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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000034115-01-500004.txt : 20010430
<SEC-HEADER>0000034115-01-500004.hdr.sgml : 20010430
ACCESSION NUMBER: 0000034115-01-500004
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010203
FILED AS OF DATE: 20010427
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CLAIRES STORES INC
CENTRAL INDEX KEY: 0000034115
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600]
IRS NUMBER: 590940416
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0203
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-08899
FILM NUMBER: 1613568
BUSINESS ADDRESS:
STREET 1: 3 S W 129TH AVE
CITY: PEMBROKE PINES
STATE: FL
ZIP: 33027
BUSINESS PHONE: 9544333900
MAIL ADDRESS:
STREET 1: 3 SW 129TH AVE
CITY: PEMBROKE PINES
STATE: FL
ZIP: 33027
FORMER COMPANY:
FORMER CONFORMED NAME: FT INDUSTRIES INC
DATE OF NAME CHANGE: 19831006
FORMER COMPANY:
FORMER CONFORMED NAME: FASHION TRESS INC
DATE OF NAME CHANGE: 19750923
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>doc1.txt
<TEXT>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NO. 1-8899
-------------------------------
CLAIRE'S STORES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0940416
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
3 S.W. 129TH AVENUE, PEMBROKE PINES, FLORIDA 33027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 433-3900
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------------- -----------------------------
Common Stock, $.05 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
-----------------------------
Class A Common Stock, $.05 par value
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 31, 2001, the aggregate market value of the 41,918,551 shares of
voting stock held by non-affiliates of the registrant was $741,958,000.
At March 31, 2001 there were outstanding 45,932,314 shares of registrant's
Common Stock, $.05 par value, and 2,844,403 shares of the registrant's Class A
Common Stock, $.05 par value, including Treasury Shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 2001 Annual Meeting of Stockholders, to be filed
no later than 120 days after the end of the Registrant's fiscal year covered by
this report, is incorporated by reference into Part III.
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I
ITEM PAGE NO.
- ---- ---------
1. Business 3
2. Properties 5
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
7A. Quantitative and Qualitative Disclosures About
Market Risks 16
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10. Directors and Executive Officers of the Registrant 33
11. Executive Compensation 33
12. Security Ownership of Certain Beneficial Owners
and Management 33
13. Certain Relationships and Related Transactions 33
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
- -------
Claire's Stores, Inc. (the "Company"), through its wholly-owned subsidiaries,
Claire's Boutiques, Inc. ("Claire's"), which also operates through its
Afterthoughts division ("Afterthoughts"), Claire's Puerto Rico Corp. ("CPRC"),
Claire's Canada Corp. ("CCC"), Claire's Accessories UK Ltd. ("CUK"), Bijoux One
Trading AG ("Bijoux"), Cleopatre S.A. ("Cleopatre"), Lux Corporation ("Lux") and
its 50%-owned joint venture Claire's Nippon Co., Ltd. ("Nippon"), is a leading
mall-based retailer of popular-priced fashion accessories and apparel for
pre-teens and teenagers. As of March 31, 2001, the Company operated a total of
3,021 such stores in 50 states, Canada, the Caribbean, the United Kingdom,
Switzerland, Austria, Germany, France, Ireland and Japan. The stores are
operated mainly under the trade names "Claire's Boutiques" or "Claire's
Accessories", "Afterthoughts", "The Icing", "Bijoux One" and "Cleopatre"
(collectively the "Fashion Accessory Stores") and "Mr. Rags"(the "Apparel
Stores").
In February 2000, the Company completed its acquisition of Cleopatre, a
privately held 42 store fashion accessory chain with its headquarters in Paris,
France. The transaction was accounted for as a purchase. The purchase price
was approximately $11 million, comprised of approximately $9.5 million cash and
the assumption of debt. Excess purchase price over fair market value of the
underlying assets, primarily fixed assets, rent deposits and inventory, was
allocated to goodwill, which will be amortized over twenty-five years.
In December 1999, the Company completed its acquisition of Afterthoughts, a 768
store fashion accessory chain operating as a division of the Venator Group, Inc.
The transaction was accounted for as a purchase. The purchase price was $250
million, $200 million of which was financed through a credit facility. Excess
purchase price over fair market value of the underlying assets was allocated
primarily to goodwill and trademarks, which will be amortized over twenty-five
years.
The Fashion Accessory Stores specialize in selling popular-priced fashion
accessories designed to predominantly appeal to pre-teen and teenage females.
Merchandise in the Fashion Accessory Stores typically ranges in price between $2
and $20, with the average product priced at about $4. The Fashion Accessory
Stores are similar in format and the different trade names give the Company the
ability to have multiple store locations in malls. Although the Company faces
competition from a number of small specialty store chains and others selling
fashion accessories, the Company believes that its Fashion Accessory Stores
comprise the largest and most successful chain of specialty retail stores in the
world, devoted to the sale of popular-priced pre-teens' and teens' fashion
accessories.
The Apparel Stores are operated by Lux under the trade name "Mr. Rags". These
stores sell casual lifestyle, skater/urban fashion apparel and accessories for
the male teenage market. The market for Lux is highly competitive. There are
numerous specialty retail chains that target male teenagers, many of whom are
much larger than Lux. The Company believes Lux can successfully compete due to
its superior store design and merchandise focus.
The Company's operations are divided into three principal product categories.
Jewelry consists of costume jewelry, including earrings and ear piercing
services, while Accessories consists of other fashion accessories, hair
ornaments, totebags and novelty items. Apparel includes name-brand as well as
private label shirts and pants. The following table compares sales of each
product category of merchandise sold by the Company for the last three fiscal
years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
------------------ ----------------- -----------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Jewelry $ 473,989 44.7% $ 360,812 42.6% $ 288,053 43.5%
Accessories 475,203 44.8 397,325 46.9 314,135 47.5
Apparel 111,225 10.5 88,761 10.5 59,668 9.0
---------- ------ --------- ------ --------- ------
$1,060,417 100.0% $ 846,898 100.0% $ 661,856 100.0%
========== ====== ========= ====== ========= ======
</TABLE>
3
<PAGE>
Sales of each category of merchandise vary from period to period depending on
current fashion trends. The Company experiences the traditional retail pattern
of peak sales during the Christmas, Easter and back-to-school periods. Sales,
as a percentage of total sales in each of the four quarters of the fiscal year
ended February 3, 2001 ("Fiscal 2001") were 22%, 24%, 23% and 31% in the first,
second, third and fourth quarters, respectively.
At March 31, 2001 the Company had approximately 20,500 employees, 61% of whom
were part-time. Part-time employees typically work up to 20 hours per week.
The Company has no collective bargaining agreements with any labor unions and
considers its employee relations to be good.
Fashion Accessory Stores
- --------------------------
The Fashion Accessory Stores are located primarily in enclosed shopping malls.
The stores in North America operating under the names Claire's Boutiques,
Claire's Accessories and Afterthoughts average approximately 1,000 square feet
while those stores operating under the name "The Icing" average 1,400 square
feet. The stores operating in the United Kingdom, Switzerland, Austria,
Germany, France, Ireland and Japan average 600 square feet and are located in
enclosed shopping malls and central business districts. Each store uses
Company-designed displays which permit the presentation of a wide variety of
items in a relatively small space.
The stores are distinctively designed for customer identification, ease of
shopping and quantity of selection. Store hours are dictated by the mall
operators and the stores are typically open from 10:00 A.M. to 9:00 P.M., Monday
through Saturday, and, where permitted by law, from Noon to 5:00 P.M. on Sunday.
Approximately 80% of sales are made in cash, with the balance made by credit
cards. The Company permits, with restrictions on certain items, returns for
exchange or refund.
The Company purchases its merchandise from approximately 850 suppliers. The
Company is not dependent on an individual vendor for merchandise purchased.
Substantially all of the costume jewelry and fashion accessories sold are
purchased from importers or imported directly. All merchandise is shipped from
the suppliers to the Company's distribution facility in Hoffman Estates,
Illinois, a suburb of Chicago, which services the North American and Japanese
stores or the distribution facility in Birmingham, England, which services the
stores in the United Kingdom, Ireland and France, or the distribution facilities
in Zurich, Switzerland or Vienna, Austria, which service the stores in those
respective countries. After inspection, merchandise is shipped via common
carrier to the individual stores. Stores typically receive three to five
shipments a week.
Except as stated below, responsibility for managing the Fashion Accessory Stores
in North America rests with the Senior Vice President of store operations of
Claire's, who reports to the Chief Executive Officer of the Company. The Company
currently employs a total of 225 District Managers, each of whom oversees
approximately 10 stores in his or her respective geographic area and reports to
one of 19 Regional Managers. Each Regional Manager reports to one of 6
Territorial Vice Presidents, who in turn report to the Senior Vice President of
store operations. Each store is staffed by a Manager, an Assistant Manager and
one or more part-time employees. A majority of the District Managers have been
promoted from within the organization, while a majority of the Regional Managers
were hired externally. All of the Territorial Vice Presidents were promoted
from within the organization. The reporting structure for the Fashion Accessory
Stores in the United Kingdom and Europe are similar to the reporting structure
in North America. The Presidents of CUK and Bijoux report to the Chief
Executive Officer of the Company.
In Fiscal 2001, the Company continued to expand its international operations by
opening a net 74 Fashion Accessory stores in CUK, bringing the total number of
stores operating there to 356, and by opening a net 14 stores in Bijoux. In
addition, the Company acquired 42 stores in France through its acquisition of
Cleopatre. The Company plans to open (net of closings) approximately 27 stores
in North America, 60 stores in CUK, 25 stores in Cleopatre and 6 stores in
Bijoux in the fiscal year ending February 2, 2002 ("Fiscal 2002"). Store
expansion continued in Japan as the Company, with its joint venture partner,
Jusco Co., Ltd., a Japanese Company, opened a net 19 stores in Fiscal 2001,
bringing the total number of stores operating in Japan to 102. Current plans
call for opening 8 additional stores in Japan in Fiscal 2002.
4
<PAGE>
Apparel Stores
- ---------------
The Apparel Stores are located in enclosed shopping malls. The Apparel Stores
range in size from approximately 1,600 to 2,500 square feet with an average size
of 2,000 square feet.
The representative price range for merchandise is $10 to $200, with an average
sale of approximately $45. Cash and major credit cards are accepted for
payment.
The stores are distinctively designed and well lit, with merchandise displayed
in a manner to create visual excitement. Marketing is aimed at the male
teenager.
The Apparel Stores conduct merchandise purchasing from offices in Long Beach,
California. Distribution operations are conducted from the Company's
distribution facility in Hoffman Estates, Illinois. The merchandise is shipped
via common carrier to the stores, as required.
The President of Lux is responsible for managing the Apparel Stores. The
President of Lux reports to the Chief Executive Officer of the Company. The
field organization of Lux is similar in structure to that of Claire's.
Supervision of the stores rests with four Regional Sales Managers who supervise
23 District Managers who, in turn, are responsible for overseeing approximately
seven stores in his or her geographic areas. Each store is staffed by a
Manager, Assistant Manager and part-time employees, as required.
ITEM 2. PROPERTIES
The Company's 3,021 stores operating as of March 31, 2001 are located in 50
states, Puerto Rico, Canada, the United Kingdom, Switzerland, Austria, Germany,
France, Ireland, the Caribbean and Japan. The Company leases all of its store
locations, generally for terms of seven to ten years (up to 25 years in the
United Kingdom and Europe). Under the leases, the Company pays a fixed minimum
rent and/or rentals based on gross sales in excess of specified amounts. The
Company also pays certain other expenses (e.g., common area maintenance charges
and real estate taxes) under the leases. The internal layout and fixtures of
each store are designed by management and constructed under contracts with third
parties.
