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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 
| 
|  |  | For the Quarterly Period Ended November 2, 2002                                         
| 
|  |  | OR                                                                                      
|o |  | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from ______________ to ____________________

Commission file number 1-8899

CLAIRES STORES, INC.

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(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-0940416                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                             |  |           
|-------------------------------------------- |  | ----------
|3 S.W. 129th Avenue, Pembroke Pines, Florida |  | 33027     
|                                             |  |           
|(Address of principal executive offices)     |  | (Zip Code)

(954) 433-3900

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(Registrants telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)



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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes   x   No   o

The number of shares of the registrants Common Stock and Class A Common Stock
outstanding as of November 30, 2002 was 46,084,369 and 2,803,648, respectively,
excluding treasury shares.



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TABLE OF CONTENTS



|                                                                                          |                                                                                                |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                            
|                                                                                          | Item 1. Financial Statements                                                                  
|UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                                          
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                
|NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                           
|                                                                                          | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                                                          | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            
|                                                                                          | Item 4. Controls and Procedures                                                               
|PART II. OTHER INFORMATION                                                               
|                                                                                          | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURE                                                                                
|Employment Agreement w/Rowland Schaefer                                                  
|Certification of Co-Chief Executive Officer                                              
|Certification of Co-Chief Executive Officer                                              
|Certification of Chief Financial Officer                                                 



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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX

|        |  |                                                                                                                                                                      |  |         
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|        |  |                                                                                                                                                                      |  | PAGE NO.
|        |  |                                                                                                                                                                      |  |         
|PART I  |  | FINANCIAL INFORMATION                                                                                                                                                |  |         
|       
|        |  | Item 1. Financial Statements                                                                                                                                         |  |         
|       
|        |  | Unaudited Condensed Consolidated Balance Sheets at November 2, 2002 and February 2, 2002.                                                                            |  | 3       
|       
|        |  | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended November 2, 2002 and November 3, 2001. |  | 4       
|       
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended November 2, 2002 and November 3, 2001.                                           |  | 5       
|       
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                       |  | 6       
|       
|        |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                        |  | 9       
|       
|        |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                                                   |  | 16      
|       
|        |  | Item 4. Controls and Procedures                                                                                                                                      |  | 16      
|       
|       
|PART II |  | OTHER INFORMATION                                                                                                                                                    |  |         
|       
|        |  | Item 6. Exhibits and Reports on Form 8-K                                                                                                                             |  | 17      

