executive of Morgan Joseph TriArtisan Inc., an affiliate of Morgan Joseph
TriArtisan LLC. In connection with the issuance of the Senior Secured Second Lien Notes, the
Company paid a fee of approximately $0.3 million to Morgan Joseph TriArtisan LLC.
10. 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 Companys Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) within its North
American division. The franchise fees the Company charges under the franchising agreements are
reported in Other expense (income), net in the Companys Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss) within its European division. Until
September 2, 2010, the Company accounted for the results of operations of Claires Nippon under the
equity method and included the results within Other expense (income), net in the Companys
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) within
the Companys North American division. After September 2, 2010, these former joint venture stores
began to operate as licensed stores. Substantially all of the interest expense on the Companys
outstanding debt is recorded in the Companys North American division.
13
Net sales and operating income for the three months ended April 30, 2011 and May 1, 2010 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Net sales: |
|
|
|
|
|
|
|
|
North America |
|
$ |
224,188 |
|
|
$ |
212,599 |
|
Europe |
|
|
122,258 |
|
|
|
109,478 |
|
|
|
|
|
|
|
|
Total net sales |
|
|
346,446 |
|
|
|
322,077 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
North America |
|
|
10,405 |
|
|
|
10,507 |
|
Europe |
|
|
6,649 |
|
|
|
5,859 |
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
|
17,054 |
|
|
|
16,366 |
|
|
|
|
|
|
|
|
|
Operating income (loss) for reportable segments: |
|
|
|
|
|
|
|
|
North America |
|
|
30,624 |
|
|
|
24,403 |
|
Europe |
|
|
(4,624 |
) |
|
|
3,308 |
|
|
|
|
|
|
|
|
Total operating income for reportable segments |
|
|
26,000 |
|
|
|
27,711 |
|
Severance and transaction-related costs |
|
|
343 |
|
|
|
102 |
|
|
|
|
|
|
|
|
Net consolidated operating income |
|
|
25,657 |
|
|
|
27,609 |
|
Gain on early debt extinguishment |
|
|
249 |
|
|
|
4,487 |
|
Interest expense, net |
|
|
46,235 |
|
|
|
42,763 |
|
|
|
|
|
|
|
|
|
Net consolidated loss before income tax expense |
|
$ |
(20,329 |
) |
|
$ |
(10,667 |
) |
|
|
|
|
|
|
|
Excluded from operating income for the North American segment are severance and transaction-related
costs of approximately $0.1 million for each of the three months ended April 30, 2011 and May 1,
2010, respectively.
Excluded from operating income for the European segment are severance and transaction-related costs
of approximately $0.2 million and $0 for the three months ended April 30, 2011 and May 1, 2010,
respectively.
11. Supplemental Financial Information
On May 29, 2007, Claires Stores, Inc. (the Issuer), issued $935.0 million in Senior Notes,
Senior Toggle Notes and Senior Subordinated Notes, and on March 4, 2011, issued $450.0 million
aggregate principal amount of Senior Secured Second Lien Notes. These Notes are irrevocably and
unconditionally guaranteed, jointly and severally, by all wholly-owned domestic current and future
subsidiaries of Claires Stores, Inc. that guarantee the Companys Credit Facility (the
Guarantors). The Companys other subsidiaries, principally its international subsidiaries
including its European, Canadian and Asian subsidiaries (the Non-Guarantors), are not guarantors
of these Notes.
The tables in the following pages present the condensed consolidating financial information for the
Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the
periods indicated. The consolidating financial information may not necessarily be indicative of
the financial position, results of operations or cash flows had the Issuer, Guarantors and
Non-Guarantors operated as independent entities.
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet |
|
April 30, 2011 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash (1) |
|
$ |
160,941 |
|
|
$ |
(8,002 |
) |
|
$ |
93,195 |
|
|
$ |
|
|
|
$ |
246,134 |
|
Inventories |
|
|
|
|
|
|
79,423 |
|
|
|
53,814 |
|
|
|
|
|
|
|
133,237 |
|
Prepaid expenses |
|
|
434 |
|
|
|
15,171 |
|
|
|
19,333 |
|
|
|
|
|
|
|
34,938 |
|
Other current assets |
|
|
11 |
|
|
|
16,096 |
|
|
|
6,641 |
|
|
|
|
|
|
|
22,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
161,386 |
|
|
|
102,688 |
|
|
|
172,983 |
|
|
|
|
|
|
|
437,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
|
3,446 |
|
|
|
121,260 |
|
|
|
72,271 |
|
|
|
|
|
|
|
196,977 |
|
Leasehold improvements |
|
|
1,071 |
|
|
|
143,577 |
|
|
|
119,504 |
|
|
|
|
|
|
|
264,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,517 |
|
|
|
264,837 |
|
|
|
191,775 |
|
|
|
|
|
|
|
461,129 |
|
Less accumulated depreciation and amortization |
|
|
(2,368 |
) |
|
|
(155,707 |
) |
|
|
(94,571 |
) |
|
|
|
|
|
|
(252,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,149 |
|
|
|
109,130 |
|
|
|
97,204 |
|
|
|
|
|
|
|
208,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased property under capital lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and building |
|
|
|
|
|
|
18,055 |
|
|
|
|
|
|
|
|
|
|
|
18,055 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(1,128 |
) |
|
|
|
|
|
|
|
|
|
|
(1,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,927 |
|
|
|
|
|
|
|
|
|
|
|
16,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
|
|
|
|
|
|
411,558 |
|
|
|
|
|
|
|
(411,558 |
) |
|
|
|
|
Investment in subsidiaries |
|
|
2,297,149 |
|
|
|
(66,467 |
) |
|
|
|
|
|
|
(2,230,682 |
) |
|
|
|
|
Goodwill |
|
|
|
|
|
|
1,235,651 |
|
|
|
314,405 |
|
|
|
|
|
|
|
1,550,056 |
|
Intangible assets, net |
|
|
286,000 |
|
|
|
8,404 |
|
|
|
267,627 |
|
|
|
|
|
|
|
562,031 |
|
Deferred financing costs, net |
|
|
39,960 |
|
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
40,341 |
|
Other assets |
|
|
130 |
|
|
|
4,133 |
|
|
|
42,554 |
|
|
|
|
|
|
|
46,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,623,239 |
|
|
|
1,593,279 |
|
|
|
624,967 |
|
|
|
(2,642,240 |
) |
|
|
2,199,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,786,774 |
|
|
$ |
1,822,024 |
|
|
$ |
895,154 |
|
|
$ |
(2,642,240 |
) |
|
$ |
2,861,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
62,796 |
|
|
$ |
|
|
|
$ |
62,796 |
|
Trade accounts payable |
|
|
993 |
|
|
|
22,771 |
|
|
|
36,613 |