Most of the Company's stores are located in enclosed shopping malls, while some
stores are located within central business districts and others are located in
"open-air" outlet malls or "strip centers". The Company actively seeks
locations that meet its criteria and opens new stores when opportunities are
found within its budget for expansion. Criteria include geographic location and
demographic aspects of communities surrounding the store site, acceptable anchor
tenants, suitable location within a mall, appropriate space availability and
proposed rental rates. The Company believes that sufficient desirable locations
are available to accommodate its expansion plans. The Company refurbishes its
existing stores on a regular basis.
The Company has closed 381 stores in the last three fiscal years, primarily due
to certain locations not meeting Company-established profit benchmarks or the
unwillingness of the landlord to renew the lease on terms acceptable to the
Company, as well as the process discussed below. The Company has not
experienced any substantial difficulty in renewing desired store leases and has
no reason to expect any such difficulty in the future. For each of the last
three fiscal years, no individual store accounted for more than one percent of
total sales.
In December 1999, as a result of the acquisition of Afterthoughts, the Company
began a process to eliminate redundant field operations and optimize square
footage efficiency. In connection with this plan, the Company has closed 261
stores and expects to close or not renew the leases on approximately 120
additional store locations.
The Company opened or acquired 245 stores during Fiscal 2001 and opened 21
stores in the first two months of Fiscal 2002. The Company plans to continue
opening stores when suitable locations are found and satisfactory lease
negotiations are concluded. The Company's initial investment in new stores
opened during the last fiscal year, including leasehold improvements and
fixtures, but excluding inventories, averaged approximately $100,000 and
$236,000 per store for a Fashion Accessory Store and an Apparel Store,
respectively.
5
<PAGE>
The offices of Claire's and the distribution center for the Company's stores in
North America and Japan are located in Hoffman Estates, Illinois. This
Company-owned facility is located on 24.8 acres and consists of 520,000 total
square feet with 404,000 square feet devoted to receiving and distribution and
116,000 square feet for office space.
In January 2000, CUK relocated its distribution facility and offices to
accommodate the growth in the business in the United Kingdom and to temporarily
service the stores in France. The new lease in the United Kingdom commenced in
December 1999 and terminates in December 2024. CUK has the right to assign or
sublet this lease at any time during the term of the lease. The new facility,
located in Birmingham, England, consists of 25,000 square feet of office space
and 60,000 square feet of distribution space. CUK intends to assign or sublet
the old lease.
The Bijoux stores are serviced by distribution centers and offices in Zurich,
Switzerland and Vienna, Austria. The facility maintained in Zurich, Switzerland
consists of 11,600 square feet devoted to distribution and 5,400 square feet
devoted to offices. The lease for this location expires on December 31, 2001.
Management intends to renew this lease prior to expiration. In Vienna,
Austria, the facility consists of 11,000 square feet devoted to distribution and
3,000 square feet devoted to offices. The lease on this facility does not have
an expiration date but can be terminated by Bijoux with notice to the landlord
at any time.
In August 1990, Claire's entered into a lease which expires on July 31, 2001 for
40,000 square feet of office space in Wood Dale, Illinois. Under the terms of
the lease, Claire's is required to pay taxes, utilities, insurance costs and
maintenance costs. The space is not needed by Claire's and has been subleased
to unrelated third parties. The subleases' terms run parallel to the original
lease.
The Company leases from Rowland Schaefer & Associates (formerly Two Centrum
Plaza Associates) approximately 33,000 square feet in Pembroke Pines, Florida,
where it maintains its executive, accounting and finance offices. Rowland
Schaefer & Associates is a general partnership of two corporate general partners
which are owned by immediate family members of the Chairman of the Board and
President of the Company, two of whom are Co-Vice Chairmen of the Company. The
lease provides for the payment by the Company of annual base rent of
approximately $574,000, which is subject to annual cost-of-living increases, and
a proportionate share of all taxes and operating expenses of the building. The
Company exercised a five year option under the lease. The expiration date under
the option period is September 30, 2005.
The Company also owns 10,000 square feet of warehouse space in Miami, Florida.
The property is being utilized as a storage facility. The Company also leases
executive office space in New York City and is the beneficial owner of a
cooperative apartment in New York City.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or any of
its subsidiaries is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of Fiscal 2001.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has two classes of Common Stock, par value $.05 per share,
outstanding: Common Stock having one vote per share and Class A Common Stock
having ten votes per share. The Common Stock is traded on the New York Stock
Exchange, Inc. ("NYSE") under the symbol CLE. The Class A Common Stock has only
limited transferability and is not traded on any stock exchange or in any
organized market. However, the Class A Common Stock is convertible on a
share-for-share basis into Common Stock and may be sold, as Common Stock, in
open market transactions. The following table sets forth, for each quarterly
period within the last two fiscal years, the high and low closing prices of the
Common Stock on the NYSE Composite Tape and the per share dividends declared on
the Common Stock and the Class A Common Stock. At March 31, 2001, the
approximate number of record holders of shares of Common Stock and Class A
Common Stock was 1,707 and 604, respectively.
<TABLE>
<CAPTION>
CLOSING DIVIDENDS DIVIDENDS
OF ON ON CLASS A
COMMON STOCK COMMON STOCK COMMON STOCK
-------------- ------------ ------------
Year Ended February 3, 2001 HIGH LOW
- --------------------------- ------ ------
<S> <C> <C> <C> <C>
First Quarter $22.30 $15.97 $0.04 $0.02
Second Quarter 22.41 16.06 0.04 0.02
Third Quarter 22.77 16.13 0.04 0.02
Fourth Quarter 24.94 15.63 0.04 0.02
Year Ended January 29, 2000
- ---------------------------
First Quarter 30.19 $18.63 $0.04 $0.02
Second Quarter 33.81 25.63 0.04 0.02
Third Quarter 24.56 16.25 0.04 0.02
Fourth Quarter 24.44 16.88 0.04 0.02
</TABLE>
In 1985, the Board of Directors instituted a quarterly dividend on the Common
Stock of $.011 per share. In February 1994, the Board of Directors increased
the quarterly dividend to $.013 per share and in July 1994 declared a quarterly
dividend of $.007 per share on the Class A Common Stock. In January 1996, the
Board of Directors increased the quarterly dividend to $.02 per share on the
Common Stock and $.01 per share on the Class A Common Stock. In October 1996,
the Board of Directors increased the quarterly dividend to $.03 per share on the
Common Stock and $.015 per share on the Class A Common Stock. The Board of
Directors again increased the quarterly dividend to $.04 per share on the Common
Stock and $.02 per share on the Class A Common Stock in April 1998. The Company
expects to continue paying dividends; however, there is no assurance in this
regard since the declaration and payment of dividends are within the discretion
of the Board of Directors and are subject to a variety of contingencies such as
the earnings and the financial condition of the Company.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
FEB. 3, JAN. 29, JAN. 30, JAN. 31, FEB. 1,
2001 (1) 2000 1999 (3)(4) 1998 (3) 1997(1)(3)
----------- --------- ------------ ---------- -----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Net Sales $1,060,417 $ 846,898 $ 661,856 $ 536,754 $ 466,300
Income from continuing operations 64,975 87,935 71,652 59,595 45,932
Net Income 64,975 87,935 62,280 59,595 45,932
Income Per Share (2):
Basic:
From continuing operations $ 1.30 $ 1.72 $ 1.41 $ 1.19 $ 0.92
Net income 1.30 1.72 1.23 1.19 0.92
Diluted:
From continuing operations $ 1.30 $ 1.71 $ 1.40 $ 1.17 $ 0.90
Net income 1.30 1.71 1.22 1.17 0.90
Cash Dividends
Share:
Common stock $ 0.16 $ 0.16 $ 0.16 $ 0.12 $ 0.10
Class A Common stock 0.08 0.08 0.08 0.06 0.05
Balance Sheet Data:
Current assets $ 259,779 $ 290,018 $ 239,618 $ 204,198 $ 157,089
Current liabilities 100,097 96,855 69,091 51,264 45,906
Working capital 159,682 193,163 170,527 152,934 111,183
Total assets 668,534 702,099 394,272 317,067 252,237
Long-term obligations 151,374 192,000 - - -
Stockholders' equity 399,700 398,786 314,218 257,258 200,544
</TABLE>
(1) Consists of 53 weeks.
(2) In Fiscal 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" which established new guidelines for the calculation
of earnings per share. Basic earnings per share have been computed by
dividing net income by the weighted average number of shares outstanding
during the year. Diluted earnings per share have been computed assuming the
exercise of stock options, as well as their related income tax effects.
Earnings per share for all periods have been restated to reflect the
provisions of this Statement.
(3) In April 1998, the Company acquired Lux through the exchange of 2,070,286
shares of the Company's common stock for all of the outstanding common
stock of Lux. The acquisition was accounted for as a pooling of interests
and accordingly, the accompanying selected financial data has been
retroactively adjusted to include the operations of Lux for all periods
prior to the acquisition.
(4) The Company adopted a plan to discontinue the operation of its Just Nikki
catalog segment in January 1999 (see Note 4 to the Consolidated Financial
Statements for additional information).
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- ---------------------------
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this and other
Company 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 sales growth and earnings per share
growth or statements about future operating results, are forward-looking
statements within the meaning of the Act. The forward-looking statements are
and will be based on management's then current views and assumptions regarding
future events and operating performance.
RISK FACTORS
- -------------
The following are some of the factors that could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements:
Consumer Preferences; Impact of Economic Conditions
- --------------------------------------------------------
The retail fashion accessories and apparel business fluctuates according to
changes in consumer preferences dictated in part by fashion and season. In
addition, certain economic conditions affect the level of consumer spending on
merchandise offered by the Company, including, among others, business
conditions, unemployment, interest rates, energy costs, taxation and consumer
confidence in future economic conditions. Consumer preference and economic
conditions may differ or change from time to time in each market in which the
Company operates and directly impact the Company's net sales and profitability.
Merchandise Inventory, Replenishment and Distribution
- ---------------------------------------------------------
Fluctuations in the retail fashion accessories and apparel business especially
affect the inventory owned by fashion accessories and apparel retailers, since
merchandise usually must be ordered well in advance of the season and sometimes
before fashion trends are identified or evidenced by customer purchases. In
addition, the cyclical nature of the retail business requires the Company to
carry a significant amount of inventory, especially prior to peak selling
seasons when the Company and other retailers generally build up their inventory
levels. The Company must enter into contracts for the purchase and manufacture
of merchandise well in advance of the applicable selling season. As a result,
the Company is vulnerable to demand and pricing shifts and to suboptimal
selection and timing of merchandise purchases.
The Company reviews its inventory levels in order to identify slow-moving
merchandise and uses markdowns to clear merchandise. Markdowns may be used if
inventory exceeds customer demand for reasons of style, seasonal adaptation,
changes in customer preference or lack of consumer acceptance of fashion items,
or if it is determined that the inventory in stock will not sell at its
currently marked price. Such markdowns may have an adverse impact on earnings,
depending on the extent of the markdowns and amount of inventory affected.
Because the Company does not carry much replenishment inventory in its stores,
much of the inventory is maintained in the Company's distribution centers in
Hoffman Estates, Illinois, Birmingham, England, Zurich, Switzerland and Vienna,
Austria.
The Company's distribution functions for all of its stores located in the United
States and Canada are handled from its single distribution center in Hoffman
Estates, Illinois. Any significant interruption in the operation of this
distribution center, due to natural disaster or otherwise, would have a material
effect on the Company's business, financial condition and results of operations.
