Claire's Stores, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended July 30, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-08899
Claires Stores, Inc.
(Exact name of registrant as specified in its charter)
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Florida
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59-0940416 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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3 S.W. 129th Avenue, Pembroke Pines, Florida
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33027 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (954) 433-3900
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No
þ
The number of shares of the registrants Common Stock and Class A Common Stock outstanding as
of August 26, 2005 was 94,150,801 and 5,116,184, respectively.
CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
2
PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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July 30, 2005 |
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Jan. 29, 2005 |
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(In thousands, except share and per share amounts) |
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ASSETS |
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Current assets: |
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|
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Cash and cash equivalents |
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$ |
328,185 |
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$ |
191,006 |
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Short-term investments |
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|
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134,613 |
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Inventories |
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120,018 |
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110,072 |
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Prepaid expenses and other current assets |
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68,599 |
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57,635 |
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Total current assets |
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516,802 |
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493,326 |
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Property and equipment: |
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Land and building |
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18,151 |
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18,151 |
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Furniture, fixtures and equipment |
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243,461 |
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238,022 |
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Leasehold improvements |
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220,413 |
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211,721 |
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482,025 |
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467,894 |
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Less accumulated depreciation and amortization |
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(272,731 |
) |
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(263,368 |
) |
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|
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209,294 |
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204,526 |
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Intangible assets, net |
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51,562 |
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52,474 |
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Other assets |
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14,236 |
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14,736 |
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Goodwill |
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198,889 |
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201,067 |
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264,687 |
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268,277 |
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Total assets |
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$ |
990,783 |
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$ |
966,129 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
60,150 |
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$ |
41,994 |
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Income taxes payable |
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9,594 |
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30,600 |
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Accrued expenses |
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82,177 |
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94,344 |
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Total current liabilities |
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151,921 |
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166,938 |
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Long-term liabilities: |
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Deferred tax liability |
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22,969 |
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24,293 |
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Deferred rent expense |
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20,404 |
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19,211 |
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43,373 |
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43,504 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock par value $1.00 per share; authorized
1,000,000 shares, issued and outstanding 0 shares |
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Class A common stock par value $0.05 per share;
authorized 40,000,000 shares, issued and outstanding
5,120,803
shares and 5,125,432 shares, respectively |
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256 |
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256 |
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Common stock par value $0.05 per share; authorized
300,000,000 shares, issued and outstanding 94,136,182
shares and 93,858,213 shares, respectively |
|
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4,707 |
|
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|
4,693 |
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Additional paid-in capital |
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53,696 |
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50,477 |
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Accumulated other comprehensive income, net of tax |
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|
18,772 |
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28,041 |
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Retained earnings |
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718,058 |
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672,220 |
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795,489 |
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755,687 |
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Total liabilities and stockholders equity |
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$ |
990,783 |
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$ |
966,129 |
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See accompanying notes to unaudited condensed consolidated financial
statements.
3
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
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Three Months Ended |
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Six Months Ended |
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July 30, |
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July 31, |
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July 30, |
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July 31, |
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2005 |
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2004 |
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2005 |
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2004 |
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(In thousands, except per share amounts) |
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Net sales |
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$ |
325,042 |
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$ |
305,223 |
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$ |
627,750 |
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$ |
586,814 |
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Cost of sales, occupancy and buying expenses |
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151,848 |
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141,920 |
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290,543 |
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267,444 |
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Gross profit |
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173,194 |
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163,303 |
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337,207 |
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319,370 |
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Other expenses (income) |
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Selling, general and administrative |
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111,574 |
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103,413 |
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222,091 |
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|
207,688 |
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Depreciation and amortization |
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11,776 |
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|
10,944 |
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|
24,124 |
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|
21,603 |
|
Interest and other income |
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(3,083 |
) |
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|
(1,267 |
) |
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(5,044 |
) |
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(2,477 |
) |
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|
|
|
|
|
|
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120,267 |
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|
113,090 |
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241,171 |
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226,814 |
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Income before income taxes |
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52,927 |
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50,213 |
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96,036 |
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|
92,556 |
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Income taxes |
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17,469 |
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17,468 |
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30,876 |
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|
32,119 |
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Net income |
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35,458 |
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32,745 |
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65,160 |
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60,437 |