|
|
|
|
|
|
|
60,377 |
|
Income taxes payable |
|
|
|
|
|
|
(357 |
) |
|
|
8,793 |
|
|
|
|
|
|
|
8,436 |
|
Accrued interest payable |
|
|
29,167 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
29,232 |
|
Accrued expenses and other current liabilities |
|
|
10,101 |
|
|
|
35,426 |
|
|
|
43,030 |
|
|
|
|
|
|
|
88,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
40,261 |
|
|
|
57,840 |
|
|
|
151,297 |
|
|
|
|
|
|
|
249,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
|
328,442 |
|
|
|
|
|
|
|
83,116 |
|
|
|
(411,558 |
) |
|
|
|
|
Long-term debt |
|
|
2,444,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,444,779 |
|
Revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation under capital lease |
|
|
|
|
|
|
17,290 |
|
|
|
|
|
|
|
|
|
|
|
17,290 |
|
Deferred tax liability |
|
|
|
|
|
|
106,064 |
|
|
|
15,415 |
|
|
|
|
|
|
|
121,479 |
|
Deferred rent expense |
|
|
|
|
|
|
17,246 |
|
|
|
10,225 |
|
|
|
|
|
|
|
27,471 |
|
Unfavorable lease obligations and other long-term
liabilities |
|
|
|
|
|
|
26,750 |
|
|
|
1,253 |
|
|
|
|
|
|
|
28,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,773,221 |
|
|
|
167,350 |
|
|
|
110,009 |
|
|
|
(411,558 |
) |
|
|
2,639,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
|
367 |
|
|
|
2 |
|
|
|
(369 |
) |
|
|
|
|
Additional paid in capital |
|
|
622,073 |
|
|
|
1,435,909 |
|
|
|
815,866 |
|
|
|
(2,251,775 |
) |
|
|
622,073 |
|
Accumulated other comprehensive income (loss),
net of tax |
|
|
19,846 |
|
|
|
5,411 |
|
|
|
7,883 |
|
|
|
(13,294 |
) |
|
|
19,846 |
|
Retained earnings (accumulated deficit) |
|
|
(668,627 |
) |
|
|
155,147 |
|
|
|
(189,903 |
) |
|
|
34,756 |
|
|
|
(668,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,708 |
) |
|
|
1,596,834 |
|
|
|
633,848 |
|
|
|
(2,230,682 |
) |
|
|
(26,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
2,786,774 |
|
|
$ |
1,822,024 |
|
|
$ |
895,154 |
|
|
$ |
(2,642,240 |
) |
|
$ |
2,861,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash and cash equivalents includes restricted cash of $3,750 for Issuer and $22,216 for
Non-Guarantors |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet |
|
January 29, 2011 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash (1) |
|
$ |
179,529 |
|
|
$ |
3,587 |
|
|
$ |
96,650 |
|
|
$ |
|
|
|
$ |
279,766 |
|
Inventories |
|
|
|
|
|
|
84,868 |
|
|
|
51,280 |
|
|
|
|
|
|
|
136,148 |
|
Prepaid expenses |
|
|
851 |
|
|
|
1,680 |
|
|
|
18,918 |
|
|
|
|
|
|
|
21,449 |
|
Other current assets |
|
|
|
|
|
|
16,547 |
|
|
|
8,111 |
|
|
|
|
|
|
|
24,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
180,380 |
|
|
|
106,682 |
|
|
|
174,959 |
|
|
|
|
|
|
|
462,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
|
3,276 |
|
|
|
119,228 |
|
|
|
64,010 |
|
|
|
|
|
|
|
186,514 |
|
Leasehold improvements |
|
|
1,052 |
|
|
|
143,072 |
|
|
|
103,906 |
|
|
|
|
|
|
|
248,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,328 |
|
|
|
262,300 |
|
|
|
167,916 |
|
|
|
|
|
|
|
434,544 |
|
Less accumulated depreciation and amortization |
|
|
(2,205 |
) |
|
|
(147,857 |
) |
|
|
(83,449 |
) |
|
|
|
|
|
|
(233,511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,123 |
|
|
|
114,443 |
|
|
|
84,467 |
|
|
|
|
|
|
|
201,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased property under capital lease: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and building |
|
|
|
|
|
|
18,055 |
|
|
|
|
|
|
|
|
|
|
|
18,055 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(903 |
) |
|
|
|
|
|
|
|
|
|
|
(903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,152 |
|
|
|
|
|
|
|
|
|
|
|
17,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
|
|
|
|
|
|
366,929 |
|
|
|
|
|
|
|
(366,929 |
) |
|
|
|
|
Investment in subsidiaries |
|
|
2,303,333 |
|
|
|
(63,535 |
) |
|
|
|
|
|
|
(2,239,798 |
) |
|
|
|
|
Goodwill |
|
|
|
|
|
|
1,235,651 |
|
|
|
314,405 |
|
|
|
|
|
|
|
1,550,056 |
|
Intangible assets, net |
|
|
286,000 |
|
|
|
9,294 |
|
|
|
262,172 |
|
|
|
|
|
|
|
557,466 |
|
Deferred financing costs, net |
|
|
35,973 |
|
|
|
|
|
|
|
461 |
|
|
|
|
|
|
|
36,434 |
|
Other assets |
|
|
130 |
|
|
|
3,842 |
|
|
|
38,315 |
|
|
|
|
|
|
|
42,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625,436 |
|
|
|
1,552,181 |
|
|
|
615,353 |
|
|
|
(2,606,727 |
) |
|
|
2,186,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,807,939 |
|
|
$ |
1,790,458 |
|
|
$ |
874,779 |
|
|
$ |
(2,606,727 |
) |
|
$ |
2,866,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term
debt |
|
$ |
18,451 |
|
|
$ |
|
|
|
$ |
57,703 |
|
|
$ |
|
|
|
$ |
76,154 |
|
Trade accounts payable |
|
|
1,199 |
|
|
|
24,545 |
|
|
|
28,611 |
|
|
|
|
|
|
|
54,355 |
|
Income taxes payable |
|
|
|
|
|
|
644 |
|
|
|
11,100 |
|
|
|
|
|
|
|
11,744 |
|
Accrued interest payable |
|
|
16,696 |
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
16,783 |
|
Accrued expenses and other current liabilities |
|
|
20,630 |
|
|
|
37,910 |
|
|
|
48,575 |
|
|
|
|
|
|
|
107,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
56,976 |
|
|
|
63,099 |
|
|
|
146,076 |
|
|
|
|
|
|
|
266,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
|
346,636 |
|
|
|
|
|
|
|
20,293 |
|
|
|
(366,929 |
) |
|
|
|
|
Long-term debt |
|
|
2,236,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,236,842 |
|
Revolving credit facility |
|
|
194,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,000 |
|
Obligation under capital lease |
|
|
|
|
|
|
17,290 |
|
|
|
|
|
|
|
|
|
|
|
17,290 |
|
Deferred tax liability |
|
|
|
|
|
|
106,797 |
|
|
|
14,979 |
|
|
|
|
|
|
|
121,776 |
|
Deferred rent expense |
|
|
|
|
|
|
17,230 |
|
|
|
9,407 |
|
|
|
|
|
|
|
26,637 |
|
Unfavorable lease obligations and other long-term
liabilities |
|
|
|
|
|
|
28,889 |
|
|
|
1,379 |
|
|
|
|
|
|
|
30,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,777,478 |
|
|
|
170,206 |
|
|
|
46,058 |
|
|
|
(366,929 |
) |
|
|
2,626,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
|
367 |
|
|
|
2 |
|
|
|
(369 |
) |
|
|
|
|
Additional paid in capital |
|
|
621,099 |
|
|
|
1,435,909 |
|
|
|
815,866 |
|
|
|
(2,251,775 |
) |
|
|
621,099 |
|
Accumulated other comprehensive income (loss),
net of tax |
|
|
1,416 |
|
|
|
3,663 |
|
|
|
(7,080 |
) |
|
|
3,417 |
|
|
|
1,416 |
|
Retained earnings (accumulated deficit) |
|
|
(649,030 |
) |
|
|
117,214 |
|
|
|
(126,143 |
) |
|
|
8,929 |
|
|
|
(649,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,515 |