9
<PAGE>
Store Operations and Expansion
- ---------------------------------
The Company's stores are distinctively designed for customer identification,
ease of shopping and a wide variety of selection of merchandise which emphasize
style, quality and good value. The range of merchandise displayed in each store
varies significantly depending on the selling season and the size and location
of the store.
Store hours are dictated by mall operators and the stores are typically open
from 10:00 A.M. to 9:00 P.M., Monday through Saturday, and, where permitted by
law, from Noon to 5:00 P.M. on Sunday. Approximately 80% of sales are made in
cash, with the balance made by credit cards.
The Company's continued success depends, in part, upon its ability to increase
sales at existing store locations, to open new stores and to operate stores on a
profitable basis. There can be no assurance that the Company's growth will
result in enhanced profitability or that it will continue at the same rate in
future years.
International Expansion
- ------------------------
The Company continued to expand internationally in Fiscal 2001. It is faced
with competition in European markets from established regional and national
chains. If international expansion is not successful, the Company's results of
operations could be adversely affected. The Company's ability to grow
successfully in the continental European market will depend in part on
determining a sustainable profit formula to build customer loyalty and gain
market share in the especially challenging retail environments of France and
Germany.
Certain financial information about international operations is set forth in
Note 13 to the Company's Consolidated Financial Statements, included elsewhere
herein.
Impact of the European Monetary Union
- ------------------------------------------
The European Union is comprised of fifteen member states, eleven of which
adopted a common currency, the "Euro," effective January 1, 1999. From that
date until January 1, 2002, the transition period, the national currencies will
remain legal tender in the participating countries as denominations of the Euro.
Ultimately, the Euro will be the sole currency within the European Union and one
organization, the European Central Bank, will be responsible for setting
European monetary policy. While some believe that the change will bring a
higher level of competition within Europe and a greater sense of economic
stability within that region, there is no certainty that the Company's activity
in this region will necessarily realize any benefits as a result of such
changes. The Company is currently reviewing the impact of the Euro conversion
on its management information systems, accounting systems, vendor payments and
human resources. At this time, the Company cannot estimate the costs it will
incur in connection with the Euro conversion or determine whether the Euro
conversion is likely to have a material adverse effect on its business and
results of operations.
Suppliers
- ---------
The Company purchases merchandise from approximately 850 suppliers located
domestically and overseas. No supplier accounted for more than 5% of the
Company's Fiscal 2001 purchases. Of the Company's merchandise purchases during
Fiscal 2001, approximately 20% of all units purchased for the Fashion Accessory
stores in North America (representing approximately 32% of total cost) were
purchased domestically while the remaining 80% of all units (68% of cost) were
purchased from outside the United States. Approximately 44% of the Company's
total merchandise units purchased for the Fashion Accessory stores in North
America (representing 50% of cost) were from China, including Hong Kong, with
the remainder coming from 11 other countries. Any event causing a sudden
disruption of imports from China or other foreign countries, including political
instability or the imposition of additional import restrictions, could have a
material adverse effect on the Company's operations. Substantially all of the
Company's foreign purchases of merchandise are negotiated and paid for in U.S.
dollars.
10
<PAGE>
The Company cannot predict whether any of the countries in which its products
currently are manufactured or may be manufactured in the future will be subject
to additional trade restrictions imposed by the U.S. and other foreign
governments, including the likelihood, type or effect of any such restrictions.
Trade restrictions, including increased tariffs or quotas, embargoes, and
customs restrictions, against merchandise could increase the cost or reduce the
supply of merchandise available to the Company and adversely affect the
Company's business, financial condition and results of operations. The Company
pursues a diversified global sourcing strategy that includes relationships with
vendors in approximately 20 countries. These sourcing operations may be
adversely affected by political and financial instability resulting in the
disruption of trade from exporting countries, significant fluctuation in the
value of the U.S. dollar against foreign currencies, restrictions on the
transfer of funds and/or other trade disruptions.
Seasonal Business
- ------------------
The Company's business follows a seasonal pattern, peaking during the Christmas,
Easter and back-to-school periods. During Fiscal 2001, these periods accounted
for approximately 30% of the Company's annual sales. Any decrease in sales or
margins during these periods could have a material adverse effect on the
Company's business, financial condition and results of operations. Seasonal
fluctuations also affect inventory levels, since the Company usually orders
merchandise in advance of peak selling periods. The Company must carry a
significant amount of inventory in anticipation of these selling periods.
Competition
- -----------
The Company's business is highly competitive. The Company competes with
national and local department stores, specialty and discount store chains,
independent retail stores and internet and catalog businesses that market
similar lines of merchandise. Some competitors have more resources than the
Company. Given the large number of companies in the retail industry, the
Company cannot estimate the number of its competitors.
Depth of selection in sizes, colors and styles of merchandise, merchandise
procurement and pricing, ability to anticipate fashion trends and consumer
preferences, inventory control, reputation, quality of merchandise, store design
and location, and customer service are all important factors in competing
successfully in the retail industry.
The performance of the Company in recent years has increased the amount of
imitation by other retailers. Such imitation has made and will continue to make
the retail environment in which the Company operates more competitive.
In addition, the Company's competitive position depends upon a number of factors
relating to consumer spending, including future economic conditions affecting
disposable consumer income such as unemployment, business conditions, interest
rates, energy costs and taxation. A decline in consumer spending on fashion
accessories and apparel could have a material adverse effect on the Company's
net sales and profitability.
Dependence on Mall Traffic and the Availability of Suitable Lease Space
- --------------------------------------------------------------------------------
Substantially all of the Company's stores are located in regional shopping
malls. The Company's sales are derived, in part, from the high volume of
traffic in those malls. The Company benefits from the ability of the mall's
"anchor" tenants, generally movie theaters and large department stores, and
other area attractions to generate consumer traffic in its stores' vicinity and
the continuing popularity of malls as shopping destinations for pre-teens and
teenagers. Sales volume and mall traffic may be adversely affected by economic
downturns in a particular area, competition from non-mall retailers, other malls
where the Company does not have stores and the closing of anchor tenants in a
particular mall. In addition, a decline in the popularity of mall shopping
among our target customers, pre-teens and teenagers, could affect the Company's
business. In recent months, it appears there has been a noticeable decline in
mall traffic. The Company believes this has resulted in a decrease in the
number of transactions per store, although such decrease has been offset by an
increase in average transaction size.
11
<PAGE>
Since the Company is primarily a mall-based chain, the Company's future growth
is significantly dependent on its ability to open new stores in desirable
locations. There is no assurance as to when or whether such desirable locations
will become available.
Dependence on Key Personnel
- ------------------------------
The Company's success and ability to properly manage its growth depends to a
significant extent both upon the performance of its current senior management
team and its ability to attract, hire, motivate and retain additional qualified
management personnel in the future. The inability to recruit and retain such
additional personnel, or the loss of service of any of the Company's current
executive officers, could have a material adverse impact on the Company.
The foregoing factors are not exclusive. New factors emerge from time to time
and it is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward looking
statements.
The following table sets forth, for the periods indicated, percentages which
certain items reflected in the financial statements bear to net sales of the
Company:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
-------- --------- ---------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, occupancy and buying expenses 51.7 48.4 48.2
-------- --------- ---------
Gross Profit 48.3 51.6 51.8
-------- --------- ---------
Other expenses:
Selling, general and administrative 33.7 31.7 31.5
Depreciation and amortization 4.2 3.4 3.3
Interest expense (income), net 0.9 (0.4) (0.9)
(Gain) loss on investments - (0.5) 0.7
Impairment of long-lived assets - 1.0 -
-------- --------- ---------
38.8 35.2 34.6
-------- --------- ---------
Income from continuing operations before
income taxes 9.5 16.4 17.2
Income taxes 3.2 6.0 6.4
-------- --------- ---------
Income from continuing operations 6.1 10.4 10.8
-------- --------- ---------
Discontinued operations, net of income taxes:
Loss from discontinued operations - - 0.9
Loss on disposal of discontinued operations - - 0.5
-------- --------- ---------
Net loss from discontinued operations - - 1.4
-------- --------- ---------
Net income 6.1% 10.4% 9.4%
======== ========= =========
</TABLE>
RESULTS OF CONTINUING OPERATIONS
- -----------------------------------
The operating results of Claire's Nippon Co., Ltd., which are accounted for
under the equity method, are not part of the consolidated group of Claire's
Stores, Inc. and therefore not included in the following analysis. Fiscal 1999
balances have been restated to reflect the accounts of Lux as if the Companies
had combined at the beginning of that period.
12
<PAGE>
FISCAL 2001 COMPARED TO FISCAL 2000
- ----------------------------------------
Net sales increased by $213,519,000, or 25%, to $1,060,417,000 in Fiscal 2001
compared to $846,898,000 for the year ended January 29, 2000 ("Fiscal 2000").
This increase primarily resulted from the twelve months of sales of the
Afterthoughts stores, (as compared with the two months included in the prior
fiscal year), offset by same-store sales decreases of 1% for the year. The
same-store sales decrease was primarily a result of fewer transactions per
store, offset by an increase in the average unit retail price of merchandise
sold. The same-store sales results of the Afterthoughts stores were
significantly below those of the Claire's Accessories stores for the two months
ended February 3, 2001 due to a number of factors related primarily to the
difficult process of integrating Afterthoughts' operations into Claire's.
Cost of sales, occupancy and buying expenses increased by $138,404,000, or 34%,
to $548,256,000 in Fiscal 2001 compared to $409,852,000 in Fiscal 2000. As a
percentage of net sales, these expenses increased to 51.7% for Fiscal 2001
compared to 48.4% for Fiscal 2000. This increase of 330 basis points is the
result of additional merchandise markdowns, transitional services provided by
Venator to Claire's during its integration of the Afterthoughts stores and lack
of leverage on fixed costs. These markdowns were a result of lower than
expected sales and helped the Company reduce inventory levels to be in line with
planned sales for future periods. An approximately 150 basis point increase was
caused by the full year impact of the Afterthoughts stores who's occupancy cost
as a percentage of sales is higher than the Claire's stores. This is primarily
due to lower average store sales in the Afterthoughts stores as compared to the
average Claire's store.
Selling, general and administrative ("SG&A") expenses increased by $89,729,000,
or 33% to $357,837,000 in Fiscal 2001 from the Fiscal 2000 level of
$268,108,000. The increase noted was due to the increase in the cost of
operating the additional stores. As a percentage of net sales, these expenses
increased to approximately 33.7% in Fiscal 2001 compared to 31.7% in Fiscal
2000. The increase in SG&A as a percentage of sales is primarily attributable
to certain redundant operations related to the integration of the Afterthoughts
division's operations and the lack of leverage on corporate expenses due to
negative same-store sales. The Company has substantially completed its
integration of Afterthoughts as it relates to store operations, payroll and
human resources, merchandising, planning and distribution, accounting and
finance, real estate and construction and MIS. Efforts continue on the
integration of marketing, field operations and the communication of best
practices among divisions. Sales and SG&A were adversely affected as a result of
these integration efforts during this fiscal year. It has been the Company's
objective to close a number of underperforming or duplicative acquired
Afterthoughts stores. To date, 203 Afterthoughts stores have been closed or
leases not renewed, 11 stores have been opened resulting in 579 stores remaining
at February 3, 2001.
Depreciation and amortization increased by $15,308,000 or 53%, to $44,149,000 in
Fiscal 2001 from the Fiscal 2000 level of $28,841,000. The increase was
primarily due to the full year amortization of goodwill and depreciation on the
Afterthoughts stores.