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Foreign currency translation adjustments |
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(7,615 |
) |
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2,114 |
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(9,269 |
) |
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(2,949 |
) |
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Comprehensive income |
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$ |
27,843 |
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$ |
34,859 |
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$ |
55,891 |
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$ |
57,488 |
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Net income per share: |
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Basic |
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$ |
0.36 |
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$ |
0.33 |
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$ |
0.66 |
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$ |
0.61 |
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Diluted |
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$ |
0.36 |
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$ |
0.33 |
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$ |
0.66 |
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$ |
0.61 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
CLAIRES STORES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended |
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July 30, 2005 |
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July 31, 2004 |
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(In thousands) |
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Cash flows from operating activities: |
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Net income |
|
$ |
65,160 |
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$ |
60,437 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
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Depreciation and amortization |
|
|
24,124 |
|
|
|
21,603 |
|
Amortization of intangible assets |
|
|
502 |
|
|
|
565 |
|
Loss on retirement of property and equipment |
|
|
1,582 |
|
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|
2,075 |
|
Gain on sale of intangible assets |
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|
(170 |
) |
Stock compensation expense |
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|
1,605 |
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|
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Increase in |
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|
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Inventories |
|
|
(11,839 |
) |
|
|
(22,329 |
) |
Prepaid expenses and other assets |
|
|
(14,087 |
) |
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|
(10,779 |
) |
Increase (decrease) in |
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|
|
|
|
|
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Trade accounts payable |
|
|
19,878 |
|
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|
11,267 |
|
Income taxes payable |
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|
(21,257 |
) |
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|
(22,424 |
) |
Accrued expenses |
|
|
(10,266 |
) |
|
|
336 |
|
Deferred income taxes |
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|
(25 |
) |
|
|
3,804 |
|
Deferred rent expense |
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|
1,421 |
|
|
|
(178 |
) |
|
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|
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Net cash provided by operating activities |
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|
56,798 |
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|
44,207 |
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Cash flows from investing activities: |
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Acquisition of property and equipment |
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|
(34,433 |
) |
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|
(34,587 |
) |
Acquisition of intangible assets |
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|
(3,492 |
) |
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|
(3,719 |
) |
Purchase of short-term investments |
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(82,334 |
) |
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Sale of short-term investments |
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|
216,947 |
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Net cash provided by (used in) investing activities |
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|
96,688 |
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(38,306 |
) |
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Cash flows from financing activities: |
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Proceeds from stock options exercised |
|
|
1,628 |
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|
23 |
|
Dividends paid |
|
|
(19,321 |
) |
|
|
(12,521 |
) |
|
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|
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|
|
|
|
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Net cash used in financing activities |
|
|
(17,693 |
) |
|
|
(12,498 |
) |
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|
|
|
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|
|
|
|
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|
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Effect of foreign currency exchange rate changes on cash
and cash equivalents |
|
|
1,386 |
|
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net increase (decrease) in cash and cash equivalents |
|
|
137,179 |
|
|
|
(6,860 |
) |
|
|
|
|
|
|
|
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|
Cash and cash equivalents at beginning of period |
|
|
191,006 |
|
|
|
224,630 |
|
|
|
|
|
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|
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|
|
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|
|
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Cash and cash equivalents at end of period |
|
$ |
328,185 |
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$ |
217,770 |
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|
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See accompanying notes to unaudited condensed consolidated financial statements.
5
CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. |
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Basis of Presentation and Significant Accounting Policies |
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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 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 presentation 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, 2005 filed with the
Securities and Exchange Commission, including Note 1 to the consolidated financial statements
included therein which discusses principles of consolidation and a summary of significant
accounting policies. These 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 that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The most significant
estimates include valuation of inventories, valuation of goodwill and intangible assets,
provisions for income taxes, contingencies and litigation. Actual results could differ from
these estimates. Due to the seasonal nature of 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. Certain prior period amounts have been reclassified to
conform to the current period presentation. |
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2. |
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Earnings Per Share |
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The information required to compute basic and diluted earnings per share is as follows (in
thousands, except per share data): |
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|
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|
|
|
|
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Three Months Ended |
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Six Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,458 |
|
|
$ |
32,745 |
|
|
$ |
65,160 |
|
|
$ |
60,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Denominator: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of shares
outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
99,056 |
|
|
|
98,917 |
|
|
|
99,025 |
|
|
|
98,917 |
|
Effect of dilutive stock options |
|
|
363 |
|
|
|
359 |
|
|
|
363 |
|
|
|
342 |
|
Effect of dilutive restricted stock awards |
|
|
22 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
99,441 |
|
|
|
99,276 |
|
|
|
99,401 |
|
|
|
99,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.61 |
|
Diluted |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.61 |
|
|
|
Options to purchase 17,582 shares of common stock for the three months ended July 31, 2004
were not included in the computation of diluted earnings per share because their effect would be
anti-dilutive. All outstanding options and restricted stock awards for the three months ended
July 30, 2005 were included in the computation of diluted earnings per share. |
|
|
|
Options to purchase 8,791 shares of common stock for the six months ended July 31, 2004 were not
included in the computation of diluted earnings per share because their effect would be
anti-dilutive. All outstanding options and restricted stock awards for the six months ended
July 30, 2005 were included in the computation of diluted earnings per share. |
6
3. |
|
Stock-Based Compensation |
|
|
|
Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock Based
Compensation, as amended by SFAS 148, Accounting for Stock Based Compensation-Transition and
Disclosure, allows entities to choose between a fair value based method of accounting for
employee stock options or similar equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25 (APB 25), Accounting for
Stock Issued to Employees. |
|
|
|
Entities electing to account for employee stock options or similar equity instruments under APB
25 must make pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company has elected to apply the provisions of APB
25 in the preparation of its unaudited condensed consolidated financial statements and provide
pro forma disclosure of net income and earnings per share as required under SFAS 123 and SFAS
148 (dollars in thousands, except per share data). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net income, as reported |
|
$ |
35,458 |
|
|
$ |
32,745 |
|
|
$ |
65,160 |
|
|
$ |
60,437 |
|
Stock-based employee compensation
expense determined under the fair
value based methods, net of income
tax |
|
|
(846 |
) |
|
|
(507 |
) |
|
|
(1,736 |
) |
|
|
(1,027 |
) |
Stock-based employee compensation
expense included in reported net
income, net of income tax |
|
|
627 |
|
|
|
|
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income pro forma |
|
$ |
35,239 |
|
|
$ |
32,238 |
|
|
$ |
64,467 |
|
|
$ |
59,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share as reported |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.61 |
|
Basic net income per share pro forma |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.65 |
|
|
$ |
0.60 |
|
Diluted net income per share as
reported |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.61 |
|
Diluted net income per share pro forma |
|
$ |
0.35 |
|
|
$ |
0.32 |
|
|
$ |
0.65 |
|
|
$ |
0.60 |
|
4. |
|
New Accounting Pronouncements |
|
|
|
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R,
Share-Based Payment, a revision of SFAS 123. The standard requires companies to expense the
grant-date fair value of stock options and other equity-based compensation issued to employees.