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements


CLAIRES STORES, INC. AND SUBSIDIARIES





UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |          |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------------------------------------------------- | ------- | ------- | ------- | -------- | ------- | 
|                                           |                                                                                                                                         |                           |         | Nov. 2,                                           |         | Feb. 2,
|                                           |                                                                                                                                         |                           |         | 2002                                              |         | 2002   
|                                           |                                                                                                                                         |                           |         |                                                   |         |        
|                                           |                                                                                                                                         |                           |         | (In thousands, except share andper share amounts)
|ASSETS                                     |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Current assets:                            |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           | Cash and cash equivalents                                                                                                               |                           | $       | 130,076                                           |         |         | $       | 99,912   |        
|                                           | Short-term investments                                                                                                                  |                           |         |                                                  |         |         |         | 1,563    |        
|                                           | Inventories                                                                                                                             |                           |         | 106,812                                           |         |         |         | 78,596   |        
|                                           | Prepaid expenses and other current assets                                                                                               |                           |         | 43,415                                            |         |         |         | 34,353   |        
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         | Total current assets      |         |                                                   | 280,303 |         |         |          | 214,424 | 
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Property and equipment:                    |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           | Land and building                                                                                                                       |                           |         | 18,013                                            |         |         |         | 17,984   |        
|                                           | Furniture, fixtures and equipment                                                                                                       |                           |         | 200,341                                           |         |         |         | 187,565  |        
|                                           | Leasehold improvements                                                                                                                  |                           |         | 157,358                                           |         |         |         | 136,422  |        
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 375,712 |                                                   |         |         | 341,971 |         
|                                           | Less accumulated depreciation and amortization                                                                                          |                           |         | (200,840                                          | )       |         |         | (177,997 | )      
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 174,872 |                                                   |         |         | 163,974 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Goodwill, net                              |                                                                                                                                         |                           | 196,140 |                                                   |         |         | 193,140 |         
|Other assets                               |                                                                                                                                         |                           | 48,103  |                                                   |         |         | 40,037  |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 244,243 |                                                   |         |         | 233,177 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Total Assets                               |                                                                                                                                         | $                         | 699,418 |                                                   |         | $       | 611,575 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Current liabilities:                       |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           | Current portion of long-term debt                                                                                                       |                           | $       | 31,088                                            |         |         | $       | 21,040   |        
|                                           | Trade accounts payable                                                                                                                  |                           |         | 55,412                                            |         |         |         | 30,874   |        
|                                           | Income taxes payable                                                                                                                    |                           |         | 7,481                                             |         |         |         | 4,800    |        
|                                           | Accrued expenses                                                                                                                        |                           |         | 37,308                                            |         |         |         | 25,822   |        
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         | Total current liabilities |         |                                                   | 131,289 |         |         |          | 82,536  | 
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Long term liabilities:                     |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           | Long term debt                                                                                                                          |                           |         | 100,000                                           |         |         |         | 110,104  |        
|                                           | Deferred credits                                                                                                                        |                           |         | 15,473                                            |         |         |         | 14,747   |        
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 115,473 |                                                   |         |         | 124,851 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Commitments and contingencies              |                                                                                                                                         |                           |        |                                                   |         |         |        |         
|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 2,821,022
shares and 2,830,819 shares, respectively |                           |         | 141                                               |         |         |         | 142      |        
|                                           | Common stock par value $.05 per share; authorized
150,000,000 shares, issued 46,066,995 shares and
45,949,647 shares, respectively      |                           |         | 2,303                                             |         |         |         | 2,297    |        
|                                           | Additional paid-in capital                                                                                                              |                           |         | 31,574                                            |         |         |         | 29,871   |        
|                                           | Accumulated other comprehensive loss                                                                                                    |                           |         | (1,787                                            | )       |         |         | (16,709  | )      
|                                           | Retained earnings                                                                                                                       |                           |         | 420,877                                           |         |         |         | 389,039  |        
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 453,108 |                                                   |         |         | 404,640 |         
|                                           | Treasury stock, at cost (109,882 shares)                                                                                                |                           |         | (452                                              | )       |         |         | (452     | )      
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|                                           |                                                                                                                                         |                           | 452,656 |                                                   |         |         | 404,188 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         
|Total Liabilities and Stockholders Equity |                                                                                                                                         | $                         | 699,418 |                                                   |         | $       | 611,575 |         
|                                           |                                                                                                                                         |                           |         |                                                   |         |         |         |         

See accompanying notes to unaudited condensed consolidated financial statements.