Interest expense (income), net increased from ($3,469,000) in Fiscal 2000 to
$9,927,000 in Fiscal 2001. The net increase of $13,396,000 is primarily the
result of the full year effect of the Company's credit facility which was
entered into on December 1, 1999. In addition, the Company's interest income
decreased due to lower invested cash balances during the year due to the
Company's acquisition of the Afterthoughts stores in the fourth quarter of
Fiscal 2000 and the Cleopatre stores in the first quarter of Fiscal 2001 and the
Company's purchase of approximately $50 million of common stock pursuant to the
$50 million stock repurchase program approved in Fiscal 2001.
In Fiscal 2000, the Company recognized a gain on investments of $3,929,000 in
connection with the sale of certain equity securities. There have been no
transactions of this nature in Fiscal 2001.
13
<PAGE>
In December 1999, the Company began a process to eliminate redundant field
operations and optimize square footage efficiency as a result of the acquisition
of Afterthoughts. As a result of the reorganization and the Company's periodic
review of impairment, the Company recorded an $8.7 million ($5.5 million after
tax, or $.11 per diluted share) non-cash charge in December 1999 to write off
the assets whose carrying value had been impaired. The Company recognized no
impairment charges in Fiscal 2001.
Income taxes decreased by $15,587,000 to $35,273,000 in Fiscal 2001 compared to
$50,860,000 in Fiscal 2000. The Company's effective tax rates declined as a
result of increased profitable foreign operations which have lower effective tax
rates than the United States.
FISCAL 2000 COMPARED TO FISCAL 1999
- ----------------------------------------
Net sales increased by $185,042,000, or 28%, to $846,898,000 in Fiscal 2000
compared to $661,856,000 for the year ended January 30, 1999 ("Fiscal 1999").
This increase resulted primarily from the net addition of 1,006 stores,
including the acquisition of Afterthoughts effective December 1,1999 and
same-store sales increases of 5%. The same-store sales increases were mainly
attributable to an increase in the average unit retail price of merchandise sold
in Fiscal 2000 compared to Fiscal 1999 and an increase in the number of overall
transactions per store.
Cost of sales, occupancy and buying expenses increased by $90,785,000, or 28%,
to $409,852,000 in Fiscal 2000 compared to $319,067,000 in Fiscal 1999.
Principal reasons for this increase were the rise in the number of stores and
the volume of merchandise sold. As a percentage of net sales, these expenses
increased slightly to 48.4% for Fiscal 2000 compared to 48.2% for Fiscal 1999.
This increase of 20 basis points is the result of decreased product margins due
to increased sales from the Apparel Stores.
Selling, general and administrative ("SG&A") expenses increased by $59,477,000,
or 29%, to $268,108,000 in Fiscal 2000 from the Fiscal 1999 level of
$208,631,000. The increase noted was due to the increase in the cost of
operating the additional stores. As a percentage of net sales, these expenses
increased to approximately 31.7% in Fiscal 2000 compared to 31.5% in Fiscal
1999. The increase in SG&A as a percentage of sales is primarily attributable
to certain redundant operations related to the Afterthoughts acquisition.
Depreciation and amortization increased by $6,963,000, or 32%, to $28,841,000 in
Fiscal 2000 from the Fiscal 1999 level of $21,878,000. The increase was
primarily due to the investment in 1,006 new and acquired stores and remodeling
of approximately 100 stores.
Due to the balance in cash, cash equivalents and short-term investments and the
absence of long-term debt for most of the year, interest income exceeded
interest expense in Fiscal 2000. As a percentage of sales, interest income, net
was .4% for Fiscal 2000 compared to .9% in Fiscal 1999. This decrease in net
interest income was caused by interest expense incurred on the debt facility
entered into on December 1, 1999 and lost interest income on the approximately
$55 million of cash used related to the Afterthoughts acquisition. The cash and
cash equivalents, and short-term investments balance during Fiscal 2000 averaged
approximately $138,642,000 compared to approximately $149,561,000 in Fiscal
1999.
In Fiscal 2000, the Company recognized a gain on investments of $3,929,000
compared to a loss on investments of $4,800,000 in Fiscal 1999. The Fiscal 1999
loss did not result from the sale of investments but rather from the write-down
of investments, in accordance with Generally Accepted Accounting Principles, to
better reflect the current economic value of the investments.
In December 1999, the Company began a process to eliminate redundant field
operations and optimize square footage efficiency as a result of the acquisition
of Afterthoughts. As a result of the reorganization and the Company's periodic
review of impairment, the Company recorded an $8.7 million ($5.5 million after
tax, or $.11 per diluted share) non-cash charge to write off the assets whose
carrying value had been impaired.
14
<PAGE>
Income taxes increased by $8,776,000 to $50,860,000 in Fiscal 2001 compared to
$42,084,000 in Fiscal 1999. The Company's effective tax rates declined slightly
as a result of increased profitable foreign operations which have lower
effective tax rates than the United States.
DISCONTINUED OPERATIONS
- ------------------------
In January 1999, the Company announced its decision to discontinue the
operations of Just Nikki, Inc. ("Nikki"), a wholly-owned subsidiary representing
its catalog segment. The operations of Nikki have been accounted for as a
discontinued operation in the Fiscal 1999 consolidated financial statements.
Nikki had no significant operations prior to Fiscal 1999. The Company has
completed liquidating Nikki's inventory and remaining assets during the first
half of Fiscal 2000.
IMPACT OF INFLATION
- ---------------------
Inflation has not affected the Company, as it has generally been able to pass
along inflationary increases in its costs through increased sales prices.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
In connection with the acquisition of Afterthoughts, the Company entered into
the Credit Facility pursuant to which it financed $200 million of the purchase
price. The Credit Facility includes a $40 million revolving line of credit
which matures on December 1, 2004 and a $175 million five year term loan, the
first installment of which was paid on December 31, 2000 with future
installments, thereafter, payable on a quarterly basis through December 1, 2004.
The Credit Facility is prepayable without penalty and bears interest at 100
basis points margin over the London Interbank Borrowing Rate. The margin is
then adjusted periodically based on the Company's performance as it relates to
certain financial measurements. The Company had $180 million outstanding on
this facility at February 3, 2001.
Company operations have historically provided a strong, positive cash flow
which, together with the Company's cash balances, provides adequate liquidity to
meet the Company's operational needs and debt obligations. Cash and cash
equivalents totaled $111,663,000 at the end of Fiscal 2001.
Net cash provided by operating activities amounted to $105,632,000 in Fiscal
2001 compared to $104,215,000 in Fiscal 2000 and $85,816,000 in Fiscal 1999.
The primary sources of net cash provided by operating activities was net income
of $65 million, adjusted for non-cash items. The Company's current ratio
(current assets over current liabilities) was 2.6:1.0 for Fiscal 2001 and
3.0:1.0 for Fiscal 2000.
At the end of Fiscal 2001, the Company increased its investment in inventories
to $112,104,000, or 2%, from the Fiscal 2000 balance of $109,464,000. During
this period inventory turnover decreased to 2.7X from 3.4X for Fiscal 2000. The
increase in inventories is due to planned same-store sales increases for Fiscal
2002. In addition, inventories on a per square foot basis increased 3%.
Management believes inventories are appropriate given the increase in the number
of stores and the level of sales currently being planned.
Net cash used in investing activities of $51.6 million in Fiscal 2001 was
primarily capital expenditures of $45.5 million and funds used for the
acquisition of Cleopatre, offset by the sale of short-term investments. During
Fiscal 2001, the Company continued to expand and remodel its store base.
Significant capital projects included the opening of 203 new stores and the
remodeling of 134 stores. Funds expended for capital improvements in Fiscal
2001 totaled $45,459,000 compared to $48,866,000 in Fiscal 2000 and $45,211,000
in Fiscal 1999. In Fiscal 2002, capital expenditures are expected to be
approximately $45 million as the Company continues to invest in its store base
and technology.
15
<PAGE>
Net cash used in financing activities of $77.3 million in Fiscal 2001 was
primarily the Company's purchase of common stock pursuant to the Company's share
repurchase program of approximately $50 million, required payments on the
Company's Credit Facility of $20 million and dividends paid of $7.8 million,
offset by proceeds of stock options exercised during the year.
The Company has significant cash balances, a consistent ability to generate cash
flow from operations and available funds under its credit facilities. The
Company believes that it will be able to maintain its present financial
condition and liquidity and be able to finance its capital expenditure plans and
other foreseeable future needs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
- -----------------
The Company is exposed to foreign currency exchange rate fluctuations on the
U.S. dollar value of foreign currency denominated transactions and its
investment in foreign subsidiaries. Based on the Company's average net currency
positions in Fiscal 2001, the potential loss due to a 10% adverse change on
foreign currency exchange rates could be significant to the Company's
operations.
Interest Rates
- ---------------
The Company's exposure to market risk for changes in interest rates is limited
to its cash, cash equivalents and debt. Based on the Company's average invested
cash balances and outstanding debt during Fiscal 2001, a 10% decrease in the
average effective interest rate in Fiscal 2001 would not have materially
impacted the Company's annual net interest expense.
Recent Accounting Pronouncements
- ----------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." The new statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes
new accounting rules for hedging instruments. In June 1999, the FASB deferred
the effective date of SFAS No. 133 for one year until fiscal years beginning
after June 15, 2000. We believe the impact that SFAS No. 133 will not have a
material effect on our Consolidated Financial Statements.
In March 2000, the FASB issued FIN No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." FIN No. 44 clarifies the application of APB No.
25, "Accounting for Stock Issued to Employees." The provisions of FIN No. 44
are effective July 1, 2000. The adoption of FIN No. 44 did not have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE NO.
---------
Independent Auditors' Report 17
Consolidated Balance Sheets as of February 3, 2001 and
January 29, 2000 18
Consolidated Statements of Income and Comprehensive Income
for the three fiscal years ended February 3, 2001 19
Consolidated Statements of Changes in Stockholders' Equity
for the three fiscal years ended February 3, 2001 20
Consolidated Statements of Cash Flows for the three fiscal
years ended February 3, 2001` 21
Notes to Consolidated Financial Statements 22
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Claire's Stores, Inc.