On April 15, 2005, the Securities and Exchange Commission announced an amendment to the
compliance dates for SFAS 123R that delays the effective date to annual periods beginning after
June 15, 2005. The Company will be required to recognize the expense attributable to stock
options granted or vested subsequent to the Companys fiscal year ending January 28, 2006. The
Company is evaluating the requirements of SFAS 123R and has not yet determined the method of
adoption or the effect of adopting SFAS 123R. |
|
|
|
In March 2005, the FASB issued FASB Interpretation (FIN) 47, Accounting for Conditional Asset
Retirement Obligations, which is an interpretation of SFAS 143, Accounting for Asset
Retirement Obligations. This interpretation clarifies terminology within SFAS 143 and requires
an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liabilitys fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005. The Company does
not expect the adoption of this interpretation to have a material impact on our financial
condition or results of operations. |
|
5. |
|
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 International.
The Company accounts for the results of operations of Claires Nippon under the equity method
and includes the results within Interest and other income in the Companys Condensed
Consolidated Statements of Operations and Comprehensive Income within the Companys North
American division. Net sales and Income before income taxes for the periods presented were as
follows (dollars in thousands): |
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
Income Before Income Taxes |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
|
July 30, |
|
|
July 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
North America |
|
$ |
222,929 |
|
|
$ |
214,260 |
|
|
$ |
439,269 |
|
|
$ |
422,460 |
|
|
$ |
36,586 |
|
|
$ |
35,501 |
|
|
$ |
77,883 |
|
|
$ |
77,494 |
|
International |
|
|
102,113 |
|
|
|
90,963 |
|
|
|
188,481 |
|
|
|
164,354 |
|
|
|
16,341 |
|
|
|
14,712 |
|
|
|
18,153 |
|
|
|
15,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
325,042 |
|
|
$ |
305,223 |
|
|
$ |
627,750 |
|
|
$ |
586,814 |
|
|
$ |
52,927 |
|
|
$ |
50,213 |
|
|
$ |
96,036 |
|
|
$ |
92,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. |
|
Income Taxes |
|
|
|
The Companys effective income tax rate during the three and six months ended July 30, 2005 was
33.0% and 32.2%, respectively, as compared to 34.8% and 34.7% during the comparable periods of
Fiscal 2005. The Companys lower effective income tax rate for the three and six month periods
ended July 30, 2005 was the result of a change in the mix of earnings between U.S. and foreign
operations and tax planning. |
|
|
|
On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA
includes a special one-time deduction of 85% of certain foreign earnings that are repatriated,
as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings
repatriations in Fiscal 2006. The Company continues to evaluate the provisions of the law to
determine whether it will repatriate foreign earnings and the impact, if any, this provision
will have on its consolidated financial statements. Earnings under consideration for
repatriation range from $0 to $45 million and the related income tax effects from such
repatriation cannot be reasonably estimated at this time. |
|
7. |
|
Statements of Cash Flows |
|
|
|
Payments of income taxes were $50.6 million and $49.9 million for the six
months ended July 30, 2005 and July 31, 2004, respectively. |
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, significant accounting policies and
critical estimates, and the future impact of accounting standards that have been issued but are not
yet effective. Managements Discussion and Analysis is presented in the following sections:
Overview, Critical Accounting Policies and Estimates, Results of Operations and Analysis of
Consolidated Financial Condition. It is useful to read Managements Discussion and Analysis in
conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes
thereto contained elsewhere in this document.
Annually, our fiscal years end on the Saturday closest to January 31. As a result, both our
current and prior fiscal years consist of four 13-week quarters. We refer to the prior fiscal year
ended January 29, 2005 as Fiscal 2005, and the current fiscal year ending January 28, 2006 as
Fiscal 2006. All references to earnings per share relate to diluted earnings per share from Net
income.
We include a store in the calculation of comparable store sales once it has been in operation sixty
weeks after its initial opening. If a store is closed during a fiscal period, the stores sales
will be included in the computation of comparable store sales for that fiscal month, quarter and
year to date period only for the days in which it was operating as compared to those same days in
the comparable period. Relocated, remodeled and expanded square footage stores are classified the
same as the original store and are not considered new stores upon relocation, remodeling or
completion of their expansion.
8
Overview
We are a leading global specialty retailer of value-priced fashion accessories and jewelry for
pre-teens and teenagers as well as young adults. We are organized based on our geographic markets,
which include our North American operations and our International operations. As of July 30, 2005
we operated a total of 2,851 stores in all 50 states of the United States, Puerto Rico, Canada, the
Virgin Islands, the United Kingdom, Switzerland, Austria, Germany (the latter three collectively
referred to as S.A.G.), France, Ireland and Spain. The stores are operated mainly under the trade
names Claires Boutiques, Claires Accessories, Icing by Claires, Afterthoughts and The
Icing. We are in the process of transitioning our Afterthoughts stores to Icing by Claires
stores to capitalize on the Claires brand name. We also operated 166 stores in Japan through a
50:50 joint venture with AEON Co. Ltd. (Claires Nippon). We account for the results of
operations of Claires Nippon under the equity method. These results are included within Interest
and other income in our Condensed Consolidated Statements of Operations and Comprehensive Income
within our North American division. In addition, we licensed 70 stores in the Middle East under a
licensing and merchandising agreement with Al Shaya Co. Ltd. and 6 stores in South Africa under
similar agreements with the House of Busby Limited. We account for the goods we sell under the
merchandising agreements within Gross profit in our North American division and the license fees
we charge within Interest and other income within our International division in our Condensed
Consolidated Statements of Operations and Comprehensive Income.