) |
|
|
1,557,153 |
|
|
|
682,645 |
|
|
|
(2,239,798 |
) |
|
|
(26,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
2,807,939 |
|
|
$ |
1,790,458 |
|
|
$ |
874,779 |
|
|
$ |
(2,606,727 |
) |
|
$ |
2,866,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash and cash equivalents includes restricted cash of $3,450 for Issuer and $20,414 for
Non-Guarantors |
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) |
|
For The Three Months Ended April 30, 2011 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
|
|
|
$ |
209,024 |
|
|
$ |
137,422 |
|
|
$ |
|
|
|
$ |
346,446 |
|
Cost of sales, occupancy and buying expenses |
|
|
1,595 |
|
|
|
98,449 |
|
|
|
71,315 |
|
|
|
|
|
|
|
171,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
(1,595 |
) |
|
|
110,575 |
|
|
|
66,107 |
|
|
|
|
|
|
|
175,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
8,188 |
|
|
|
62,392 |
|
|
|
56,142 |
|
|
|
|
|
|
|
126,722 |
|
Depreciation and amortization |
|
|
181 |
|
|
|
9,478 |
|
|
|
7,395 |
|
|
|
|
|
|
|
17,054 |
|
Severance and transaction-related costs |
|
|
133 |
|
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
343 |
|
Other (income) expense |
|
|
(3,648 |
) |
|
|
436 |
|
|
|
8,523 |
|
|
|
|
|
|
|
5,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,854 |
|
|
|
72,306 |
|
|
|
72,270 |
|
|
|
|
|
|
|
149,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(6,449 |
) |
|
|
38,269 |
|
|
|
(6,163 |
) |
|
|
|
|
|
|
25,657 |
|
Gain on early debt extinguishment |
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249 |
|
Interest expense, net |
|
|
44,230 |
|
|
|
531 |
|
|
|
1,474 |
|
|
|
|
|
|
|
46,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(50,430 |
) |
|
|
37,738 |
|
|
|
(7,637 |
) |
|
|
|
|
|
|
(20,329 |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
(1,112 |
) |
|
|
380 |
|
|
|
|
|
|
|
(732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(50,430 |
) |
|
|
38,850 |
|
|
|
(8,017 |
) |
|
|
|
|
|
|
(19,597 |
) |
Equity in earnings of subsidiaries |
|
|
30,833 |
|
|
|
(917 |
) |
|
|
|
|
|
|
(29,916 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(19,597 |
) |
|
|
37,933 |
|
|
|
(8,017 |
) |
|
|
(29,916 |
) |
|
|
(19,597 |
) |
Foreign currency translation and interest rate swap
adjustments, net of tax |
|
|
18,431 |
|
|
|
1,748 |
|
|
|
14,962 |
|
|
|
(16,710 |
) |
|
|
18,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(1,166 |
) |
|
$ |
39,681 |
|
|
$ |
6,945 |
|
|
$ |
(46,626 |
) |
|
$ |
(1,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) |
|
For The Three Months Ended May 1, 2010 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
|
|
|
$ |
198,592 |
|
|
$ |
123,485 |
|
|
$ |
|
|
|
$ |
322,077 |
|
Cost of sales, occupancy and buying expenses |
|
|
1,275 |
|
|
|
95,987 |
|
|
|
61,489 |
|
|
|
|
|
|
|
158,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
(1,275 |
) |
|
|
102,605 |
|
|
|
61,996 |
|
|
|
|
|
|
|
163,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
8,432 |
|
|
|
61,423 |
|
|
|
48,164 |
|
|
|
|
|
|
|
118,019 |
|
Depreciation and amortization |
|
|
132 |
|
|
|
9,638 |
|
|
|
6,596 |
|
|
|
|
|
|
|
16,366 |
|
Severance and transaction-related costs |
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
Other (income) expense |
|
|
(5,875 |
) |
|
|
2,254 |
|
|
|
4,851 |
|
|
|
|
|
|
|
1,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,791 |
|
|
|
73,315 |
|
|
|
59,611 |
|
|
|
|
|
|
|
135,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(4,066 |
) |
|
|
29,290 |
|
|
|
2,385 |
|
|
|
|
|
|
|
27,609 |
|
Gain on early debt extinguishment |
|
|
4,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,487 |
|
Interest expense, net |
|
|
42,745 |
|
|
|
7 |
|
|
|
11 |
|
|
|
|
|
|
|
42,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(42,324 |
) |
|
|
29,283 |
|
|
|
2,374 |
|
|
|
|
|
|
|
(10,667 |
) |
Income tax expense |
|
|
23 |
|
|
|
616 |
|
|
|
994 |
|
|
|
|
|
|
|
1,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(42,347 |
) |
|
|
28,667 |
|
|
|
1,380 |
|
|
|
|
|
|
|
(12,300 |
) |
Equity in earnings of subsidiaries |
|
|
30,047 |
|
|
|
(47 |
) |
|
|
|
|
|
|
(30,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(12,300 |
) |
|
|
28,620 |
|
|
|
1,380 |
|
|
|
(30,000 |
) |
|
|
(12,300 |
) |
Foreign currency translation and interest rate swap
adjustments, net of tax |
|
|
(2,522 |
) |
|
|
9,432 |
|
|
|
(9,251 |
) |
|
|
(181 |
) |
|
|
(2,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(14,822 |
) |
|
$ |
38,052 |
|
|
$ |
(7,871 |
) |
|
$ |
(30,181 |
) |
|
$ |
(14,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows |
|
Three Months Ended April 30, 2011 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(19,597 |
) |
|
$ |
37,933 |
|
|
$ |
(8,017 |
) |
|
$ |
(29,916 |
) |
|
$ |
(19,597 |
) |
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
(30,833 |
) |
|
|
917 |
|
|
|
|
|
|
|
29,916 |
|
|
|
|
|
Depreciation and amortization |
|
|
181 |
|
|
|
9,478 |
|
|
|
7,395 |
|
|
|
|
|
|
|
17,054 |
|
Amortization of lease rights and other assets |
|
|
|
|
|
|
|
|
|
|
785 |
|
|
|
|
|
|
|
785 |
|
Amortization of debt issuance costs |
|
|
5,751 |
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
5,899 |
|
Payment of in kind interest expense |
|
|
9,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,035 |
|
Foreign currency exchange net loss on Euro Loan |
|
|
|
|
|
|
|
|
|
|
3,292 |
|
|
|
|
|
|
|
3,292 |
|
Net accretion of favorable (unfavorable) lease
obligations |
|
|
|
|
|
|
(430 |
) |
|
|
155 |
|
|
|
|
|
|
|
(275 |
) |
Loss on sale/retirement of property and equipment, net |
|
|
|
|
|
|
32 |
|
|
|
16 |
|
|
|
|
|
|
|
48 |
|
Gain on early debt extinguishment |
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249 |
) |
Stock compensation expense |
|
|
785 |
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
974 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
5,445 |
|
|
|
1,238 |
|
|
|
|
|
|
|
6,683 |
|
Prepaid expenses |
|
|
417 |
|
|
|
(13,491 |
) |
|
|
1,234 |
|
|
|
|
|
|
|
(11,840 |
) |
Other assets |
|
|
(11 |
) |
|
|
(575 |
) |
|
|
(123 |
) |
|
|
|
|
|
|
(709 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
(207 |
) |
|
|
(1,121 |
) |
|
|
5,021 |
|
|
|
|
|
|
|
3,693 |
|
Income taxes payable |
|
|
|
|
|
|
(1,001 |
) |
|
|
(2,846 |
) |
|
|
|
|
|
|
(3,847 |
) |
Accrued interest payable |
|
|
12,470 |
|
|
|
|
|
|
|
(74 |
) |
|