We have audited the accompanying consolidated balance sheets of Claire's Stores,
Inc. and subsidiaries as of February 3, 2001 and January 29, 2000, and the
related consolidated statements of income and comprehensive income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended February 3, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Claire's Stores,
Inc. and subsidiaries as of February 3, 2001 and January 29, 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 3, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/S/KPMG LLP
Fort Lauderdale, Florida
March 30, 2001
17
<PAGE>
<TABLE>
<CAPTION>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEB. 3, JAN. 29,
2001 2000
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111,663 $ 137,414
Short-term investments - 3,456
Inventories 112,104 109,464
Prepaid expenses and other current assets 36,012 39,684
---------- ----------
Total current assets 259,779 290,018
---------- ----------
Property and equipment:
Land and building 17,765 17,568
Furniture, fixtures and equipment 180,147 156,688
Leasehold improvements 133,522 129,767
---------- ----------
331,434 304,023
Less accumulated depreciation and amortization (160,317) (137,244)
---------- ----------
171,117 166,779
---------- ----------
Goodwill, net 204,269 211,982
Prepaid expenses and other assets 33,369 33,320
---------- ----------
$ 668,534 $ 702,099
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 31,263 $ 8,759
Trade accounts payable 30,848 35,911
Income taxes payable 2,313 17,149
Dividends payable 1,916 2,045
Accrued expenses 33,757 32,991
---------- ----------
Total current liabilities 100,097 96,855
---------- ----------
Long term liabilities:
Long-term debt 151,374 192,000
Deferred credits 17,363 14,458
---------- ----------
168,737 206,458
---------- ----------
Stockholders' equity:
Preferred stock par value $1.00 per share; authorized
1,000,000 shares, issued and outstanding 0 shares - -
Class A common stock par value $.05 per share;
authorized 20,000,000 shares, issued 2,846,354
shares and 2,868,380 shares 142 143
Common stock par value $.05 per share; authorized
150,000,000 shares, issued 45,930,363 shares and
48,374,226 shares 2,297 2,419
Additional paid-in capital 29,825 29,291
Accumulated other comprehensive income (7,221) (228)
Retained earnings 375,109 367,613
---------- ----------
400,152 399,238
Treasury stock, at cost, (109,882 shares) (452) (452)
---------- ----------
399,700 398,786
---------- ----------
Commitments and contingencies
$ 668,534 $ 702,099
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FISCAL YEAR ENDED
-----------------------------------
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
----------- ---------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Net sales $1,060,417 $ 846,898 $ 661,856
Cost of sales, occupancy and buying expenses 548,256 409,852 319,067
----------- ---------- ----------
Gross profit 512,161 437,046 342,789
----------- ---------- ----------
Other expenses:
Selling, general and administrative 357,837 268,108 208,631
Depreciation and amortization 44,149 28,841 21,878
Interest expense (income), net 9,927 (3,469) (6,256)
(Gain) loss on investments - (3,929) 4,800
Impairment of long-lived assets - 8,700 -
----------- ---------- ----------
411,913 298,251 229,053
----------- ---------- ----------
Income from continuing operations before
income taxes 100,248 138,795 113,736
Income taxes 35,273 50,860 42,084
----------- ---------- ----------
Income from continuing operations 64,975 87,935 71,652
----------- ---------- ----------
Discontinued operations:
Loss from discontinued operations (less
applicable income taxes) - - 6,285
Loss on disposal of discontinued operations
(less applicable income taxes) - - 3,087
----------- ---------- ----------
Net loss from discontinued operations - - 9,372
----------- ---------- ----------
Net income 64,975 87,935 62,280
Other comprehensive income:
Foreign currency translation adjustments (6,993) 667 (337)
----------- ---------- ----------
Comprehensive income $ 57,982 $ 88,602 $ 61,943
=========== ========== ==========
Net income (loss) per share:
Basic:
From continuing operations $ 1.30 $ 1.72 $ 1.41
From discontinued operations - - (0.18)
----------- ---------- ----------
Net income $ 1.30 $ 1.72 $ 1.23
=========== ========== ==========
Diluted:
From continuing operations $ 1.30 $ 1.71 $ 1.40
From discontinued operations - - (0.18)
----------- ---------- ----------
Net income $ 1.30 $ 1.71 $ 1.22
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED
CLASS A ADDITIONAL OTHER
COMMON COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
-------- ------- ----------- -------------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Balance
January 31, 1998 $ 145 $ 2,382 $ 22,053 $ (558) $ 233,688 $ (452) $257,258
Net income - - - - 62,280 - 62,280
Issued shares for acquisition - 5 1,876 - - - 1,881
Stock options exercised - 14 419 - - - 433
Cash dividends ($.16 per Common
share and $.08 per Class A
Common share) - - - - (7,892) - (7,892)
Distributions to former shareholders of
pooled entity - - - - (455) - (455)
Tax benefit from exercised stock
options - - 1,050 - - - 1,050
Foreign currency translation
adjustment - - - (337) - - (337)
-------- ------- ----------- -------------- --------- --------- --------
Balance
January 30, 1999 145 2,401 25,398 (895) 287,621 (452) 314,218
Net income - - - - 87,935 - 87,935
Class A Common stock converted to
Common stock (2) 2 - - - - -
Stock options exercised - 16 2,693 - - - 2,709
Cash dividends ($.16 per Common
share and $.08 per Class A
Common share) - - - - (7,943) - (7,943)
Tax benefit from exercised stock
options - - 1,200 - - - 1,200
Foreign currency translation
adjustment - - - 667 - - 667
-------- ------- ----------- -------------- --------- --------- --------
Balance
January 29, 2000 143 2,419 29,291 (228) 367,613 (452) 398,786
Net income - - - - 64,975 - 64,975
Class A Common stock converted to
Common stock (1) 1 - - - - -
Purchase of treasury stock - - - - - (49,913) (49,913)
Retirement of treasury stock - (127) - - (49,786) 49,913 -
Stock options exercised - 4 474 - - - 478
Cash dividends ($.16 per Common
share and $.08 per Class A
Common share) - - - - (7,693) - (7,693)
Tax benefit from exercised stock
options - - 60 - - - 60
Foreign currency translation
adjustment - - - (6,993) - - (6,993)
-------- ------- ----------- -------------- --------- --------- --------
Balance
February 3, 2001 $ 142 $ 2,297 $ 29,825 $ (7,221) $ 375,109 $ (452) $399,700
======== ======= =========== ============== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
---------------------------------
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
--------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 64,975 $ 87,935 $ 62,280
Adjustments to reconcile net income to net cash
Provided by operating activities:
Loss from discontinued operations, net of tax benefit - - 6,285
Loss on disposal of discontinued operations, net of tax benefit - - 3,087
Depreciation and amortization 44,149 28,841 21,878
Deferred income taxes 8,049 704 (1,484)
(Gain) loss on investments - (3,929) 4,800
Loss on retirement of property and equipment 2,115 576 1,703
Impairment of long-lived assets - 8,700 -
(Increase) decrease in -
Inventories (3,023) (11,268) (9,711)
Prepaid expenses and other assets 6,836 (29,155) (12,719)
Increase (decrease) in -
Trade accounts payable (6,226) 11,693 2,441
Income taxes payable (14,659) 345 6,103
Accrued expenses 512 6,278 6,578
Deferred credits 2,904 3,495 2,418
--------- ---------- ----------
Net cash provided by continuing operations 105,632 104,215 93,659
Net cash used by discontinued operations - - (7,843)
--------- ---------- ----------
Net cash provided by operating activities 105,632 104,215 85,816
--------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (45,459) (48,866) (45,211)
Acquisition of business, net of cash acquired (9,548) (249,811) (7,815)
Sale (purchase) of short-term investments 3,455 36,231 (28,842)
Capital expenditures of discontinued operations - - (185)
Acquisition of minority interest in a foreign subsidiary - (18,000) -
--------- ---------- ----------
Net cash used in investing activities (51,552) (280,446) (82,053)
--------- ---------- ----------
Cash flows from financing activities:
Principal borrowings (payments) on debt (20,082) 199,452 (1,617)
Purchase of treasury stock (49,913) - -
Proceeds from stock options exercised 538 3,909 1,482
Distribution to former shareholders of pooled entity - - (455)
Dividends paid (7,839) (7,929) (7,781)
--------- ---------- ----------
Net cash (used in) provided by financing activities (77,296) 195,432 (8,371)
--------- ---------- ----------
Effect of foreign currency exchange rate changes on cash
and cash equivalents (2,535) 667 (337)
--------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (25,751) 19,868 (4,945)
Cash and cash equivalents at beginning of year 137,414 117,546 122,491
--------- ---------- ----------
Cash and cash equivalents at end of year $111,663 $ 137,414 $ 117,546
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Claire's Stores, Inc., a Florida Corporation, and
- ----------------------
subsidiaries (collectively the "Company"), is a leading retailer of popular
priced fashion accessories and apparel targeted towards pre-teens and teenagers.
The Company operates stores throughout the United States, Canada, the Caribbean,
United Kingdom, Switzerland, Austria, Germany, France, Ireland and Japan.
Reincorporation- In June 2000, Claire's Stores, Inc. completed its
reincorporation from the State of Delaware to the State of Florida through a
merger transaction. In accordance with generally accepted accounting
principles, the merger and resulting reincorporation have been accounted for as
a reorganization of entities under common control at historical cost in a manner
similar to a pooling of interests. Under this accounting method, the assets and
liabilities of the combined entities have been carried forward at their recorded
historical book values.
Principles of Consolidation/Reclassifications - The consolidated financial
- -----------------------------------------------
statements include the accounts of the Company and its wholly owned
subsidiaries. The Company's investment in its Japanese joint venture is
accounted for under the equity method. All material intercompany balances and
transactions have been eliminated in consolidation. In January 1999, the
Company adopted a plan to discontinue its Just Nikki Inc. ("Nikki") catalog
segment. In April 1998, the Company completed its acquisition of Lux
Corporation ("Lux"), which was accounted for as a pooling-of-interest business
combination. As a result of these two transactions, the consolidated financial
statements and notes thereto have been restated and reclassified for all periods
presented.
Fiscal Year - The Company's fiscal year ends on the Saturday closest to January
- ------------
31. Fiscal year 2001 consisted of 53 weeks, while Fiscal years 2000 and 1999
each consisted of 52 weeks.
Cash and Cash Equivalents - The Company considers all highly liquid debt
- ----------------------------
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Short-term Investments - These investments consist of highly liquid debt
- -----------------------
instruments purchased with a maturity greater than three months but less than
one year and equity securities. The Company typically classified its debt and
equity securities as available for sale. Available for sale securities are
recorded at fair value. Unrealized holding gains and losses, net of the related
tax effect, on available for sale securities are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
Realized gains and losses from the sale of available for sale securities are
determined on a specific identification basis.
A decline in the market value of any available for sale security below cost that
is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for
the security is established. Dividend and interest income are recognized when
earned.
Inventories - Merchandise inventories are stated at the lower of cost or market.
- -----------
Cost is determined by the first-in, first-out basis using the retail method.
Approximately 9% of the Company's inventory is maintained using the average cost
method in a foreign subsidiary.
Property and Equipment - Property and equipment are recorded at cost.
- ------------------------
Depreciation is computed on the straight-line method over the estimated useful
lives of the building and the furniture, fixtures and equipment, which range
from three to twenty-five years. Amortization of leasehold improvements is
computed on the straight-line method based upon the shorter of the estimated
useful lives of the assets or the terms of the respective leases.
Goodwill - Goodwill represents the excess of purchase price over the fair value
- --------
of net assets acquired. It is amortized on a straight-line basis over the
expected periods to be benefited, generally twenty-five years. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. Accumulated amortization was $10,449,000 and $1,655,000
at February 3, 2001 and January 29, 2000, respectively.
22
<PAGE>
Net Income Per Share - Basic net income per share is based on the weighted
- -----------------------
average number of shares of Class A Common Stock and Common Stock outstanding
during the period (49,931,000 shares in Fiscal 2001, 50,985,000 shares in Fiscal
2000 and 50,649,000 shares in Fiscal 1999). Diluted net income per share
includes the dilutive effect of stock options (50,101,000 shares in Fiscal 2001,
51,334,000 shares in Fiscal 2000 and 51,108,000 shares in Fiscal 1999). Options
to purchase 560,500, 210,000 and 161,000 shares of common stock, at prices
ranging from $20.38 to $30.25 per share, $25.00 to $30.25 per share and $19.73
to $22.88 per share, respectively, were outstanding for the years ended February
3, 2001, January 29, 2000 and January 30, 1999, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares
for the respective fiscal year.
Income Taxes - The Company accounts for income taxes under the provisions of
- -------------
Statement of Financial Accounting Standards ("SFAS") No. 109 which generally
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. In addition, SFAS No. 109 requires the adjustment of previously
deferred income taxes for changes in tax rates under the liability method.