We have two store concepts: Claires Accessories, which caters to fashion-conscious girls and teens
in the 7 to 17 age range, and Icing by Claires, which caters to fashion-conscious teens and young
women in the 17 to 27 age range. Our merchandise typically ranges in price between $2 and $20,
with the average product priced at approximately $4. Our stores share a similar format and our
different store concepts and trade-names allow us to have multiple store locations within a single
mall. Although we face competition from a number of small specialty store chains and others
selling fashion accessories, we believe that our stores comprise one of the largest chains of
specialty retail stores in the world devoted to the sale of value-priced fashion accessories for
pre-teen, teenage and young adult females.
Fundamentally, our business model is to offer the customer a compelling price/value relationship
and a wide array of products to choose from. We seek to deliver a high level of profitability and
cash flow by:
|
|
|
maximizing the effectiveness of our retail product pricing through promotional activity |
|
|
|
|
minimizing our product costs through economies of scale as the worlds leading
mall-based retailer of value-priced accessories and jewelry |
|
|
|
|
reinvesting operating cash flows into opening new stores, remodeling existing stores and
infrastructure in order to create future revenues and build brand name loyalty |
While our financial results have grown steadily and record sales performance was achieved during
the first half of Fiscal 2006, the retail environment remains very competitive. Managements plan
for future growth is dependent on:
|
|
|
successfully identifying merchandise appealing to our customers and managing our
inventory levels |
|
|
|
|
displaying our merchandise at convenient, accessible locations staffed with personnel
that provide courteous and professional customer service |
|
|
|
|
sourcing our merchandise to achieve a positive value/price relationship |
|
|
|
|
increasing sales at existing store locations |
|
|
|
|
expanding our sales, especially in our International division, through additional store locations |
9
Our ability to achieve these objectives will be dependent on various factors, including those
outlined in Cautionary Note Regarding Forward-Looking Statements and Risk Factors.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. Preparation of these statements
requires management to make judgments and estimates. Some accounting policies have a significant
impact on amounts reported in these financial statements. A summary of significant accounting
policies and a description of accounting policies that are considered critical may be found in our
Fiscal 2005 Annual Report on Form 10-K, filed on April 13, 2005, in the Notes to the Consolidated
Financial Statements, Note 1, and the Critical Accounting Policies and Estimates section therein.
Results of Operations
Consolidated Operations
A summary of our consolidated results of operations is as follows (dollars in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales |
|
$ |
325,042 |
|
|
$ |
305,223 |
|
|
$ |
627,750 |
|
|
$ |
586,814 |
|
Comparable store sales |
|
|
5.0 |
% |
|
|
10.0 |
% |
|
|
5.0 |
% |
|
|
11.0 |
% |
Gross profit percentage |
|
|
53.3 |
% |
|
|
53.5 |
% |
|
|
53.7 |
% |
|
|
54.4 |
% |
Selling, general and administrative expenses
as a percentage of Net sales |
|
|
34.3 |
% |
|
|
33.9 |
% |
|
|
35.4 |
% |
|
|
35.4 |
% |
Net income |
|
$ |
35,458 |
|
|
$ |
32,745 |
|
|
$ |
65,160 |
|
|
$ |
60,437 |
|
Net income per diluted share |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.61 |
|
Number of stores at the end of the period (1) |
|
|
2,851 |
|
|
|
2,833 |
|
|
|
2,851 |
|
|
|
2,833 |
|
|
|
|
(1) |
|
Number of stores excludes Claires Nippon and stores operated under licensing agreements |
Net sales for the three months ended July 30, 2005 increased by $19.8 million, or 6.5% from
the three months ended July 31, 2004. This increase was primarily attributable to comparable store
sales increases of approximately 5.0%, or approximately $14.0 million, and new store revenue, net
of store closures of approximately $3.6 million. Net sales for the six months ended July 30, 2005
increased by $40.9 million, or 7.0% over the comparable period ended July 31, 2004. This increase
was primarily due to comparable store increases of approximately 5.0%, or approximately $27.3
million, new store revenue, net of store closures of approximately $6.2 million, and $3.8 million
resulting from the weaker US dollar when translating our foreign operations at higher exchange
rates.
The positive comparable sales experienced in our North American division has continued, although
not at the high percentages experienced in Fiscal 2005, and were across various merchandise
categories, most notably in the jewelry related areas. We believe we experienced this trend
through successfully meeting our customers demands for current fashion trends in jewelry and
superior customer service in our stores. The positive comparable sales within our International
division continue and are stimulated by specific initiatives we continue to employ, including
sharing best practices employed in our North American division for merchandise selection, store
operations and attentive customer service.
During the first and second quarter of Fiscal 2006, the positive comparable sales were primarily
driven by an increase in the average retail price per transaction, which was the result of an
increase in the average unit retail price greater than the decrease of the number of units sold per
transaction.
10
The following table compares our percentage of sales of each product category for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Jewelry |
|
|
60.0 |
% |
|
|
59.0 |
% |
|
|
59.0 |
% |
|
|
59.0 |
% |
Accessories |
|
|
40.0 |
% |
|
|
41.0 |
% |
|
|
41.0 |
% |
|
|
41.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Other retail companies may include these costs in cost of sales, so our gross profit
percentages may not be comparable to those retailers.