|
|
|
|
|
12,396 |
|
Accrued expenses and other liabilities |
|
|
(10,825 |
) |
|
|
(2,483 |
) |
|
|
(8,576 |
) |
|
|
|
|
|
|
(21,884 |
) |
Deferred income taxes |
|
|
|
|
|
|
(1,116 |
) |
|
|
87 |
|
|
|
|
|
|
|
(1,029 |
) |
Deferred rent expense |
|
|
|
|
|
|
16 |
|
|
|
198 |
|
|
|
|
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(33,083 |
) |
|
|
33,604 |
|
|
|
122 |
|
|
|
|
|
|
|
643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment, net |
|
|
(208 |
) |
|
|
(4,598 |
) |
|
|
(10,986 |
) |
|
|
|
|
|
|
(15,792 |
) |
Acquisition of intangible assets/lease rights |
|
|
|
|
|
|
(7 |
) |
|
|
(1,340 |
) |
|
|
|
|
|
|
(1,347 |
) |
Changes in restricted cash |
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(508 |
) |
|
|
(4,605 |
) |
|
|
(12,326 |
) |
|
|
|
|
|
|
(17,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of Credit facility |
|
|
(438,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438,940 |
) |
Proceeds from Note |
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000 |
|
Repurchases of Notes |
|
|
(24,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,014 |
) |
Payment of debt issuance costs |
|
|
(10,085 |
) |
|
|
|
|
|
|
(67 |
) |
|
|
|
|
|
|
(10,152 |
) |
Intercompany activity, net |
|
|
37,742 |
|
|
|
(44,629 |
) |
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
14,703 |
|
|
|
(44,629 |
) |
|
|
6,820 |
|
|
|
|
|
|
|
(23,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents |
|
|
|
|
|
|
4,041 |
|
|
|
127 |
|
|
|
|
|
|
|
4,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(18,888 |
) |
|
|
(11,589 |
) |
|
|
(5,257 |
) |
|
|
|
|
|
|
(35,734 |
) |
Cash and cash equivalents, at beginning of period |
|
|
176,079 |
|
|
|
3,587 |
|
|
|
76,236 |
|
|
|
|
|
|
|
255,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period |
|
|
157,191 |
|
|
|
(8,002 |
) |
|
|
70,979 |
|
|
|
|
|
|
|
220,168 |
|
Restricted cash, at end of period |
|
|
3,750 |
|
|
|
|
|
|
|
22,216 |
|
|
|
|
|
|
|
25,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, at end of period |
|
$ |
160,941 |
|
|
$ |
(8,002 |
) |
|
$ |
93,195 |
|
|
$ |
|
|
|
$ |
246,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows |
|
Three Months Ended May 1, 2010 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(12,300 |
) |
|
$ |
28,620 |
|
|
$ |
1,380 |
|
|
$ |
(30,000 |
) |
|
$ |
(12,300 |
) |
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
(30,047 |
) |
|
|
47 |
|
|
|
|
|
|
|
30,000 |
|
|
|
|
|
Depreciation and amortization |
|
|
132 |
|
|
|
9,638 |
|
|
|
6,596 |
|
|
|
|
|
|
|
16,366 |
|
Amortization of lease rights and other assets |
|
|
|
|
|
|
13 |
|
|
|
1,015 |
|
|
|
|
|
|
|
1,028 |
|
Amortization of debt issuance costs |
|
|
2,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,535 |
|
Payment of in kind interest expense |
|
|
9,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,651 |
|
Net accretion of favorable (unfavorable) lease
obligations |
|
|
|
|
|
|
(571 |
) |
|
|
95 |
|
|
|
|
|
|
|
(476 |
) |
Loss on sale/retirement of property and equipment, net |
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
236 |
|
Gain on early debt extinguishment |
|
|
(4,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,487 |
) |
Stock compensation expense |
|
|
917 |
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
1,220 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
2,610 |
|
|
|
(3,402 |
) |
|
|
|
|
|
|
(792 |
) |
Prepaid expenses |
|
|
(96 |
) |
|
|
137 |
|
|
|
1,398 |
|
|
|
|
|
|
|
1,439 |
|
Other assets |
|
|
1,197 |
|
|
|
4,684 |
|
|
|
171 |
|
|
|
|
|
|
|
6,052 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
(373 |
) |
|
|
1,081 |
|
|
|
3,091 |
|
|
|
|
|
|
|
3,799 |
|
Income taxes payable |
|
|
|
|
|
|
96 |
|
|
|
(2,425 |
) |
|
|
|
|
|
|
(2,329 |
) |
Accrued interest payable |
|
|
12,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,727 |
|
Accrued expenses and other liabilities |
|
|
(2,535 |
) |
|
|
43 |
|
|
|
2,467 |
|
|
|
|
|
|
|
(25 |
) |
Deferred income taxes |
|
|
|
|
|
|
504 |
|
|
|
(30 |
) |
|
|
|
|
|
|
474 |
|
Deferred rent expense |
|
|
(107 |
) |
|
|
694 |
|
|
|
200 |
|
|
|
|
|
|
|
787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(22,786 |
) |
|
|
47,832 |
|
|
|
10,859 |
|
|
|
|
|
|
|
35,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment, net |
|
|
(26 |
) |
|
|
(3,052 |
) |
|
|
(5,140 |
) |
|
|
|
|
|
|
(8,218 |
) |
Acquisition of intangible assets/lease rights |
|
|
|
|
|
|
(58 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
(189 |
) |
Proceeds from sale of property |
|
|
|
|
|
|
16,765 |
|
|
|
|
|
|
|
|
|
|
|
16,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(26 |
) |
|
|
13,655 |
|
|
|
(5,271 |
) |
|
|
|
|
|
|
8,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of Credit facility |
|
|
(3,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,625 |
) |
Repurchases of Notes |
|
|
(16,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,849 |
) |
Principal payments of capital leases |
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
(765 |
) |
Intercompany activity, net |
|
|
78,855 |
|
|
|
(60,818 |
) |
|
|
(18,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
58,381 |
|
|
|
(61,583 |
) |
|
|
(18,037 |
) |
|
|
|
|
|
|
(21,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents |
|
|
|
|
|
|
2,214 |
|
|
|
(3,935 |
) |
|
|
|
|
|
|
(1,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
35,569 |
|
|
|
2,118 |
|
|
|
(16,384 |
) |
|
|
|
|
|
|
21,303 |
|
Cash and cash equivalents, at beginning of period |
|
|
109,138 |
|
|
|
(10,604 |
) |
|
|
100,174 |
|
|
|
|
|
|
|
198,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, at end of period |
|
|
144,707 |
|
|
|
(8,486 |
) |
|
|
83,790 |
|
|
|
|
|
|
|
220,011 |
|
Restricted cash, at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, at end of period |
|
$ |
144,707 |
|
|
$ |
(8,486 |
) |
|
$ |
83,790 |
|
|
$ |
|
|
|
$ |
220,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements 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. Managements 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. A store which is temporarily closed, such as for remodeling, is removed
from the same store sales computation if it is closed for nine consecutive weeks. The removal is
effective prospectively upon the completion of the ninth consecutive 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.