Foreign Currency Translation - The financial statements of the Company's
- ------------------------------
foreign operations are translated into U.S. dollars. Assets and liabilities are
translated at current exchange rates while income and expense accounts are
translated at the average rates in effect during the year. Resulting
translation adjustments are accumulated as a component of other comprehensive
income. Foreign currency gains and losses resulting from transactions
denominated in foreign currencies, including intercompany transactions, except
for intercompany loans of a long-term investment nature, are included in results
of operations.
Fair Value of Financial Instruments - The Company's financial instruments
- ---------------------------------------
consist primarily of current assets, current liabilities and long term debt.
Current assets and liabilities are stated at fair market value. Long term debt
is considered to approximate market value due to the interest rate being
adjustable.
Use of Estimates - The preparation of financial statements in conformity with
- ------------------
generally accepted accounting principles requires management to make 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. Actual results could differ from those estimates.
Impairment of Long-Lived Assets - The Company accounts for long-lived assets in
- --------------------------------
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
In December 1999, the Company began implementation of a reorganization plan to
eliminate redundant field operations and optimize square footage efficiency as a
result of the acquisition of Afterthoughts. As a result of the reorganization
and the Company's periodic review of impairment, the Company recorded an $8.7
million ($5.5 million after tax) non-cash charge to write off the assets whose
carrying value had been impaired.
23
<PAGE>
Stock Options
- --------------
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation," 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 No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees." Entities electing to account for employee stock options
or similar equity instruments under APB No. 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 No. 25
in the preparation of its consolidated financial statements and provide pro
forma disclosure of net income and earnings per share as required under SFAS 123
in the notes to the consolidated financial statements.
Recent Accounting Pronouncements
- ----------------------------------
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of Start-up
Activities." SOP 98-5 is effective for financial statements issued for years
beginning after December 15, 1998; therefore, the Company adopted its provisions
in the first quarter of Fiscal 2000. SOP 98-5 requires that pre-opening costs
be expensed as incurred. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and
No. 138. The new statement requires all derivatives to be recorded on the
balance sheet at fair value and establishes new accounting rules for hedging
instruments. In June 1999, the FASB deferred the effective date of SFAS No. 133
for one year until fiscal years beginning after June 15, 2000. We believe the
impact that SFAS No. 133 will not have a material effect on our Consolidated
Financial Statements.
In March 2000, the FASB issued FIN No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." FIN No. 44 clarifies the application of APB No.
25, "Accounting for Stock Issued to Employees." The provisions of FIN No. 44
are effective July 1, 2000. The adoption of FIN No. 44 did not have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.
2. ACQUISITIONS
In February 2000, the Company completed its acquisition of Cleopatre, a
privately held 42 store fashion accessory chain with its headquarters in Paris,
France. The transaction was accounted for as a purchase. The purchase price
was approximately $11 million. Excess purchase price over fair market value of
the underlying assets, primarily fixed assets, rent deposits and inventory, was
allocated to goodwill, which is being amortized over twenty- five years. The
Company's results of operations include Cleopatre's from February 28, 2000
through February 3, 2001. Operating results on a pro forma basis, including
Cleopatre as if the purchase had occurred at the beginning of the periods
presented, are not disclosed due to immateriality.
In February 1999, the Company paid $18,000,000 to the former owner of a foreign
subsidiary for the purchase of his minority interest and recorded this amount as
goodwill.
In December 1999, the Company completed the acquisition of Afterthoughts, a 768
store fashion accessory chain operated as a division of Venator Group, Inc.
("Venator"). The transaction was accounted for as a purchase. The purchase
price was $250 million, $200 million of which was financed through a credit
facility. Excess purchase price over fair market value of the underlying
assets, primarily fixed assets and inventory, was allocated primarily to
goodwill and trademarks, which are being amortized over twenty-five years. The
Company's results of operations include Afterthoughts from December 1, 1999
through January 29, 2000.
The following table presents the fair value of assets acquired and the net cash
paid for the acquisition of Afterthoughts (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 69,400
Allocated value of intangibles 180,600
---------
Cash paid for acquisition 250,000
Cash acquired in acquisition (189)
---------
Total cash paid in acquisition, net $249,811
=========
</TABLE>
24
<PAGE>
In April 1998, the Company completed its acquisition of Lux, a closely held
specialty apparel chain operating under the name of "Mr. Rags," in a
stock-for-stock merger. The stores specialize in selling clothing and
accessories to the male teen market. In connection with the merger, the Company
issued 2,070,286 shares of common stock in exchange for all the outstanding
common stock of Lux. The merger has been accounted for as a pooling of
interests business combination. Accordingly, the accompanying consolidated
financial statements have been restated to include the accounts of Lux as if the
companies had combined at the beginning of the first period presented. Prior to
the merger, Lux's fiscal year ended on November 30. In recording the business
combination, Lux's prior year financial statements have been restated to conform
with the Company's fiscal year end. Net sales and net income of the separate
entities for the periods preceding the merger are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR
ENDED ENDED
MAY 2, 1998 JAN. 30, 1999
------------ --------------
<S> <C> <C>
Net sales:
Claire's Stores, Inc. and subsidiaries $ 123,775 $ 500,152
Lux Corporation 9,187 36,602
------------ --------------
Combined $ 132,962 $ 536,754
============ ==============
Net income:
Claire's Stores, Inc. and subsidiaries $ 9,584 $ 58,189
Lux Corporation 357 1,406
------------ --------------
Combined $ 9,941 $ 59,595
============ ==============
</TABLE>
In November 1998, the Company completed its acquisition of Bijoux One Trading AG
("Bijoux"), a privately held 53-store fashion accessory chain. Bijoux,
headquartered in Zurich, Switzerland, became a wholly-owned subsidiary of the
Company. The transaction has been accounted for as a purchase and, accordingly,
Bijoux's operations have been consolidated with the Company as of November 1,
1998. The $9.4 million purchase price was comprised of cash and the issuance of
100,000 shares of the Company's stock, valued at $1.9 million. Excess purchase
price over fair market value of the underlying assets was allocated to goodwill,
which is being amortized over twenty-five years. Operating results on a pro
forma basis, including Bijoux as if the purchase had occurred at the beginning
of the periods presented, are not disclosed due to immateriality.
3. UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
acquisition of Afterthoughts as if it had occurred on February 1, 1998. This
unaudited pro forma financial information includes the effects of (a)
amortization of goodwill; (b) the interest income, net impact of the funds used
and borrowed to consummate the acquisition and (c) the federal and state income
taxes relating to the other adjustments at a combined statutory rate of 38%.
Prior to the acquisition, Afterthoughts operated as a division of Venator and
certain overhead costs and other expenses were allocated to Afterthoughts by
Venator. Accordingly, the unaudited pro forma financial information includes
such overhead costs and other expenses.
The unaudited pro forma financial information may not be comparable to and may
not be indicative of the Company's results of operations subsequent to the
acquisition because Afterthoughts was not under common control or management and
had different capital structures during the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------
2000 1999
---------- ----------
(In thousands, except for share data)
<S> <C> <C>
Net Sales $1,009,554 $ 856,442
Income before taxes 127,362 91,544
Net income 80,658 57,836
Earnings per common share, basic 1.58 1.14
Earnings per common share, diluted 1.57 1.13
</TABLE>
25
<PAGE>
4. DISCONTINUED OPERATIONS
In January 1999, the Company announced its decision to discontinue the
operations of Nikki, a wholly-owned subsidiary representing its catalog segment.
The operations of Nikki have been accounted for as a discontinued operation in
the Fiscal 1999 consolidated financial statements. Nikki had no significant
operations prior to Fiscal 1999. The Company liquidated Nikki's inventory and
sold or disposed of all the remaining assets during the first half of Fiscal
2000. Nikki's net sales during Fiscal 1999 were $14,717,000.
5. CREDIT FACILITIES
In connection with the acquisition of Afterthoughts, the Company entered into a
$215 million senior credit facility (the "Credit Facility") pursuant to which it
financed $200 million of the purchase price. The Credit Facility includes a $40
million revolving line of credit which matures on December 1, 2004 and a $175
million five year term loan, the first installment of which was made on December
31, 2000 with future installments, thereafter, payable on a quarterly basis
through December 1, 2004. The Credit Facility is prepayable without penalty and
bears interest at 100 basis points margin over the London Interbank Borrowing
Rate plus a 25 basis point unused line of credit fee. The margin is then
adjusted periodically based on the Company's performance as it relates to
certain financial measurements. At February 3, 2001, $180 million was
outstanding under this facility, bearing interest at 7.5%.
The Credit Facility contains covenants including, but not limited to,
limitations on investments, dividends and other restricted payments, incurrence
of additional debt and acquisitions, as well as various financial covenants
customary for transactions of this type. These financial covenants require
maintenance of a specified current ratio, fixed charge coverage ratio and
current leverage ratio. The Company was in compliance with these covenants at
February 3, 2001.
The Company's non-U.S. subsidiaries have credit facilities totaling
approximately $2.6 million 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 February 3, 2001, the borrowings
totaled $2,637,000, bearing interest at rates at approximately 5.5%.
The scheduled maturity of the Company's credit facilities are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR:
2002 $ 30,000
2003 40,000
2004 40,000
2005 73,000
--------
$183,000
========
</TABLE>
6. COMMITMENTS
The Company leases retail stores, offices and warehouse space and certain
equipment under operating leases which expire at various dates through the year
2025 with options to renew certain of such leases for additional periods. The
lease agreements covering retail store space provide for minimum rentals and/or
rentals based on a percentage of net sales. Rental expense for each of the
three fiscal years ended February 3, 2001 was as follows:
<TABLE>
<CAPTION>
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
Minimum rentals $132,831 $ 97,646 $ 75,749
Rentals based on net sales 2,245 2,406 1,975
Other rental expense - equipment 23,733 18,302 13,565
-------- -------- --------
Total rental expense $158,809 $118,354 $ 91,289
======== ======== ========
</TABLE>
26
<PAGE>
Minimum aggregate rental commitments under non-cancelable operating leases are
summarized by fiscal year ending as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2002 $142,145
2003 129,821
2004 118,815
2005 105,229
2006 91,400
Thereafter 325,944
--------
$913,354
========
</TABLE>
Certain leases provide for payment of real estate taxes, insurance and other
operating expenses of the properties. In other leases, some of these costs are
included in the basic contractual rental payments.
7. STOCKHOLDERS' EQUITY
Preferred Stock - The Company has authorized 1,000,000 shares of $1 par value
- ----------------
preferred stock, none of which has been issued. The rights and preferences of
such stock may be designated in the future by the Board of Directors.
Class A Common Stock - The Class A common stock has only limited transferability
- --------------------
and is not traded on any stock exchange or any organized market. However, the
Class A common stock is convertible on a share-for-share basis into Common stock
and may be sold, as Common stock, in open market transactions. The Class A
common stock has ten votes per share. Dividends declared on the Class A common
stock are limited to 50% of the dividends declared on the Common stock.
Treasury Stock - Treasury stock acquired is recorded at cost. Occasionally, the
- ---------------
Company uses treasury stock to fulfill its obligations under its stock option
plans. When stock is issued pursuant to the stock option plans, the difference
between the cost of treasury stock issued and the option price is charged or
credited to additional paid-in capital.
In April 2000, the Company's Board of Directors approved a $50 million stock
repurchase program. In connection with this program, the Company repurchased
2,546,200 shares at a cost of approximately $50 million. In December 2000, the
Company retired these shares.