Gross profit percentages decreased by 20 basis points during the three months ended July 30, 2005
as compared to the three months ended July 31, 2004, and 70 basis points during the six months
ended July 30, 2005 as compared to the six months ended July 31, 2004. The decrease during the
three months was primarily attributable to higher freight costs. The decrease during the six
months was due to increased promotional activity and higher freight costs.
Selling, general and administrative expenses increased $8.2 million for the three months ended July
30, 2005 as compared to the three months ended July 31, 2004, and $14.4 million for the six months
ended July 30, 2005 as compared to the six months ended July 31, 2004. The increase was primarily
attributable to general inflation increases in payroll hours used to operate our stores, increases
in professional fees associated with litigation matters, Sarbanes-Oxley compliance, and a $1.9
million accrual in the second quarter for estimated future healthcare costs associated with the
2003 retirement package of our Chairman Emeritus. As a percentage of Net sales, Selling, general
and administrative expenses increased by 40 basis points for the three months ended July 30, 2005,
and these expenses did not change as a percentage of net sales for the six months ended July 30,
2005. The increase in the three month period ended July 30, 2005 is primarily a result of the
estimated future healthcare costs recorded for the Chairman Emeritus.
Our effective income tax rates during the three months and six months of Fiscal 2006 were 33.0% and
32.2%, respectively, as compared to 34.8% and 34.7% during the comparable periods of Fiscal 2005.
Our lower effective income tax rates for the three and six month periods ended July 30, 2005 were
the result of a change in the mix of earnings between U.S. and foreign operations and tax planning.
We currently expect our effective income tax rate for the remainder of Fiscal 2006 to be
approximately 33.5%. Our effective income tax rate in future periods will depend on several
variables, including the mix of earnings between U.S. and foreign operations and our overall level
of earnings. This is primarily due to the fact that the combined effective income tax rate for our
foreign operations is generally lower than our effective income tax rate for U.S. operations. Our
effective income tax rate could also be affected by the resolution of tax contingencies for amounts
different from our current estimates.
On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA
includes a special one-time deduction of 85% of certain foreign earnings that are repatriated, as
defined in the AJCA. We may elect to apply this provision to qualifying earnings repatriations in
Fiscal 2006. We continue to evaluate the provisions of the law to determine whether we will
repatriate foreign earnings and the impact, if any, this provision will have on our consolidated
financial statements. Earnings under consideration for repatriation range from $0 to $45 million
and the related income tax effects from such repatriation cannot be reasonably estimated at this
time.
Net income increased by approximately $2.7 million during the three months ended July 30, 2005 as
compared to the three months ended July 31, 2004 and $4.7 million during the six months ended July
30, 2005 as compared to the six months ended July 31, 2004. These increases are primarily due to
the increase in store
11
sales which resulted in increased Gross margin dollars, an increase in interest and other income,
and from the lower effective tax rates.
Segment Operations
We are organized into two business segments North America and International. 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 Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales |
|
$ |
222,929 |
|
|
$ |
214,260 |
|
|
$ |
439,269 |
|
|
$ |
422,460 |
|
Comparable store sales |
|
|
3.0 |
% |
|
|
13.0 |
% |
|
|
3.0 |
% |
|
|
15.0 |
% |
Gross profit percentage |
|
|
52.5 |
% |
|
|
52.5 |
% |
|
|
54.1 |
% |
|
|
55.3 |
% |
Number of stores at
the end of the period
(1) |
|
|
2,115 |
|
|
|
2,121 |
|
|
|
2,115 |
|
|
|
2,121 |
|
|
|
|
(1) |
|
Number of stores excludes Claires Nippon and stores operated under licensing agreements |
Net sales in North America during the three months ended July 30, 2005 increased by $8.7
million, or 4.0%, over the comparable period ended July 31, 2004. Net sales for the six months
ended July 30, 2005 increased by $16.8 million, or 4.0%, over the comparable period ended July 31,
2004. The increases in Net sales for the three and six month periods were primarily attributable
to comparable store sales increases of approximately 3.0%.
The positive comparable sales experienced in North America were primarily attributable to an
increase in the average retail price per transaction, which was the result of an increase in the
average unit retail price greater than the decrease of the average number of units sold per
transaction. The positive comparable sales experienced in North America were across various
merchandise categories, most notably in the jewelry related areas. We believe we experienced this
trend through successfully meeting our customers demands for current fashion trends in jewelry and
superior customer service in our stores. In addition, best practices in merchandise buying,
planning and allocation from Claires have been shared with the Icing by Claires and Afterthoughts
stores, which we believe have contributed significantly to the comparable store sales increases
experienced during the second quarter of Fiscal 2006.
Gross profit percentages remained the same for the three months ended July 30, 2005 and decreased
120 basis points during the six months ended July 30, 2005 as compared to the same periods in the
prior year. The decrease during the six months was primarily attributable to increased promotional
activity and higher freight costs.
The following table compares our percentage of sales of each product category for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Jewelry |
|
|
67.0 |
% |
|
|
66.0 |
% |
|
|
67.0 |
% |
|
|
66.0 |
% |
Accessories |
|
|
33.0 |
% |
|
|
34.0 |
% |
|
|
33.0 |
% |
|
|
34.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
International
Key statistics and results of operations for our International division are as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net sales |
|
$ |
102,113 |
|
|
$ |
90,963 |
|
|
$ |
188,481 |
|
|
$ |
164,354 |
|
Comparable store sales |
|
|
9.0 |
% |
|
|
4.0 |
% |
|
|
9.0 |
% |
|
|
0.0 |
% |
Gross profit percentage |
|
|
55.1 |
% |
|
|
55.8 |
% |
|
|
52.8 |
% |
|
|
52.1 |
% |
Number of stores at
the end of the period
(1) |
|
|
736 |
|
|
|
712 |
|
|
|
736 |
|
|
|
712 |
|
|
|
|
(1) |
|
Number of stores excludes Claires Nippon and stores operated under licensing agreements |
Our objective is to increase sales in the International division primarily through store
growth and comparable store sales increases. We also continue to explore expansion into countries
in which we do not currently operate.