3



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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |         |        |       |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------- | ------ | ---------------------------------------- | - | ----------------- | ------ | ------- | ----- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | ----- | -
|                                               |                                                                                                                                  |                                                  |                                             |        | Three Months Ended                       |   | Nine Months Ended
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                  
|                                               |                                                                                                                                  |                                                  |                                             |        | Nov. 2,                                  |   | Nov. 3,           |        | Nov. 2, |       | Nov. 3,
|                                               |                                                                                                                                  |                                                  |                                             |        | 2002                                     |   | 2001              |        | 2002    |       | 2001   
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |        
|                                               |                                                                                                                                  |                                                  |                                             |        | (In thousands, except per share amounts)
|Net sales                                      |                                                                                                                                  | $                                                | 230,043                                     |        |                                          | $ | 204,139           |        |         | $     | 679,143 |         |        | $    | 638,328 |        
|Cost of sales, occupancy and buying expenses   |                                                                                                                                  |                                                  | 114,978                                     |        |                                          |   | 106,630           |        |         |       | 343,868 |         |        |      | 340,317 |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Gross profit                                   |                                                                                                                                  |                                                  | 115,065                                     |        |                                          |   | 97,509            |        |         |       | 335,275 |         |        |      | 298,011 |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Other expenses:                                |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Selling, general and administrative                                                                                              |                                                  |                                             | 85,625 |                                          |   |                   | 80,529 |         |       |         | 250,076 |        |      |         | 242,771 |       
|                                               | Depreciation and amortization                                                                                                    |                                                  |                                             | 9,895  |                                          |   |                   | 10,874 |         |       |         | 27,991  |        |      |         | 31,977  |       
|                                               | Interest and other                                                                                                               |                                                  |                                             | 976    |                                          |   |                   | 1,295  |         |       |         | 2,805   |        |      |         | 5,414   |       
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  |                                                  | 96,496                                      |        |                                          |   | 92,698            |        |         |       | 280,872 |         |        |      | 280,162 |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Income from continuing operations before
income taxes                                                                            |                                                  |                                             | 18,569 |                                          |   |                   | 4,811  |         |       |         | 54,403  |        |      |         | 17,849  |       
|Income tax expense                             |                                                                                                                                  |                                                  | 6,488                                       |        |                                          |   | 1,707             |        |         |       | 18,963  |         |        |      | 6,535   |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Income from continuing operations                                                                                                |                                                  |                                             | 12,081 |                                          |   |                   | 3,104  |         |       |         | 35,440  |        |      |         | 11,314  |       
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Discontinued operation:                        |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | (Loss) from discontinued operation of Lux Corp., less
applicable income tax benefit of $0, $(435), $0
and $(4,268), respectively |                                                  |                                             |       |                                          |   |                   | (725   | )       |       |         |        |        |      |         | (7,114  | )     
|                                               | Gain on disposal of Lux Corp., less applicable
income taxes of $169, $0, $1,246 and $0,
respectively                             |                                                  |                                             | 281    |                                          |   |                   |       |         |       |         | 2,077   |        |      |         |        |       
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Net gain (loss) from discontinued operation                                                                                      |                                                  |                                             | 281    |                                          |   |                   | (725   | )       |       |         | 2,077   |        |      |         | (7,114  | )     
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Net income                                                                                                                       |                                                  |                                             | 12,362 |                                          |   |                   | 2,379  |         |       |         | 37,517  |        |      |         | 4,200   |       
|                                               |                                                                                                                                  | Foreign currency translation adjustments         |                                             |        | 582                                      |   |                   |        | (501    | )     |         |         | 14,921 |      |         |         | (6,974 | )    
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  | Comprehensive income (loss)                      |                                             | $      | 12,944                                   |   |                   | $      | (2,880  | )     |         | $       | 52,438 |      |         | $       | (2,774 | )    
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Net income per share:                          |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Basic:                                                                                                                           |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |         |       
|                                               |                                                                                                                                  | Income from continuing operations                |                                             | $      | 0.25                                     |   |                   | $      | 0.06    |       |         | $       | 0.73   |      |         | $       | 0.23   |      
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  | (Loss) from operations of discontinued operation |                                             |        |                                         |   |                   |        | (0.01   | )     |         |         |       |      |         |         | (0.14  | )    
|                                               |                                                                                                                                  | Gain from disposal of discontinued operation     |                                             |        |                                         |   |                   |        |        |       |         |         | 0.04   |      |         |         |       |      
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  |                                                  | Net gain (loss) from discontinued operation |        |                                          |  |                   |        |         | (0.01 | )       |         |        | 0.04 |         |         |        | (0.14 | )
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Net income per share                           |                                                                                                                                  | $                                                | 0.25                                        |        |                                          | $ | 0.05              |        |         | $     | 0.77    |         |        | $    | 0.09    |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Diluted:                                                                                                                         |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |         |       
|                                               |                                                                                                                                  | Income from continuing operations                |                                             | $      | 0.25                                     |   |                   | $      | 0.06    |       |         | $       | 0.73   |      |         | $       | 0.23   |      
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  | (Loss) from operations of discontinued operation |                                             |        |                                         |   |                   |        | (0.01   | )     |         |         |       |      |         |         | (0.14  | )    
|                                               |                                                                                                                                  | Gain from disposal of discontinued operation     |                                             |        |                                         |   |                   |        |        |       |         |         | 0.04   |      |         |         |       |      
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               |                                                                                                                                  |                                                  | Net gain (loss) from discontinued operation |        |                                          |  |                   |        |         | (0.01 | )       |         |        | 0.04 |         |         |        | (0.14 | )
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Net income per share                           |                                                                                                                                  | $                                                | 0.25                                        |        |                                          | $ | 0.05              |        |         | $     | 0.77    |         |        | $    | 0.09    |        
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|Weighted average number of shares outstanding: |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Basic                                                                                                                            |                                                  |                                             | 48,717 |                                          |   |                   | 48,671 |         |       |         | 48,686  |        |      |         | 48,670  |       
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        
|                                               | Diluted                                                                                                                          |                                                  |                                             | 48,902 |                                          |   |                   | 48,740 |         |       |         | 48,845  |        |      |         | 48,750  |       
|                                               |                                                                                                                                  |                                                  |                                             |        |                                          |   |                   |        |         |       |         |         |        |      |         |        