8. STOCK OPTIONS
In August 1996, the Board of Directors of the Company adopted, and on June 16,
1997 the Company's stockholders approved, the Claire's Stores, Inc. 1996 Stock
Option Plan and, then on June 8, 2000, the first amendment thereto (as amended,
the "1996 Plan"). The 1996 Plan replaced the Company's 1991 Stock Option Plan
(the "1991 Plan"), which had replaced the Company's 1982 Incentive Stock Option
Plan (the "1982 Plan") and the Company's 1985 Non-Qualified Stock Option Plan
(the "1985 Plan"), although options granted under the 1991 Plan remain
outstanding. Under the 1996 Plan, the Company may grant either incentive stock
options or non-qualified stock options to purchase up to 4,000,000 shares of
Common Stock, plus any shares unused or recaptured under the 1982 Plan, the 1985
Plan or the 1991 Plan. Incentive stock options granted under the 1996 Plan are
exercisable at prices equal to the fair market value of shares at the date of
grant, except that incentive stock options granted to any person holding 10% or
more of the total combined voting power or value of all classes of capital stock
of the Company, or any subsidiary of the Company, carry an exercise price equal
to 110% of the fair market value at the date of grant. The aggregate number of
shares granted to any one person may not exceed 500,000, and no stock option may
be exercised less than one year after the date granted. Each incentive stock
option or non-qualified stock option will terminate ten years after the date of
grant (or such shorter period as specified in the grant) and may not be
exercised thereafter.
27
<PAGE>
Incentive stock options currently outstanding are exercisable at various rates
beginning one year from the date of grant, and expire five to ten years after
the date of grant. Non-qualified stock options currently outstanding are
exercisable at prices equal to the fair market value of the shares at the date
of grant and expire five to ten years after the date of grant.
Options to purchase an additional 927,599 shares were outstanding, but not yet
exercisable, at February 3, 2001 under the 1991 Plan and the1996 Plan. There
were 3,893,673 shares of Common stock available for future option grants under
the 1996 Plan at February 3, 2001 (which includes shares recaptured from the
previous plans).
A summary of the activity in the Company's stock option plans is presented
below:
<TABLE>
<CAPTION>
FISCAL 2001 FISCAL 2000 FISCAL 1999
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 1,191,824 $ 18.21 1,222,291 $ 13.66 1,466,144 $ 10.81
Options granted 605,000 $ 17.82 536,000 $ 25.08 455,000 $ 19.27
Options exercised (80,310) $ 5.95 (296,100) $ 8.28 (331,313) $ 6.02
Options canceled (356,250) $ 16.39 (270,367) $ 22.83 (367,540) $ 16.37
------------ --------- ------------ --------- ------------ ---------
Outstanding at end of period 1,360,264 $ 19.24 1,191,824 $ 18.21 1,222,291 $ 13.66
============ ========= ============ ========= ============ =========
Exercisable at end of period 432,665 $ 17.54 348,772 $ 14.81 484,987 $ 10.69
============ ========= ============ ========= ============ =========
Weighted average fair value of options
granted during the period (see below) $ 11.06 $ 24.92 $ 19.27
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
2001 2000 1999
------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Expected dividend yield 0.65% 0.64% 0.72%
Expected stock price volatility 50.00% 37.65% 36.62%
Risk-Free interest rate 6.14% 6.00% 5.50%
Expected life of options 4.5 and 9.5 years 4.5 and 9.5 years 4.5 and 9.5 years
</TABLE>
The following table summarizes information about stock options outstanding at
February 3, 2001:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER AVERAGE
SHARES CONTRACTUAL EXERCISE OF EXERCISE
Range of Exercise Prices OUTSTANDING LIFE PRICE SHARES PRICE
----------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
5.11 to $17.75 249,764 5.7 $ 11.65 90,510 $ 10.60
17.81 to $17.81 300,000 9.0 $ 17.81 0 $ 0.00
17.92 to $19.73 272,500 5.0 $ 18.09 266,250 $ 18.08
20.37 to $21.56 315,000 8.0 $ 20.81 46,589 $ 21.17
21.75 to $30.25 223,000 7.6 $ 28.82 29,316 $ 28.33
----------- ----------- ---------- -------- ----------
5.11 to $30.25 1,360,264 7.2 $ 19.24 432,665 $ 17.54
=========== =========== ========== ======== ==========
</TABLE>
28
<PAGE>
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation",
issued in October 1995. As permitted under the provisions of SFAS No. 123, the
Company applies the principles of APB Opinion 25 and related Interpretations in
accounting for its stock option plans and, accordingly, does not recognize
compensation cost. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net income and earnings per share would have been reduced to the
pro forma amounts indicated in the table below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Net income - as reported $64,975 $87,935 $62,280
Net income - pro forma 63,847 87,217 61,971
Basic net income per share - as reported 1.30 1.72 1.23
Basic net income per share - proforma 1.28 1.71 1.22
Diluted net income per share - as reported 1.30 1.71 1.22
Diluted net income per share - pro forma 1.27 1.70 1.21
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
- ---------------------
The Company has adopted a Profit Sharing Plan under Section 401(k) of the
Internal Revenue Code. This plan allows employees who serve more than 1,000
hours per year to defer up to 18% of their income through contributions to the
plan. In line with the provisions of the plan, for every dollar the employee
contributes the Company will contribute an additional $.50, up to 2% of the
employee's salary. In Fiscal 2001, Fiscal 2000 and Fiscal 1999, the cost of
Company matching contributions was $439,000, $435,000 and $378,000,
respectively.
Prior to the Lux merger (see Note 2), Lux had a profit sharing plan covering all
employees over 21 years old with over one year of service. Lux's contributions
to the plan were discretionary. The Company discontinued this plan during
Fiscal 2000.
Deferred Compensation Plans
- -----------------------------
In August 1999, the Company adopted a deferred compensation plan that enables
certain associates of the Company to defer a specified percentage of their cash
compensation. The plan generally provides for payments upon retirement, death,
or termination of employment. Participants may elect to defer a percentage of
their cash compensation while the Company contributes a specified percentage of
the participants' cash compensation based on the participants' number of years
of service. All contributions are immediately vested. The Company's
obligations under this plan are funded by making contributions to a rabbi trust.
Assets held under this plan are included in cash and cash equivalents on the
Company's balance sheet and totaled $682,000 and $249,000 at February 3, 2001
and January 29, 2000 respectively. The obligations under the plan are included
in accrued expenses. Total Company contributions were $154,000 and $61,000 in
fiscal 2001 and 2000, respectively.
Incentive Compensation Plan
- -----------------------------
In Fiscal 2001, the Company adopted, which was also approved by the Company's
shareholders, an incentive compensation plan for the Chairman of the Board.
Under this plan, a percentage equal to twice the percentage increase in the
consolidated pretax income of the Company over the prior fiscal year, will be
applied against the Chairman of the Board's base salary in determining the
amount of incentive compensation earned. No amounts were paid or accrued during
Fiscal 2001 by the Company pursuant to this plan.
29
<PAGE>
10. INCOME TAXES
Income before income taxes from continuing operations is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic $ 73,335 $114,962 $ 92,461
Foreign 26,913 23,833 21,275
-------- -------- --------
$100,248 $138,795 $113,736
======== ======== ========
</TABLE>
The components of income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
-------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Federal:
Current $ 18,968 $ 36,507 $ 32,095
Deferred 7,293 631 (1,266)
-------- --------- ----------
26,261 37,138 30,829
-------- --------- ----------
State:
Current 2,556 5,149 4,473
Deferred 756 73 (218)
-------- --------- ----------
3,312 5,222 4,255
-------- --------- ----------
Foreign:
Current 5,700 8,500 7,000
-------- --------- ----------
Total income tax expense from continuing operations 35,273 50,860 42,084
Tax benefit of discontinued operations - - (5,531)
-------- --------- ----------
Total income tax expense $ 35,273 $ 50,860 $ 36,553
======== ========= ==========
</TABLE>
The approximate tax effect on each type of significant components of the
Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------
FEB. 3, JAN. 29,
2001 2000
--------- ----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Depreciation $ 723 $ 4,888
Accrued expenses 729 2,815
Deferred rent 955 2,690
Inventory reserves 5 68
Other - 242
Net operating loss carryforwards 1,565 -
--------- ----------
Total gross deferred tax assets 3,977 10,703
Valuation allowance (1,565) -
--------- ----------
Total deferred tax assets, net 2,412 10,703
--------- ----------
Deferred tax liabilities:
Operating leases (506) (906)
Other (158) -
--------- ----------
Total deferred tax liabilities (664) (906)
--------- ----------
Net deferred tax asset $ 1,748 $ 9,797
========= ==========
</TABLE>
30
<PAGE>
The provision for income taxes from continuing operations differs from an amount
computed at the statutory rates as follows:
<TABLE>
<CAPTION>
FEB. 3, JAN. 29, JAN. 30,
2001 2000 1999
-------- --------- ---------
<S> <C> <C> <C>
U.S. income taxes at statutory rates 35% 35% 35%
Foreign income tax benefit at less than domestic rate (3) (1) (1)
State and local income taxes, net of federal tax benefit 3 3 3
-------- --------- ---------
35% 37% 37%
======== ========= =========
</TABLE>
The Company believes that the realization of the net deferred tax assets is more
likely than not, based on the expectation that the Company will generate the
necessary taxable income in future periods. As of February 3, 2001, there are
accumulated unremitted earnings from the Company's foreign subsidiaries on which
deferred taxes have not been provided as the undistributed earnings of the
foreign subsidiaries are indefinitely reinvested. Based on the current United
States and foreign subsidiaries income tax rates, it is estimated that United
States taxes, net of foreign tax credits, of approximately $7.6 million would be
due upon repatriation.
As of February 3, 2001, foreign subsidiaries of the Company had available net
operating loss (NOL) carryforwards of approximately $4.6 million for income tax
purposes, of which, $2.2 million has an indefinite expiration. The remaining
$2.4 million expires between the years 2001 and 2004. Generally, a valuation
allowance has been established for these carryforwards because the ability to
utilize them is uncertain.
11. STATEMENTS OF CASH FLOWS
Payments of income taxes were $42,060,000 in Fiscal 2001, $46,987,000 in Fiscal
2000 and $33,299,000 in Fiscal 1999. Payments of interest were $12,918,000 in
Fiscal 2001, $1,496,000 in Fiscal 2000 and $67,000 in Fiscal 1999.
12. RELATED PARTY TRANSACTIONS
The Company leases from Rowland Schaefer & Associates (formerly Two Centrum
Plaza Associates) approximately 33,000 square feet of office space in a building
where it maintains its executive and accounting and finance offices. The lease
for this space expires on July 31, 2005 and may be extended at the option of the
Company for an additional five-year term. Rowland Schaefer & Associates is a
general partnership of two corporate general partnerships which are owned by
immediate family members of the Chairman of the Board and President of the
Company, two of whom are Co-Vice Chairmen of the Company. The lease provides
for the payment by the Company of annual base rent of approximately $574,000,
which is subject to annual cost-of-living increases, and a proportionate share
of all taxes and operating expenses of the building. The Company believes that
the terms of the lease are no less favorable to the Company than those which
could have been obtained from an unrelated third party.
31
<PAGE>
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 3, 2001
--------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR YEAR
-------- -------- -------- -------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $232,000 $251,982 $247,536 $328,898 $1,060,417
Gross profit 103,604 126,931 120,031 161,593 512,161
Net income 3,993 17,112 13,844 30,025 64,975
Basic net income per share $ 0.08 $ 0.34 $ 0.28 $ 0.62 $ 1.30
Diluted net income per share $ 0.08 $ 0.34 $ 0.28 $ 0.61 $ 1.30
FISCAL YEAR ENDED JANUARY 29, 2000
--------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR YEAR
-------- -------- -------- -------- ----------
(In thousands except per share amounts)
Net sales $170,663 $186,090 $182,750 $307,395 $ 846,898
Gross profit 85,670 94,487 90,092 166,797 437,046
Net income 13,800 20,320 12,726 41,089 87,935
Basic net income per share $ 0.27 $ 0.40 $ 0.25 $ 0.80 $ 1.72
Diluted net income per share $ 0.27 $ 0.40 $ 0.25 $ 0.80 $ 1.71
</TABLE>
32
<PAGE>
14. SEGMENT REPORTING
The Company is primarily organized based on the geographic markets in which it
operates. Under this organizational structure, the Company currently has three
reportable segments: North American Accessory, International Accessory and the
Apparel Stores.