Net sales in our International division during the three months ended July 30, 2005 increased by
$11.2 million, or 12.3%, from the three months ended July 31, 2004. Net sales for the six months
ended July 30, 2005 increased by $24.1 million, or 14.7% over the comparable period ended July 31,
2004. The increase in Net sales for the three months ended July 30, 2005 was primarily
attributable to comparable store sales increases of approximately 9.0%, or approximately $7.9
million during the period and by new store revenue net of store closures of approximately $3.6
million during the period. The increase in net sales for the six months ended July 30, 2005 was
primarily attributable to comparable store sales increases of 9.0% or approximately $14.4 million
during the period, by new store revenue net of store closures of approximately $6.2 million during
the period, and the effects of the weaker US dollar when translating our foreign operations at
higher exchange rates of approximately $3.8 million.
Due to the strategic initiatives employed within our International division, the comparable store
sales have continued to improve. These initiatives included sharing best practices from our North
America operations for merchandise selection, store operations and attentive customer service. In
addition, we are investing in operational systems infrastructure in order to facilitate the greater
level of complexity and precision now required of the business.
The Gross profit percentage declined by 70 basis points for the three months ended July 30, 2005.
However, the Gross profit percentage improved by 70 basis points for the six months ended July 30,
2005. The decline in Gross profit percentage for the three months ended July 30, 2005, is a result
of higher cost of goods sold, primarily due to increased promotional activity and higher freight
costs than the comparable period ended July 31, 2004. These higher costs were partially offset by
the shift to a higher percentage of jewelry sales, which had a positive impact on merchandise
margins. The increase in Gross profit percentage for the six months ended July 30, 2005, is a
result of higher comparable store sales which has provided us leverage on our fixed occupancy
costs, partially offset by higher freight costs.
The following table compares our percentage of sales of each product category for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
July 30, |
|
July 31, |
|
July 30, |
|
July 31, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Jewelry |
|
|
45.0 |
% |
|
|
42.0 |
% |
|
|
44.0 |
% |
|
|
40.0 |
% |
Accessories |
|
|
55.0 |
% |
|
|
58.0 |
% |
|
|
56.0 |
% |
|
|
60.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Analysis of Consolidated Financial Condition
A summary of cash flows from operating, investing and financing activities is outlined in the table
below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
July 30, |
|
|
July 31, |
|
|
|
2005 |
|
|
2004 |
|
Operating activities |
|
$ |
56,798 |
|
|
$ |
44,207 |
|
Investing activities |
|
$ |
96,688 |
|
|
$ |
(38,306 |
) |
Financing activities |
|
$ |
(17,693 |
) |
|
$ |
(12,498 |
) |
We have consistently satisfied operating liquidity needs and planned capital expenditure
programs through our normal conversion of sales to cash. At July 30, 2005, we had approximately
$328.2 million in Cash and cash equivalents, an increase of $2.6 million in Cash and cash
equivalents and Short-term investments from January 29, 2005. We ended the second quarter of
Fiscal 2006 with no borrowed debt outstanding. The net increase in Cash and cash equivalents
during the period was primarily due to cash generated from operations and the sale of Short-term
investments, offset by capital expenditures and the payment of dividends.
Our major source of cash from operations is store sales, nearly all of which are generated on a
cash or credit card basis. Our primary outflow of cash from operations is the purchase of
inventory, net of Trade accounts payable, operational costs, the payment of current taxes and
capital expenditures.
Our working capital at July 30, 2005 was $364.9 million compared to $326.4 million at January 29,
2005.
Cash provided by operating activities during the first six months of Fiscal 2006 was $56.8 million
compared to $44.2 million for the same period in Fiscal 2005, or a $12.6 million increase. The
change was primarily due to an increase in net income of $4.7 million, a decrease in inventory
purchases of $10.5 million over the comparable period in the prior year, and an increase in Trade
accounts payable of $8.6 million offset by a decrease of $10.6 million in Accrued expenses.
Cash provided by investment activities during the first six months of Fiscal 2006 was $96.7 million
compared to $38.3 million used for the same period in Fiscal 2005, or a $135.0 million increase.
The cash provided was primarily due to the purchase and sale of Short-term investments, netting
$134.6 million.
Capital expenditures of $34.4 million were made primarily to remodel existing stores and to open
new stores. We generally experience a noticeable increase in sales in locations where a store has
been recently remodeled. We also invested approximately $3.5 million in Intangible assets within
our International division representing acquired lease rights on new store locations. We expect to
fund approximately $79.0 million of capital expenditures and approximately $14.0 million of
purchased lease rights in Fiscal 2006 in an effort to continue to expand and remodel our store
base.
Cash used by financing activities during the first six months of Fiscal 2006 was $17.7 million
compared to $12.5 million for the same period in Fiscal 2005, or a $5.2 million increase. This was
primarily due to an increase of dividends paid by $6.8 million offset by an increase in cash
provided by stock option exercises by $1.6 million over the comparable period last year.