See accompanying notes to unaudited condensed consolidated financial statements.

4



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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES




UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |         |         |  
|----------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------- | ----------------- | ------- | ------- | ------- | ------- | ------- | -
|                                                                              |                                                                                   |                                                                |         | Nine Months Ended
|                                                                              |                                                                                   |                                                                |         |                  
|                                                                              |                                                                                   |                                                                |         | Nov. 2,           |         | Nov. 3,
|                                                                              |                                                                                   |                                                                |         | 2002              |         | 2001   
|                                                                              |                                                                                   |                                                                |         |                   |         |        
|                                                                              |                                                                                   |                                                                |         | (In thousands)   
|Cash flows from operating activities:                                         |                                                                                   |                                                                |         |                   |         |         |         |        
|                                                                              | Net income                                                                        |                                                                | $       | 37,517            |         |         | $       | 4,200   |        
|                                                                              | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                |         |                   |         |         |         |         |        
|                                                                              |                                                                                   | Loss from discontinued operation, net of tax benefit           |         |                   |        |         |         |         | 7,114   |  
|                                                                              |                                                                                   | Gain on disposal of discontinued operation, net of tax expense |         |                   | (2,077  | )       |         |         |        |  
|                                                                              |                                                                                   | Depreciation and amortization                                  |         |                   | 27,991  |         |         |         | 31,977  |  
|                                                                              |                                                                                   | Loss on retirement of property and equipment                   |         |                   | 2,309   |         |         |         | 1,266   |  
|                                                                              | (Increase) decrease in -                                                          |                                                                |         |                   |         |         |         |         |        
|                                                                              |                                                                                   | Inventories                                                    |         |                   | (26,045 | )       |         |         | (10,201 | )
|                                                                              |                                                                                   | Prepaid expenses and other assets                              |         |                   | (13,942 | )       |         |         | (11,247 | )
|                                                                              | Increase (decrease) in -                                                          |                                                                |         |                   |         |         |         |         |        
|                                                                              |                                                                                   | Trade accounts payable                                         |         |                   | 23,569  |         |         |         | 30,346  |  
|                                                                              |                                                                                   | Income taxes payable                                           |         |                   | 2,614   |         |         |         | (2,026  | )
|                                                                              |                                                                                   | Accrued expenses                                               |         |                   | 10,525  |         |         |         | (3,532  | )
|                                                                              |                                                                                   | Deferred credits                                               |         |                   | 472     |         |         |         | (347    | )
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Net cash provided by continuing operations                                    |                                                                                   |                                                                | 62,933  |                   |         |         | 47,550  |        
|Net cash provided by (used in) discontinued operations                        |                                                                                   |                                                                | 2,428   |                   |         |         | (1,376  | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Net cash provided by operating activities                                     |                                                                                   |                                                                | 65,361  |                   |         |         | 46,174  |        
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Cash flows from investing activities:                                         |                                                                                   |                                                                |         |                   |         |         |         |        
|                                                                              | Acquisition of property and equipment                                             |                                                                |         | (36,233           | )       |         |         | (25,871 | )      
|                                                                              | Sale of short-term investments                                                    |                                                                |         | 1,563             |         |         |         |        |        
|                                                                              | Capital expenditures of discontinued operations                                   |                                                                |         | (352              | )       |         |         | (767    | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Net cash used in investing activities:                                        |                                                                                   |                                                                | (35,022 | )                 |         |         | (26,638 | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Cash flows from financing activities:                                         |                                                                                   |                                                                |         |                   |         |         |         |        
|                                                                              | Principal borrowings on lines of credit                                           |                                                                |         |                  |         |         |         | 10,430  |        
|                                                                              | Principal payments on term loan                                                   |                                                                |         | (56               | )       |         |         | (7,500  | )      
|                                                                              | Proceeds from stock options exercised                                             |                                                                |         | 1,703             |         |         |         | 45      |        
|                                                                              | Dividends paid                                                                    |                                                                |         | (5,679            | )       |         |         | (5,676  | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Net cash used in financing activities                                         |                                                                                   |                                                                | (4,032  | )                 |         |         | (2,701  | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Effect of foreign currency exchange rate changes on cash
and cash equivalents |                                                                                   |                                                                | 3,857   |                   |         |         | (5,012  | )      
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Net increase in cash and cash equivalents                                     |                                                                                   |                                                                | 30,164  |                   |         |         | 11,823  |        
|Cash and cash equivalents at beginning of period                              |                                                                                   |                                                                | 99,912  |                   |         |         | 111,860 |        
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        
|Cash and cash equivalents at end of period                                    |                                                                                   | $                                                              | 130,076 |                   |         | $       | 123,396 |        
|                                                                              |                                                                                   |                                                                |         |                   |         |         |         |        