19
Business Overview
We are one of the worlds leading specialty retailers of fashionable accessories and jewelry at
affordable prices for young women, teens, tweens, and girls ages 3 to 27. We are organized based
on our geographic markets, which include our North American division and our European division. As
of April 30, 2011, we operated a total of 3,000 stores, of which 1,960 were located in all 50
states of the United States, Puerto Rico, Canada, and the U.S. Virgin Islands (our North American
division) and 1,040 stores were located in the United Kingdom, France, Switzerland, Spain, Ireland,
Austria, Germany, Netherlands, Portugal, Belgium, Poland, Czech Republic and Hungary (our European
division). We operate our stores under two brand names: Claires®, on a global basis,
and Icing®, in North America.
As of April 30, 2011, we also franchised or licensed 391 stores in Japan, the Middle East, Turkey,
Russia, Greece, South Africa, Guatemala, Malta and Ukraine. 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 Consolidated Statements of Operations and Comprehensive Income (Loss). The
franchise fees we charge under the franchising agreements are reported in Other expense (income),
net in our Consolidated Statements of Operations and Comprehensive Income (Loss).
Until September 2, 2010, we operated the stores in Japan through our former Claires Nippon 50:50
joint venture with Aeon Co., Ltd. We accounted for the results of operations of Claires Nippon
under the equity method and included the results within Other expense (income), net in our
Consolidated Statements of Operations and Comprehensive Income (Loss). Beginning September 2,
2010, these stores began to operate as licensed stores.
Our primary brand in North America and exclusively in Europe is Claires. Our Claires customers
are predominantly teens (ages 13 to 18), tweens (ages 7 to 12) and kids (ages 3 to 6), or referred
to as our Young, Younger and Youngest target customer groups.
Our second brand in North America is Icing, which targets a single edit point customer represented
by a 23 year old young woman just graduating from college and entering the work force who dresses
consistent with the current fashion influences. We believe this niche strategy enables us to
create a well defined merchandise point of view and attract a broad group of customers from 19 to
27 years of age.
We believe that we are the leading accessories and jewelry destination for our target customers,
which is embodied in our mission statement to be a fashion authority and fun destination
offering a compelling, focused assortment of value-priced accessories, jewelry and other emerging
fashion categories targeted to the lifestyles of kids, tweens, teens and young women. In addition
to age segmentation, we use multiple lifestyle aesthetics to further differentiate our merchandise
assortments for our Young and Younger target customer groups.
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:
|
|
|
Accessories includes fashion accessories for year-round use, including legwear,
headwear, attitude glasses, scarves, armwear and belts, and seasonal use, including
sunglasses, hats, fall footwear, sandals, scarves, gloves, boots, slippers and earmuffs;
and other accessories, including hairgoods, handbags, and small leather goods, as well as
cosmetics |
|
|
|
|
Jewelry includes earrings, necklaces, bracelets, body jewelry and rings, as well as
ear piercing |
In North America, our stores are located primarily in shopping malls. The differentiation of our
Claires and Icing brands allows us to operate multiple store locations within a single mall. In
Europe our stores are located primarily on high streets, in shopping malls and in high traffic
urban areas.
20
Current Market Conditions
Continued distress in the financial markets has resulted in declines in consumer confidence and
spending, extreme volatility in securities prices, and has had a negative impact on credit
availability and declining valuations of certain investments. We have assessed the implications of
these factors on our current business and have responded with pursuit of cost reduction
opportunities and are proceeding cautiously to support increased sales. If the national, or global,
economies or credit market conditions in general were to deteriorate further in the future, it is
possible that such deterioration could put additional negative pressure on consumer spending and
negatively affect our cash flows or cause a tightening of trade credit that may negatively affect
our liquidity.
Consolidated Results of Operations
A summary of our consolidated results of operations for the three months ended April 30, 2011 and
May 1, 2010 are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Net sales |
|
$ |
346,446 |
|
|
$ |
322,077 |
|
Increase in same store sales |
|
|
3.2 |
% |
|
|
7.6 |
% |
Gross profit percentage |
|
|
50.5 |
% |
|
|
50.7 |
% |
Selling, general and administrative expenses as a percentage of net sales |
|
|
36.6 |
% |
|
|
36.6 |
% |
Depreciation and amortization as a percentage of net sales |
|
|
4.9 |
% |
|
|
5.1 |
% |
Operating income |
|
$ |
25,657 |
|
|
$ |
27,609 |
|
Gain on early debt extinguishment |
|
$ |
249 |
|
|
$ |
4,487 |
|
Net loss |
|
$ |
(19,597 |
) |
|
$ |
(12,300 |
) |
Number of stores at the end of the period (1) |
|
|
3,000 |
|
|
|
2,955 |
|
|
|
|
(1) |
|
Number of stores excludes stores operated under franchise and licensing agreements. |
Net sales
Net sales for the three months ended April 30, 2011 increased $24.4 million, or 7.6%, from the
three months ended May 1, 2010. This increase was attributable to new stores sales, an increase in
same store sales, favorable foreign currency translation effect of our foreign locations sales and
increases in shipments to franchisees, partially offset by the effect of store closures. Net sales
would have increased 5.3% excluding the impact from foreign currency rate changes.
For the three months ended April 30, 2011, the increase in same store sales was primarily
attributable to an increase in average transaction value of 5.5%, partially offset by a decrease in
average number of transactions per store of 1.8%.
The following table compares our sales of each product category for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
Product Category |
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Accessories |
|
|
52.4 |
|
|
|
52.1 |
|
Jewelry |
|
|
47.6 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
21
Gross profit
In calculating gross profit and gross profit percentages, we exclude the costs related to our
distribution center. These costs are included instead in Selling, general and administrative
expenses in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
(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 April 30, 2011, gross profit percentage decreased 20 basis points to
50.5% compared to 50.7% during the three months ended May 1, 2010. The decrease in gross profit
percentage consisted of an 80 basis point decrease in merchandise margin and a 10 basis point
increase in buying and buying-related costs, partially offset by a 70 basis point decrease in
occupancy costs. The decrease in merchandise margin was primarily due to a higher mix of clearance
merchandise, markdowns and freight expense. The improvement in occupancy rate is due to the
leveraging effect of higher sales.