We paid dividends of $19.3 million during the six months ended July 30, 2005. We expect to pay at
least $38.7 million in dividends in Fiscal 2006.
14
Liquidity and Capital Resources
Our credit facility is a revolving line of credit of up to $60.0 million, is secured by inventory
in the United States and expires on March 31, 2009. The borrowings under this facility are limited
based on certain calculations of availability, based primarily on the amount of inventory and cash
on hand in the United States. At July 30, 2005, the entire amount of $60.0 million would have been
available for borrowing by us, subject to reduction for $3.4 million of outstanding letters of
credit. The credit facility is cancelable by us without penalty and borrowings would bear interest
at a margin of 75 basis points over the London Interbank Borrowing Rate (LIBOR) at July 30, 2005.
The credit facility also contains other restrictive covenants which limit, among other things, our
ability to make dividend distributions if we are in default or if our excess liquidity is less than
$20.0 million during certain periods. Excess liquidity is specifically defined in our debt
agreement as the sum of our available credit lines and certain cash and cash equivalent amounts.
Our non-US subsidiaries have credit facilities totaling approximately $776,000 with banks. The
facilities are used for working capital requirements, letters of credit and various guarantees.
These credit facilities have been arranged in accordance with customary lending practices in their
respective countries of operation. At July 30, 2005, there were no borrowings under these credit
facilities.
Management believes that our present ability to borrow is greater than our established credit
lines. However, if market conditions change and sales were to dramatically decline or we could not
control operating costs or other expenses, our cash flows and liquidity could be reduced, and we
could experience an increase in borrowing costs, or even a reduction in or elimination of our
access to debt and/or equity markets.
Cautionary Note Regarding Forward-Looking Statements and Risk Factors
We and our representatives may from time to time make written or verbal forward-looking statements,
including statements contained in this and other filings with the Securities and Exchange
Commission and in our press releases and reports to shareholders. 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 and new store openings for Fiscal 2006, 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. Some
of these risks, uncertainties and other factors are as follows: changes in consumer preferences and
consumer spending; competition; general economic conditions, such as inflation and increased energy
costs; general political and social conditions, such as war, political unrest and terrorism;
natural disasters or severe weather events; currency fluctuations and exchange rate adjustments;
changes in laws, including employment laws relating to overtime pay, tax laws and import laws;
uncertainties generally associated with the specialty retailing business; and disruptions in our
supply of inventory. 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 2005 under Cautionary Note Regarding Forward-Looking Statements and Risk
Factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency
We are exposed to market risk from foreign currency exchange rate fluctuations on the US dollar
value of foreign currency denominated transactions and our investment in foreign subsidiaries. We
manage this exposure to market risk through our regular operating and financing activities, and
from time to time, the use of foreign currency options. Exposure to market risk for changes in
foreign exchange rates relates primarily to foreign operations buying, selling and financing in
currencies other than local currencies and to the carrying
15
value of net investments in foreign subsidiaries. We manage our exposure to foreign exchange rate
risk related to our foreign operations buying, selling and financing in currencies other than
local currencies by using foreign currency options from time to time to hedge foreign currency
transactional exposure. At July 30, 2005, we had not entered into foreign currency options. We do
not generally hedge the translation exposure related to our net investment in foreign subsidiaries.
During the three and six months ended July 30, 2005, included in Comprehensive income and
Stockholders equity is $7.6 million and $9.3 million, respectively, reflecting the unrealized loss
on foreign currency translation. Based on our average net currency positions in Fiscal 2006, the
potential gain or loss due to a 10% adverse change on foreign currency exchange rates could be
significant to our operations.
Certain of our subsidiaries make significant US dollar purchases from Asian suppliers particularly
in China. In July 2005, China revalued its currency 2.1%, changing the fixed exchange rate from
8.28 to 8.11 Chinese Yuan to the US dollar. If China adjusts the exchange rate further or allows
the value to float, we may experience increases in our cost of merchandise imported from China.
The results of operations of foreign subsidiaries, when translated into US dollars, reflect the
average rates of exchange for the months that comprise the periods presented. As a result, similar
results in local currency can vary significantly upon translation into US dollars if exchange rates
fluctuate significantly from one period to the next.
Interest Rates
Our exposure to market risk for changes in interest rates is limited to our cash, cash equivalents
and debt. Based on our average invested cash balances during the first six months of Fiscal 2006,
a 10% increase in the average effective interest rate in the remainder of Fiscal 2006 would not
have a material impact on our annual interest income.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management,
including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this Quarterly Report.
Based upon that evaluation, our Co-Chief Executive Officers 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 in this Quarterly Report
is recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commissions rules and forms.
There have been no changes in our internal control over financial reporting during the
quarter ended July 30, 2005, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, involved in routine litigation incidental to the conduct of our
business, including litigation instituted by persons injured upon premises under our control,
litigation regarding the merchandise that we sell, including product and safety concerns regarding
metal content in our merchandise, litigation with respect to various employment matters, including
litigation with present and former employees, and litigation to protect our trademark rights.
Although litigation is routine and incidental to the conduct of our business, like any business of
our size and employing a significant number of employees, 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
position, earnings or cash flows.
16
Item 4. Submission of Matters to a Vote of Security Holders
(a) Our 2005 annual meeting of shareholders was held on June 28, 2005 in New York City. At
the annual meeting, our shareholders voted on the following matters:
1. The election of seven directors, each to serve for a one-year term;
2. Approval of our 2005 Incentive Compensation Plan; and
3. A shareholder proposal regarding our business operations in Northern Ireland.
Proxies for the annual meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, and there was no solicitation in opposition to our solicitation.