See accompanying notes to unaudited condensed consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES




NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company without audit, in accordance with the
instructions to Form 10-Q, and therefore do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. These statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended
February 2, 2002 filed with the Securities and Exchange Commission,
including Note 1 to the consolidated financial statements included therein
which discusses consolidation and financial statement presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues, expenses and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results could
differ from those estimates and assumptions. Due to the seasonal nature of
the Companys business, the results of operations for the first nine months
of the year are not indicative of the results of operations on an annualized
basis. Certain prior period amounts have been reclassified to conform to
the current period presentation. See Note 4.

2. Earnings Per Share

Basic net income per share is computed based on the weighted average number
of shares of Class A Common Stock and Common Stock outstanding during the
period presented, while diluted net income per share includes the dilutive
effect of stock options. Options to purchase 60,905 shares and 1,147,337
shares of common stock, at prices ranging from $25.00 to $30.25 per share
and $17.75 to $30.25 per share, respectively, were outstanding for the
quarters ended November 2, 2002 and November 3, 2001, 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 quarter. Options to purchase
231,130 shares and 1,166,826 shares of common stock, at prices ranging from
$21.25 to $30.25 per share and $17.31 to $30.25 per share, respectively,
were outstanding for the nine months ended November 2, 2002 and November 3,
2001, 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 nine month
period.