Information about the Company's operations by segment is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------- -----------------
2001 2000 1999
----------- --------- ---------
<S> <C> <C> <C>
Net sales:
North American Accessory $ 764,154 $625,652 $523,370
International Accessory 182,561 139,196 82,414
Apparel Stores 113,702 82,050 56,072
----------- --------- ---------
Total net sales $1,060,417 $846,898 $661,856
=========== ========= =========
Operating income (loss):
North American Accessory $ 123,065 $143,502 $109,873
International Accessory 32,662 31,182 17,610
Apparel Stores (1,403) (5,746) 6,675
----------- --------- ---------
Total operating income $ 154,324 $168,938 $134,158
=========== ========= =========
Depreciation and amortization:
North American Accessory $ 34,039 $ 22,442 $ 18,245
International Accessory 8,000 4,658 2,409
Apparel Stores 2,110 1,741 1,224
----------- --------- ---------
Total depreciation and amortization $ 44,149 $ 28,841 $ 21,878
=========== ========= =========
Interest expense (income), net:
North American Accessory $ 11,254 $ (2,398) $ (5,960)
International Accessory (1,330) (1,075) (317)
Apparel Stores 3 4 21
----------- --------- ---------
Total interest expense (income), net $ 9,927 $ (3,469) $ (6,256)
=========== ========= =========
Loss (gain) on investments - $ (3,929) $ 4,800
=========== ========= =========
Impairment of long-lived assets - $ 8,700 $ -
=========== ========= =========
Income from continuing operations before income taxes $ 100,248 $138,795 $113,736
=========== ========= =========
Identifiable assets:
North American Accessory $ 225,372 $442,234 $187,226
International Accessory 128,934 93,057 49,746
Apparel Stores 34,840 28,540 18,197
Corporate 279,388 138,268 139,103
----------- --------- ---------
Total assets $ 668,534 $702,099 $394,272
=========== ========= =========
Capital expenditures:
North American Accessory $ 25,004 $ 25,025 $ 30,597
International Accessory 18,401 17,324 10,405
Apparel Stores 2,054 6,517 4,209
----------- --------- ---------
Total capital expenditures $ 45,459 $ 48,866 $ 45,211
=========== ========= =========
</TABLE>
33
<PAGE>
Identifiable assets are those assets that are identified with the operations of
each segment. Corporate assets consist mainly of cash and cash equivalents,
investments in affiliated companies and other assets. Operating income
represents gross profit less selling, general and administrative costs.
Approximately 14%, 14% and 12% of the Company's net sales were in the United
Kingdom for Fiscal Years' 2001, 2000 and 1999, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10,11,12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Items 10, 11, 12 and 13 will be contained in the
Company's definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than 120 days after the end of the Company's fiscal year covered by this report
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
Page No.
---------
1. FINANCIAL STATEMENTS
Independent Auditors' Report 17
Consolidated Balance Sheets as of February 3, 2001 and
January 29, 2000 18
Consolidated Statements of Income and Comprehensive Income
for the three fiscal years ended February 3, 2001 19
Consolidated Statements of Changes in Stockholders'
Equity for the three fiscal years ended February 3, 2001 20
Consolidated Statements of Cash Flows
for the three fiscal years ended February 3, 2001 21
Notes to Consolidated Financial Statements 22
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is included in
the consolidated financial statements or the notes thereto, or the omitted
schedules are not applicable.
3. EXHIBITS
(2)(a) Agreement and Plan of Merger dated as of March 9, 1998 among the
Company, CSI Acquisition Corp., Lux Corporation, and David Shih, Eva
Shih, Daniel Shih, Douglas Shih, the Shih Irrevocable Trust and
Crestwood Partners LLC, as amended by letter amendment dated March 23,
1998 and addendum thereto dated March 24, 1998 (incorporated by
reference to exhibit 2 (a) to the Company's Annual Report on form 10-K
for the fiscal year ended January 30, 1999).
34
<PAGE>
(2)(b) Stock Purchase Agreement dated as of November 11, 1998 between the
Company and Peter Bossert, an individual, for any and all
shares/Company contributions of: Bijoux One AG, Zurich, Switzerland,
Bijoux One Trading AG, Zurich, Switzerland, Bijoux One Trading GesmbH,
Brunn am Gebirge, Austria and Bosco GmbH, Stuttgart, Germany (omitted
schedules will be furnished supplementally to the Commission upon
request (incorporated by reference to exhibit 2 (b) to the Company's
Annual Report on form 10-K for the fiscal year ended January 30,
1999).
(2)(c) Asset Purchase Agreement, dated as of November 1, 1999, by and
between the Company, Venator Group, Inc., Venator Group Specialty,
Inc., Venator Group Canada, Inc., Afterthoughts Boutiques, Inc. and
Afterthoughts (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 1, 1999).
(2)(d) Agreement and Plan of Merger, dated as of April 28, 2000, by and
between Claire's Stores, Inc. and CSI Florida Acquisition, Inc.
(incorporated by reference to Appendix A to the Company's Proxy
Statement relating to the 2000 Annual Meeting of Stockholders).
(3)(a) Amended and Restated Articles of Incorporation of Claire's Stores,
Inc. (formerly known as CSI Florida Acquisition, Inc.) (incorporated
by reference to Exhibit 3.1 to the Company's Current Report on Form
8-K dated June 30, 2000).
(3)(b) Bylaws of Claire's Stores, Inc. (formerly known as CSI Florida
Acquisition, Inc.) (incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K dated June 30, 2000).
(10)(a) Credit Agreement, dated as of December 1, 1999, by and among, the
Company, the several banks and other financial institutions or
entities from time to time parties thereto, Bear Stearns & Co., Inc.,
as sole lead arranger and sole book manager, Bear Stearns Corporate
Lending, Inc., as syndication agent, Suntrust Banks South Florida,
N.A., as documentation agent (incorporated by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated December 1, 1999).
(10)(b) Form of Note (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated December 1, 1999).
(10)(c) Form of Guarantee (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated December 1, 1999).
(10)(d) Incentive Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1986).
(10)(e) Non-Qualified Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1986).
(10)(f) 1991 Stock Option Plan of the Company (incorporated by reference to
Appendix A to the Company's Proxy Statement relating to the 1991
Annual Meeting of Stockholders).
(10)(g) 1996 Stock Option Plan of the Company (incorporated by reference to
Appendix A to the Company's Proxy Statement relating to the 1997
Annual Meeting of Stockholders).
35
<PAGE>
(10)(h) 401(k) Profit Sharing Plan, as amended (incorporated by reference
to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1992).
(10)(i) Office Lease Agreement dated September 8, 1989 between the Company
and Two Centrum Plaza Associates (incorporated by reference to Exhibit
10(h) to the Company's Annual Report on Form 10-K for the fiscal year
ended February 2, 1991).
(10)(j) Amendment of Office Lease Agreement dated July 31, 1990 between the
Company and Two Centrum Plaza Associates (incorporated by reference to
exhibit 10 (g) to the Company's Annual Report on form 10-K for the
fiscal year ended January 30, 1999).
(10)(k) Addendum to Office Lease dated September 8, 1989 between the
Company and Two Centrum Plaza Associates (incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991).
(10)(l) Second addendum to office lease dated January 30, 1997 between the
Company and Two Centrum Plaza Associates (incorporated by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997).
(10)(m) Lease between Chancellory Commons I Limited Partnership and
Claire's Boutiques, Inc. dated August 31, 1990 (incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on form 10-K
for the fiscal year ended February 1, 1992).
(10)(n) Consent and Waiver, dated as of June 13, 2000, to the Credit
Agreement, dated as of December 1, 1999, by and among the Company, the
several banks and other financial institutions or entities from time
to time parties thereto, Bear Stearns & Co., Inc., Bear Stearns
Corporate Lending, Inc., SunTrust Banks South Florida, N.A. and Fleet
National Bank (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
July 29, 2000).
(10)(o) First Amendment to 1996 Stock Option Plan of the Company
(incorporated by reference to Appendix D of the Company's Proxy
Statement relating to the 2000 Annual Meeting of Stockholders).
(10)(p) 2000 Incentive Compensation Plan for the Chairman of the Board of
the Company (incorporated by reference to Appendix E of the Company's
Proxy Statement relating to the 2000 Annual Meeting of Stockholders).
(21) Subsidiaries of the Company.
(24) Power of Attorney (included on signature page).
Each management contract or compensatory plan or arrangement to be filed as an
exhibit to this report pursuant to Item 14(c) is listed in exhibit nos. (10)(d),
(10)(e), (10)(f), 10(g), 10(h), (10)(o) and (10)(p).
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CLAIRE'S STORES, INC.
By /S/RowlandSchaefer
------------------
Rowland Schaefer
Chief Executive Officer,
President and Chairman
of the Board of Directors
April 27, 2001
POWER OF ATTORNEY
We, the undersigned, hereby constitute Ira D. Kaplan and Michael
Rabinovitch, or either of them, our true and lawful attorneys-in-fact with full
power to sign for us in our name and in the capacity indicated below any and all
amendments and supplements to this report, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact or their substitutes, each acting alone, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 13, 2001.
/S/ Rowland Schaefer Chief Executive Officer, President and Chairman of
- ------------------------- the Board of Directors
Rowland Schaefer (Principal Executive Officer)
/S/ Marla Schaefer Vice Chairman of the Board of Directors
- -------------------------
Marla Schaefer
/S/ Eileen B. Schaefer Vice Chairman of the Board of Directors
- -------------------------
Eileen B. Schaefer
/S/ Ira D. Kaplan Senior Vice President, Chief Financial Officer and
- ------------------------- Director
Ira D. Kaplan (Principal Financial and Accounting Officer)
/S/ Irwin Kellner Director
- -------------------------
Irwin Kellner
/S/ Bruce G. Miller Director
- -------------------------
Bruce G. Miller
/S/ Steven Tishman Director
- -------------------------
Steven Tishman
37
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>2
<FILENAME>subsidiaries.txt
<TEXT>
<TABLE>
<CAPTION>
CLAIRE'S STORES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
NAME STATE/COUNTRY OF INCORPORATION
---- --------------------------------
<S> <C>
Claire's Boutiques, Inc. Delaware
CSL, Inc. Delaware
CBI Distributing Corp. Delaware
RSI International Limited Hong Kong
Claire's Puerto Rico Corp. Delaware
Claire's Canada Corp. Delaware
Claire's Accessories UK, Ltd. United Kingdom
Afterthoughts Merchandising Corp. Delaware
Sassy Doo!, Inc. Delaware
Lux Corporation Washington
Claire's International Europe GmbH Switzerland
Bijoux One GmbH Switzerland
Claire's Accessories GmbH Germany
Bijoux One Trading GesmbH Austria
Modewaren Femina Handelsgesell -
Schaft m.b.H. & Co. KG Austria
Sotecca S.A.S. France
Cleopatre Fashion S.A.S. France
CSI Accessories, Ltd. Ireland
CSI Luxembourg S.a.r.l. Luxembourg
Claire's Holding GmbH Switzerland
</TABLE>
<PAGE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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