Selling, general and administrative expenses
During the three months ended April 30, 2011, selling, general and administrative expenses
increased $8.7 million, or 7.4%, compared to the three months ended May 1, 2010. As a percentage
of net sales, selling, general and administrative expenses remained unchanged at 36.6% compared to
the three months ended May 1, 2010. The majority of the expense increase, in dollars, was for
store-related expenses resulting from increased sales. Excluding an unfavorable $2.6 million
foreign currency translation effect, the net increase in selling, general and administrative
expenses would have been $6.1 million.
Depreciation and amortization expense
During the three months ended April 30, 2011, depreciation and amortization expense increased $0.7
million to $17.1 million compared to $16.4 million for the three months ended May 1, 2010. The
majority of this increase is due to the effect of asset additions during fiscal 2010 and the first
quarter of fiscal 2011.
Gain on early debt extinguishment
The following is a summary of the Companys debt repurchase activity for the three months ended
April 30, 2011 and May 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2011 |
|
|
|
|
|
|
|
|
|
Recognized |
|
|
|
Principal |
|
|
Repurchase |
|
|
Gain |
|
Notes Repurchased |
|
Amount |
|
|
Price |
|
|
(Loss) (1) |
|
Senior Notes |
|
$ |
10,000 |
|
|
$ |
9,930 |
|
|
$ |
(98 |
) |
Senior Toggle Notes |
|
|
14,155 |
|
|
|
14,084 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,155 |
|
|
$ |
24,014 |
|
|
$ |
249 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred issuance cost write-offs of $168 for the Senior Notes and $179 for the Senior
Toggle Notes, and accrued interest write-off of $455 for the Senior Toggle Notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 1, 2010 |
|
|
|
Principal |
|
|
Repurchase |
|
|
Recognized |
|
Notes Repurchased |
|
Amount |
|
|
Price |
|
|
Gain (1) |
|
Senior Toggle Notes |
|
$ |
6,000 |
|
|
$ |
4,985 |
|
|
$ |
1,087 |
|
Senior Subordinated Notes |
|
|
15,625 |
|
|
|
11,864 |
|
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,625 |
|
|
$ |
16,849 |
|
|
$ |
4,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred issuance cost write-offs of $104 and $361 for the Senior Toggle Notes and
Senior Subordinated Notes, respectively, and accrued interest write-off of $176 for the Senior
Toggle Notes. |
22
Other expense (income), net
The following is a summary of other expense (income) activity for the three months ended April 30,
2011 and May 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
April 30, 2011 |
|
|
May 1, 2010 |
|
Foreign currency exchange loss, net |
|
$ |
5,949 |
|
|
$ |
785 |
|
Equity loss |
|
|
¯ |
|
|
|
1,116 |
|
Royalty income |
|
|
(389 |
) |
|
|
(191 |
) |
Other income |
|
|
(249 |
) |
|
|
(480 |
) |
|
|
|
|
|
|
|
|
|
$ |
5,311 |
|
|
$ |
1,230 |
|
|
|
|
|
|
|
|
During the three months ended April 30, 2011, foreign currency exchange loss, net increased
primarily from a $3.3 million net charge to remeasure the Euro Loan at the period end foreign
exchange rate. Equity loss decreased due to the Company converting its equity ownership interest
in a former joint venture into a licensing agreement.
Interest expense, net
During the three months ended April 30, 2011, net interest expense aggregated $46.2 million
compared to $42.8 million for the three months ended May 1, 2010. The increase of $3.5 million is
primarily due to interest on the $450.0 million Senior Secured Second Lien Notes and Euro Loan and
an accelerated reduction of deferred financing costs, partially offset by lower outstanding
balances under our Revolving Credit Facility and Senior Notes.
Income taxes
The effective income tax rate for the three months ended April 30, 2011 was 3.6% compared to
(15.3)% for the three months ended May 1, 2010. These effective income tax rates differed from the
statutory federal tax rate of 35% primarily from increases in the valuation allowance recorded for
additional deferred tax assets generated primarily from operating losses in the three months ended
April 30, 2011 and May 1, 2010, respectively, by our U.S. operations.
Segment Operations
We are organized into two business segments North America and Europe. The following is a
discussion of results of operations by business segment.
North America
Key statistics and results of operations for our North American division are as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
April 30, 2011 |
|
May 1, 2010 |
Net sales
|
|
$ |
224,188 |
|
|
$ |
212,599 |
|
Increase in same store sales
|
|
|
4.8 |
% |
|
|
8.9 |
% |
Gross profit percentage
|
|
|
52.5 |
% |
|
|
51.7 |
% |
Number of stores at the end of the period (1)
|
|
|
1,960 |
|
|
|
1,990 |
|
|
|
|
(1) |
|
Number of stores excludes stores operated under franchise and licensing agreements. |
23
During the three months ended April 30, 2011, net sales in North America increased $11.6 million,
or 5.5%, from the three months ended May 1, 2010. This increase was attributable to an increase in
same store sales, an increase in shipments to franchisees, new store sales and a favorable foreign
currency translation effect of our Canadian operations sales, partially offset by the effect of
store closures. Sales would have increased 5.1% excluding the impact from foreign currency rate
changes.
For the three months ended April 30, 2011, the increase in same store sales was primarily
attributable to an increase in average transaction value of 6.2%, partially offset by a decrease in
average number of transactions per store of 0.7%.
During the three months ended April 30, 2011, gross profit percentage increased 80 basis points to
52.5% compared to 51.7% during the three months ended May 1, 2010. The increase in gross profit
percentage consisted of a 110 basis point decrease in occupancy costs, partially offset by a 20
basis point decrease in merchandise margin and a 10 basis point increase in buying and
buying-related costs. The improvement in occupancy rate is due to the leveraging effect of higher
sales.
The following table compares our sales of each product category in North America for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
Product Category |
|
April 30, 2011 |
|
May 1, 2010 |
Accessories
|
|
|
46.7 |
|
|
|
47.3 |
|
Jewelry
|
|
|
53.3 |
|
|
|
52.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
Europe
Key statistics and results of operations for our European division are as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
April 30, 2011 |
|
May 1, 2010 |
Net sales
|
|
$ |
122,258 |
|
|
$ |
109,478 |
|
Increase in same store sales
|
|
|
0.1 |
% |
|
|
5.0 |
% |
Gross profit percentage
|
|
|
47.0 |
% |
|
|
48.8 |
% |
Number of stores at the end of the period (1)
|
|
|
1,040 |
|
|
|
965 |
|
|
|
|
(1) |
|
Number of stores excludes stores operated under franchise and licensing agreements. |
During the three months ended April 30, 2011, net sales in Europe increased $12.8 million, or
11.7%, from the three months ended May 1, 2010. This increase was attributable to new store sales,
favorable foreign currency translation of our European operations sales, and an increase in same
store sales, partially offset by the effect of store closures. Sales would have increased 5.7%
excluding the impact from foreign currency rate changes.
For the three months ended April 30, 2011, the increase in same store sales was primarily
attributable to an increase in average transaction value of 4.6%, partially offset by a decrease in
average number of transactions per store of 4.3%.