3. New Accounting Pronouncements

Effective February 3, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets. In accordance with SFAS 142, the Company ceased amortizing its
goodwill effective February 3, 2002. The Company recorded $2.2 million and
$6.6 million of amortization during the third quarter and nine months ended
November 3, 2001 respectively, and would have recorded $2.2 million and $6.6
million of amortization during the third quarter and nine months ended
November 2, 2002, respectively. Net income for the three and nine months
ended November 3, 2001 would have been $3.8 million and $8.5 million or
$0.08 and $0.17 per diluted share, respectively, without goodwill
amortization expense during those periods. The Company had $196.1 and
$193.1 million of unamortized goodwill at November 2, 2002 and February 2,
2002, respectively.

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SFAS 142 required the Company upon its adoption to reassess the value of,
and useful lives assigned to, intangible assets including goodwill to
determine whether the value of one or more intangible assets is impaired.
The first step of this impairment test required the Company, within the
first six months of Fiscal 2003, to determine the fair value of the
reporting unit, as defined by SFAS 142, and compare it to the carrying value
of the net assets allocated to the reporting unit. If this fair value
exceeded the carrying value, no further analysis was required. If the fair
value of the reporting unit was less than the carrying value of the net
assets, the Company was required to perform step two of the impairment test,
which required the Company to allocate the implied fair value of the
reporting unit to all underlying assets and liabilities, including both
recognized and unrecognized tangible and intangible assets, based on their
fair value. The Company performed a transitional goodwill impairment test
as required and has determined that no goodwill impairment existed at
February 3, 2002. The Company has also evaluated the lives of all of its
intangible assets. As a result of this evaluation, the Company has
determined that none of its intangible assets, other than goodwill, have
indefinite lives and that the existing useful lives are appropriate.

SFAS 142 also requires the Company to perform a goodwill impairment test on
an annual basis. Any impairment charges resulting from the application of
this test in the future would be immediately recorded as a charge to
earnings in the Companys statement of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement retains the requirements
of SFAS No. 121 to (a) recognize an impairment loss only if the carrying
amount of a long lived asset is not recoverable from its discounted cash
flows and (b) measure an impairment loss as the difference between the
carrying amount and fair value of the asset. This statement requires that a
long-lived asset to be abandoned, exchanged for a similar productive asset,
or distributed to owners in a spin-off be considered held and used until it
is disposed of. This statement requires that the depreciable life of a
long-lived asset to be abandoned be revised and that an impairment loss be
recognized at the date a long-lived asset is exchanged for a similar
productive asset or distributed to owners in a spin-off if the carrying
amount of the asset exceeds its fair value. The accounting model for
long-lived assets to be disposed of by sale is used for all long-lived
assets, whether previously held and used or newly acquired. That accounting
model measures a long-lived asset classified as held for sale at the lower
of its carrying amount or fair value less cost to sell and requires
depreciation (amortization) to cease. Discontinued operations are no longer
measured on a net realizable value basis, and future operating losses are no
longer recognized before they occur. This statement retains the basic
provisions of Accounting Principles Board Opinion 30 for the presentation of
discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). A component of an entity comprises operations and cash flows that
can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. A component of an entity that is
classified as held for sale or that has been disposed of is presented as a
discontinued operation if the operations and cash flows of the component
will be (or have been) eliminated from the ongoing operations of the entity
and the entity will not have any significant continuing involvement in the
operations of the component. The Company adopted SFAS 144 on February 3,
2002. Management has determined that the adoption of SFAS 144 did not have
a material effect on the Companys financial statements.