At the annual meeting, each holder of record of our common stock, par value $0.05 per share,
and our Class A common stock, par value $0.05 per share, at the close of business on May 2, 2005
was entitled to vote, in person or by proxy, one vote for each share of our common stock and ten
votes for each share of our Class A common stock, as the case may be, held by the stockholder. As
of the record date, 94,049,140 shares of our common stock were outstanding and 5,122,245 shares of
our Class A common stock were outstanding.
The holders of 89,346,854 shares of our common stock (representing 89,346,854 votes) and
5,010,077 shares of our Class A common stock (representing 50,100,770 votes) were either present in
person or represented by proxy, and constituted a quorum for the transaction of business at the
annual meeting.
(b) All of our nominees for directors were elected to serve a one-year term by more than the
required plurality of affirmative votes of the holders of our common stock (one vote per share) and
our Class A common stock (ten votes per share), voting together as a single class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON |
|
|
|
|
|
|
CLASS A |
|
|
|
|
|
|
STOCK |
|
|
VOTES |
|
|
STOCK |
|
|
VOTES |
|
DIRECTOR NOMINEE |
|
VOTES FOR |
|
|
WITHHELD |
|
|
VOTES FOR |
|
|
WITHHELD |
|
Marla L. Schaefer |
|
|
87,818,609 |
|
|
|
1,528,245 |
|
|
|
50,085,430 |
|
|
|
15,340 |
|
E. Bonnie Schaefer |
|
|
87,863,233 |
|
|
|
1,483,621 |
|
|
|
50,085,430 |
|
|
|
15,340 |
|
Ira D. Kaplan |
|
|
85,280,734 |
|
|
|
4,066,120 |
|
|
|
50,087,070 |
|
|
|
13,700 |
|
Bruce G. Miller |
|
|
85,493,388 |
|
|
|
3,853,466 |
|
|
|
50,087,070 |
|
|
|
13,700 |
|
Steven H. Tishman |
|
|
87,894,197 |
|
|
|
1,452,667 |
|
|
|
50,087,070 |
|
|
|
13,700 |
|
Ann Spector Lieff |
|
|
88,440,242 |
|
|
|
906,612 |
|
|
|
50,085,430 |
|
|
|
15,340 |
|
Martha Clark Goss |
|
|
88,284,400 |
|
|
|
1,062,454 |
|
|
|
50,087,070 |
|
|
|
13,700 |
|
(c) (i) Our shareholders approved the Companys 2005 Incentive Compensation Plan by an
affirmative vote of a majority of votes cast, either in person or by proxy, of the outstanding
shares of our common stock (one vote per share) and Class A common stock (ten votes per share),
voting together as a single class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOTED |
|
|
|
|
|
BROKER |
SHARES |
|
VOTED FOR |
|
AGAINST |
|
ABSTAIN |
|
NON-VOTE |
Common stock
|
|
|
64,923,538 |
|
|
|
14,020,096 |
|
|
|
206,113 |
|
|
|
10,197,107 |
|
Class A stock
|
|
|
48,514,770 |
|
|
|
421,010 |
|
|
|
92,850 |
|
|
|
1,072,140 |
|
(c) (ii) The shareholder proposal regarding our business operations in Northern Ireland
(referred to as the MacBride Principles) was not approved by the required affirmative vote of a
majority of the votes cast, either in person or by proxy, by the holders of the outstanding shares
of our common stock (one vote per share) and Class A common stock (ten votes per share), voting
together as a single class:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOTED |
|
|
|
|
|
BROKER |
SHARES |
|
VOTED FOR |
|
AGAINST |
|
ABSTAIN |
|
NON-VOTE |
Common stock
|
|
|
14,750,557 |
|
|
|
60,117,771 |
|
|
|
4,281,419 |
|
|
|
10,197,107 |
|
Class A stock
|
|
|
289,840 |
|
|
|
48,711,910 |
|
|
|
21,880 |
|
|
|
1,072,140 |
|
Item 6. Exhibits
|
31.1 |
|
Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a). |
|
|
31.2 |
|
Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a). |
|
|
31.3 |
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a). |
|
|
32.1 |
|
Certification of Co-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 Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
32.3 |
|
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 and 5 are not applicable and have been omitted.
18
SIGNATURE
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.
(Registrant) |
|
|
|
|
|
September 7, 2005
|
|
|
|
/s/ Marla L. Schaefer |
|
|
|
|
|
|
|
|
|
Marla L. Schaefer |
|
|
|
|
Co-Chairman of the Board of Directors |
|
|
|
|
(principal co-executive officer and
director) |
|
|
|
|
|
September 7, 2005
|
|
|
|
/s/ E. Bonnie Schaefer |
|
|
|
|
|
|
|
|
|
E. Bonnie Schaefer |
|
|
|
|
Co-Chairman of the Board of Directors |
|
|
|
|
(principal co-executive officer and
director) |
|
|
|
|
|
September 7, 2005
|
|
|
|
/s/ Ira D. Kaplan |
|
|
|
|
|
|
|
|
|
Ira D. Kaplan, Senior Vice President, |
|
|
|
|
Chief Financial Officer and Director |
|
|
|
|
(principal financial and accounting
officer and director) |
19
INDEX TO EXHIBITS
|
|
|
EXHIBIT NO. |
|
DESCRIPTION |
|
|
|
31.1
|
|
Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a). |
|
|
|
31.2
|
|
Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a). |
|
|
|
31.3
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a). |
|
|
|
32.1
|
|
Certification of Co-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 Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.3
|
|
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. |
20