During the three months ended April 30, 2011, gross profit percentage decreased 180 basis points to
47.0% compared to 48.8% during the three months ended May 1, 2010. The decrease in gross profit
percentage consisted of a 200 basis point decrease in merchandise margin, partially offset by a 10
basis point decrease in occupancy costs and a 10 basis point decrease in buying and buying-related
costs. The decrease in merchandise margin was primarily due to a higher mix of clearance
merchandise, markdowns and freight expense. The improvement in occupancy rate is due to the
leveraging effect of higher sales.
24
The following table compares our sales of each product category in Europe for each of the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
Product Category |
|
April 30, 2011 |
|
May 1, 2010 |
Accessories
|
|
|
62.5 |
|
|
|
61.3 |
|
Jewelry
|
|
|
37.5 |
|
|
|
38.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
A summary of cash flows provided by (used in) operating, investing and financing activities for the
three months ended April 30, 2011 and May 1, 2010 is outlined in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
April 30, 2011 |
|
May 1, 2010 |
Operating activities
|
|
$ |
643 |
|
|
$ |
35,905 |
|
Investing activities
|
|
|
(17,439 |
) |
|
|
8,358 |
|
Financing activities
|
|
|
(23,106 |
) |
|
|
(21,239 |
) |
Cash flows from operating activities
Cash provided by operating activities decreased $35.3 million for the three months ended April 30,
2011 compared to the prior year period. The decrease was due to a change in working capital items
primarily resulting from a decrease of $21.9 million in accrued expenses and other liabilities and an
increase of $13.3 million in prepaid expenses.
Cash flows from investing activities
Cash used in investing activities was $17.4 million for the three months ended April 30, 2011 and
primarily consisted of capital expenditures for the remodeling of existing stores, new store
openings, improvements to technology systems, acquisition of lease rights and, to a lesser extent,
an increase in restricted cash. Cash provided by investing activities was $8.4 million for the
three months ended May 1, 2010 and primarily consisted of proceeds received from our sale-leaseback
transaction partially offset by capital expenditures for the remodeling of existing stores, new
store openings, improvements to technology systems and acquisition of lease rights. During the
remainder of Fiscal 2011, we expect to fund between $58.0 million and $63.0 million of capital
expenditures.
Cash flows from financing activities
Cash used in financing activities increased $1.9 million for the three months ended April 30, 2011
compared to the prior year period. In the three months ended April 30, 2011, we received $450.0
million in proceeds from our Senior Secured Second Lien Notes offering and paid down (without
terminating the commitment) the entire $194.0 million of the revolving credit facility
(Revolver), repaid $244.9 million of indebtedness under the senior secured term loan and paid
$10.1 million of debt financing costs. We also paid $24.0 million to retire $10.0 million of Senior
Notes and $14.2 million of Senior Toggle Notes. In the three months ended May 1, 2010, we paid $3.6
million for the scheduled principal payments on our Credit Facility, $16.8 million to retire $6.0
million of Senior Toggle Notes and $15.6 million of Senior Subordinated Notes and $0.8 million in
capital lease payments.
As discussed in our Annual Report on Form 10-K for the year ended January 29, 2011, we elected to
pay interest in kind on our Senior Toggle Notes for the interest periods beginning June 2, 2008
through June 1, 2011.
25
We or our affiliates have purchased and may, from time to time, purchase portions of our
indebtedness. All of our purchases have been privately-negotiated, open market transactions.
Cash Position
As of April 30, 2011, we had cash and cash equivalents and restricted cash of $246.1 million and
substantially all of the cash equivalents consisted of money market funds invested in U.S. Treasury
Securities.
We anticipate that cash generated from operations will be sufficient to meet our future working
capital requirements, capital expenditures, and debt service requirements for at least the next
twelve months. However, our ability to fund future operating expenses and capital expenditures and
our ability to make scheduled payments of interest on, to pay principal on, or refinance
indebtedness and to satisfy any other present or future debt obligations will depend on future
operating performance. Our future operating performance and liquidity may also be adversely
affected by general economic, financial, and other factors beyond the Companys control, including
those disclosed in Risk Factors in our Annual Report on Form 10-K for the fiscal year ended
January 29, 2011.
Short-term Debt
On January 24, 2011, we entered into a Euro () denominated loan (the Euro Loan) in the amount
of 42.4 million that is due on January 24, 2012. The Euro Loan bears interest at the three month
Euro Interbank Offered Rate (EURIBOR) rate plus 8.00% per year and is payable quarterly. As of
April 30, 2011, there was 42.4 million, or the equivalent of $62.8 million, outstanding under the
Euro Loan. The net proceeds of the borrowing were used for general corporate purposes.
The obligations under the Euro Loan are secured by a cash deposit in the amount of 15.0 million,
or the equivalent of $22.2 million at April 30, 2011, and a perfected first lien security interest
in all of the issued and outstanding equity interest of one of our international subsidiaries,
Claires Holdings S.a.r.l. The cash deposit is classified as Cash and cash equivalents and
restricted cash in our Unaudited Condensed Consolidated Balance Sheets.
Senior Secured Second Lien Notes
On March 4, 2011, we issued $450.0 million aggregate principal amount of 8.875% senior secured
second lien notes that mature on March 15, 2019 (the Senior Secured Second Lien Notes). Interest
on the Senior Secured Second Lien Notes is payable semi-annually to holders of record at the close
of business on March 1 or September 1 immediately preceding the interest payment date on March 15
and September 15 of each year, commencing on September 15, 2011. The Senior Secured Second Lien
Notes are guaranteed on a second-priority senior secured basis by all of our existing and future
direct or indirect wholly-owned domestic subsidiaries that guarantee the Credit Facility. The
Senior Secured Second Lien Notes and related guarantees are secured by a second-priority lien on
substantially all of the assets that secure our and our subsidiarys guarantors obligations under
the Credit Facility. As noted above, we used the proceeds of the offering of the Senior Secured
Second Lien Notes to reduce the entire $194.0 million outstanding under the Companys revolving
credit facility (without terminating the commitment), to repay $244.9 million of indebtedness under
the Companys senior secured term loan, and to pay $10.1 million in financing costs which have been
recorded as Deferred Financing Costs, Net in the accompanying Unaudited Condensed Consolidated Balance Sheets.
26
Credit Facility
As mentioned above, we reduced the entire amount outstanding under our Revolver (without
terminating the commitment) and indebtedness under our senior secured term loan. We can borrow up
to $200.0 million under our Revolver that matures on May 29, 2013. At April 30, 2011, we had $4.8
million of letters of credit outstanding against the Revolver and had available $195.2 million to
fund operations under our Revolver, if needed. As a result of our prepayment under the senior
secured term loan facility, we are no longer required to make any quarterly payments and have a
final payment due May 29, 2014.
European Credit Facilities
Our non-U.S. subsidiaries have bank credit facilities totaling $2.8 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. At April 30, 2011, the entire amount of $2.8 million was available for
borrowing by us, subject to a reduction of $2.7 million for outstanding bank guarantees.