In June 2002, the FASB issued Statement No. 146 (Costs Associated with Exit
or Disposal Activities). This Statement requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred compared to prior literature, which recognized a
liability when the entity committed to an exit plan. Management believes
that this Statement will not have a material impact on the Companys
financial statements;
7Table of Contentshowever, the Statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.4. Discontinued OperationIn January 2002, the Companys Board of Directors authorized the disposition
of the Mr. Rags stores, which represented the Companys apparel segment. In
connection with the plan to dispose of Mr. Rags, the Company recorded a loss
on disposal of Lux Corp., net of tax of $12.9 million in the consolidated
financial statements as of February 2, 2002. Included in the loss on
disposal was an estimate of proceeds from the sale of closing date inventory
of $4.4 million, net of tax and an estimate of operating losses of Mr. Rags
during the six month phase out period of $2.5 million, net of tax. On May
17, 2002, the Company sold the stock of Lux Corporation, d/b/a Mr. Rags for
(i) an initial payment of $5 million, (ii) deferred payments to be paid
aggregating $10 million payable as 1% of net sales during the first year and
2% of net sales thereafter, and (iii) an amount to be paid equal to
approximately 48% of the gross sales of the inventory of Mr. Rags as of the
closing date. Through the date of disposition, the operations of Mr. Rags
were accounted for as a discontinued operation in the Companys unaudited
condensed consolidated financial statements. The deferred payments
aggregating $10 million were not included in the Companys estimate of loss
on disposition as the timing and amount could not be reasonably estimated
due to the uncertainty of the financial condition of the acquired business.
In order to conform to the separate presentation of the net assets and
operating results of Mr. Rags as a discontinued operation, certain prior
period amounts have been reclassified to conform to current period
presentation.During the nine months ended November 2, 2002, the Company recorded
approximately $2 million, net of tax, gain on disposal of Mr. Rags. This
gain represents proceeds in excess of the Companys original estimates for
the sale of the closing date inventory of Mr. Rags of $3.0 million, net of
tax, $ .5 million net of tax, of operating losses of Mr. Rags during the
phase out period below the Companys original estimates, and $1.3 million
net of tax, which represents an accrual for a portion of guaranteed lease
payments on operating leases for which the Company remains liable if the new
owner of Mr. Rags were to default on the lease payments.The Company remains as a guarantor on 12 operating leases for store
locations and $5.0 million in gross future lease payments on operating
leases for equipment and leasehold improvements of Lux Corp. As of November
2, 2002, the new owners of Mr. Rags have met all obligations relating to
their guaranteed leases, however, certain other payments due the
Company have been delayed due to cash flow deficiencies. Based on managements review of the financial
performance of Mr. Rags and its impact on the new owners ability to fulfill
the commitments under the leases, $2.0 million was accrued as a liability at
November 2, 2002. The Company has also entered into a service agreement
with the new owner of Mr. Rags under which the Company will perform certain
administrative services for the benefit of Mr. Rags, for an initial period
of one year with no decision making authority. The agreement can be cancelled by either party upon written
notice in accordance with the terms of the service agreement. As of
November 2, 2002, the Company has received approximately $736,000 for these
services and has included them within interest and other within its
statement of operations.8Table of Contents5. Segment InformationThe Company is primarily organized based on the geographic markets in which
it operates. Under this organizational structure, the Company currently has
two reportable segments: North America and International. Net sales from
continuing operations for the periods presented were as follows:

|              |       |   |                    |         |                   |   |         |         |         |   |         |         |  |   |         |         | 
|------------- | ----- | - | ------------------ | ------- | ----------------- | - | ------- | ------- | ------- | - | ------- | ------- |  | - | ------- | ------- | 
|              |       |   | Three Months Ended |         | Nine Months Ended
|              |       |   |                    |         |                  
|              |       |   | Nov. 2,            |         | Nov. 3,           |   | Nov. 2, |         | Nov. 3,
|              |       |   | 2002               |         | 2001              |   | 2002    |         | 2001   
|              |       |   |                    |         |                   |   |         |         |        
|North America |       | $ | 166,975            |         |                   | $ | 153,551 |         |         | $ | 506,942 |         |  | $ | 496,894 |        
|International |       |   | 63,068             |         |                   |   | 50,589  |         |         |   | 172,201 |         |  |   | 141,434 |        
|              |       |   |                    |         |                   |   |         |         |         |   |         |         |  |   |         |        
|              | Total |   | $                  | 230,043 |                   |   | $       | 204,139 |         |   | $       | 679,143 |  |   | $       | 638,328 | 
|              |       |   |                    |         |                   |   |         |         |         |   |         |         |  |   |         |        