Covenants
Our Senior Notes, Senior Toggle Notes, Senior Subordinated Notes and Senior Secured Second Lien
Notes (collectively, the Notes) and Euro Loan contain certain covenants that, among other things,
and subject to certain exceptions and other basket amounts, restrict our ability and the ability of
our subsidiaries to:
|
|
|
incur additional indebtedness; |
|
|
|
|
pay dividends or distributions on our capital stock, repurchase or retire our capital
stock and redeem, repurchase or defease any subordinated indebtedness; |
|
|
|
|
make certain investments; |
|
|
|
|
create or incur certain liens; |
|
|
|
|
create restrictions on the payment of dividends or other distributions to us from our
subsidiaries; |
|
|
|
|
transfer or sell assets; |
|
|
|
|
engage in certain transactions with our affiliates; and |
|
|
|
|
merge or consolidate with other companies or transfer all or substantially all of our
assets. |
None of these covenants, however, require the Company to maintain any particular financial ratio or
other measure of financial performance. As of April 30, 2011, we were in compliance with the
covenants under our Notes and Euro Loan.
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 (i) Note 2
Significant Accounting Policies in this Quarterly Report on Form 10-Q and (ii) our Fiscal 2010
Annual Report on Form 10-K, filed on April 21, 2011, in the Notes to Consolidated Financial
Statements, Note 2, and the Critical Accounting Policies and Estimates section contained in the
Managements Discussion and Analysis of Financial Condition and Results of Operations therein.
Recent Accounting Pronouncements
See Note 2 Recent Accounting Pronouncements, in the Notes to the Unaudited Condensed
Consolidated Financial Statements.
27
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 we issue publicly. 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
periods, are forward-looking statements. The forward-looking statements are and will be based on
managements then current views and assumptions regarding future events and operating performance,
and we assume no obligation to update any forward-looking statement. 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, 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. The forward-looking statements may use the words expect, anticipate, plan,
intend, project, may, believe, forecasts and similar expressions. Some of these risks,
uncertainties and other factors are as follows: changes in consumer preferences and consumer
spending; competition; our level of indebtedness; general economic conditions; general political
and social conditions such as war, political unrest and terrorism; natural disasters or severe
weather events; currency fluctuations and exchange rate adjustments; uncertainties generally
associated with the specialty retailing business, such as decreases in mall traffic due to high
gasoline prices or other general economic conditions; 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; increases in the cost of our merchandise; significant increases in our
merchandise markdowns; inability to grow our store base in Europe or expand our international
franchising operations; inability to design and implement new information systems or disruptions in
adapting our information systems to allow for e-commerce sales; delays in anticipated store
openings or renovations; results from any future asset impairment analysis; changes in applicable
laws, rules and regulations, including changes in federal, state or local regulations governing the
sale of our products, particularly regulations relating to the content in our products, general
employment laws, including laws relating to overtime pay and employee benefits, health care laws,
tax laws and import laws; product recalls; loss of key members of management; increases in the cost
of labor; labor disputes; unwillingness of vendors and service providers to supply goods or
services pursuant to historical customary credit arrangements; 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. The Company undertakes no obligation to update or
revise any forward-looking statements to reflect subsequent events or circumstances. 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. 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 2010
under Statement Regarding Forward-Looking Disclosures and Risk Factors.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Cash and Cash Equivalents
We have significant amounts of cash and cash equivalents, excluding restricted cash, at financial
institutions that are in excess of federally insured limits. With the current financial environment
and the instability of financial institutions, we cannot be assured that we will not experience
losses on our deposits. We mitigate this risk by investing in two money market funds that are
invested exclusively in U.S. Treasury securities and limiting the cash balance in any one bank
account. As of April 30, 2011, all cash equivalents, excluding restricted cash, were maintained in
two money market funds that were invested exclusively in U.S. Treasury securities and our
restricted cash was deposited with significant and credit worthy financial institutions.
28
Interest Rates
On July 28, 2010, we entered into an interest rate swap agreement (the Swap) to manage exposure
to fluctuations in interest rates. The Swap expires on July 30, 2013. The Swap represents a
contract to exchange floating rate for fixed interest payments periodically over the life of the
Swap without exchange of the underlying notional amount. The Swap covers an aggregate notional
amount of $200.0 million of the outstanding principal balance of the senior secured term loan
facility. The fixed rate of the Swap is 1.2235% and has been designated and accounted for as a
cash flow hedge. At April 30, 2011, the estimated fair value of the Swap was a liability of
approximately $1.5 million and was recorded, net of tax, as a component of Accumulated other
comprehensive income (loss), net of tax in our Unaudited Condensed Consolidated Balance Sheets.
We entered into three interest rate swap agreements in July 2007 (the 2007 Swaps) to manage
exposure to fluctuations in interest rates. Those 2007 Swaps expired on June 30, 2010. The 2007
Swaps represented contracts to exchange floating rate for fixed interest payments periodically over
the lives of the 2007 Swaps without exchange of the underlying notional amount. The 2007 Swaps
covered an aggregate notional amount of $435.0 million of the outstanding principal balance of the
senior secured term loan facility. The fixed rates of the 2007 Swaps ranged from 4.96% to 5.25%.
The 2007 Swaps were designated and accounted for as cash flow hedges.
At April 30, 2011, we had fixed rate debt of $1,307.8 million and variable rate debt of $1,217.1
million. Based on our variable rate debt balance (less $200.0 million for the interest rate swap)
as of April 30, 2011, a 1% change in interest rates would increase or decrease our annual interest
expense by approximately $10.2 million, net.
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 options. Exposure to market
risk for changes in foreign currency exchange rates relates primarily to our foreign operations
buying, selling, and financing activities in currencies other than local currencies and to the
carrying value of our net investments in foreign subsidiaries. At April 30, 2011, 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 income (loss) are $18.7 million
and $(7.7) million, net of tax, reflecting the unrealized gain (loss) on foreign currency
translations during the three months ended April 30, 2011 and May 1, 2010, 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 governments 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.
29
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.
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 the Company has 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, sustained recession in the U.S. and Europe, rising unemployment and continued
declines in discretionary income, our revenue and margins could be significantly affected in the
future. We can not predict whether, when or the manner in which the economic conditions described
above will change.
|
|
|
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.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of the end of the period covered by this
Quarterly Report to ensure 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 Commissions 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 Control over Financial Reporting
No changes in our internal control over financial reporting have been made during the quarter ended
April 30, 2011, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
30
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
content in our merchandise; litigation with respect to various employment matters, including wage
and hour litigation; litigation with present and 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 managements evaluation of possible liability or
outcome of litigation. Accordingly, the consequences of these matters cannot be finally determined
by management. However, in the opinion of management, we believe that current pending litigation
will not have a material adverse effect on our financial results.
There have been no material changes in our risk factors disclosed in our Annual Report on Form 10-K
for the year ended January 29, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a). |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a). |
|
|
|
|
|
|
|
|
|
|
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. |
|
|
|
|
|
|
|
|
|
|
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. |
Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
31
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.
|
|
|
|
|
|
CLAIRES STORES, INC.
|
|
June 6, 2011 |
By: |
/s/ Eugene S. Kahn
|
|
|
|
Eugene S. Kahn, Chief Executive Officer |
|
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
June 6, 2011 |
By: |
/s/ J. Per Brodin
|
|
|
|
J. Per Brodin, Executive Vice President and |
|
|
|
Chief Financial Officer (principal financial and
accounting officer) |
|
|
32
INDEX TO EXHIBITS
|
|
|
EXHIBIT NO. |
|
DESCRIPTION |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
33