Income (loss) from continuing operations for the periods presented were as
follows:

|              |       |   |                    |        |                  |   |         |       |         |   |        |        |  |   |        |        | 
|------------- | ----- | - | ------------------ | ------ | ---------------- | - | ------- | ----- | ------- | - | ------ | ------ |  | - | ------ | ------ | 
|              |       |   | Three Months Ended |        | Six Months Ended
|              |       |   |                    |        |                 
|              |       |   | Nov. 2,            |        | Nov. 3,          |   | Nov. 2, |       | Nov. 3,
|              |       |   | 2002               |        | 2001             |   | 2002    |       | 2001   
|              |       |   |                    |        |                  |   |         |       |        
|North America |       | $ | 8,031              |        |                  | $ | (1,816  | )     |         | $ | 26,955 |        |  | $ | (1,329 | )     
|International |       |   | 4,050              |        |                  |   | 4,921   |       |         |   | 8,484  |        |  |   | 12,643 |       
|              |       |   |                    |        |                  |   |         |       |         |   |        |        |  |   |        |       
|              | Total |   | $                  | 12,081 |                  |   | $       | 3,104 |         |   | $      | 35,440 |  |   | $      | 11,314 | 
|              |       |   |                    |        |                  |   |         |       |         |   |        |        |  |   |        |       

6. Statements of Cash Flows

Payments of income taxes were $13.0 million and $16.3 million for the nine
months ended November 2, 2002 and November 3, 2001, respectively. Payments
of interest were $2.2 million and $9.1 million for the nine months ended
November 2, 2002 and November 3, 2001, respectively.




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

We are a leading mall-based retailer of popular-priced fashion accessories for
pre-teens and teenagers through our wholly-owned subsidiaries, Claires
Boutiques, Inc., which also operates through its Icing by Claires stores
(formerly Afterthoughts), Claires Puerto Rico Corp., Claires Canada Corp.,
Claires Accessories UK Ltd., Bijoux One Trading AG (Bijoux), Claires France
and through our 50%-owned joint venture Claires Nippon Co., Ltd. We are
primarily organized based on our geographic markets, which include our North
American operations and our international operations.

As of November 2, 2002, we operated a total of 2,927 stores in all 50 states of
the United States, Canada, the Caribbean, the United Kingdom, Ireland,
Switzerland, Austria, Germany, France, and Japan. The stores are operated
mainly under the trade names Claires Boutiques, Claires Accessories,
Afterthoughts, The Icing, Icing by Claires, and Bijoux One. We are in
the process of transitioning our Afterthoughts stores to Icing by Claires
stores to capitalize on the Claires brand name.

Annually, our fiscal year ends on the Saturday closest to January 31. As a
result, both our current and prior fiscal years consist of four 13-week
quarters. We refer to the prior fiscal year ended February 2, 2002 as Fiscal
2002, and the current fiscal year ending February 1, 2003 as Fiscal 2003.

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The following discussion and analysis provides information that management
believes is useful in understanding our operating results, cash flows, and
financial condition. The discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the unaudited condensed consolidated
financial statements and related notes thereto included elsewhere in this Form
10-Q. The discussions in Managements Discussion and Analysis of Financial
Condition and Results of Operations contain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed under Forward- Looking Statements in this section, as well as
estimates and judgments used in preparing our financial statements.

The following table sets forth, for the periods indicated, percentages which
certain items reflected in the financial statements bear to our net sales:

|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |      | 
|--------------- | ----------------------------------------------------- |  | ------------------ | ---- | ----------------- |  | ------- | ---- | ------- |  | ----- | ---- |  |  | ----- | ---- | 
|                |                                                       |  | Three Months Ended |      | Nine Months Ended
|                |                                                       |  |                    |      |                  
|                |                                                       |  | Nov. 2,            |      | Nov. 3,           |  | Nov. 2, |      | Nov. 3,
|                |                                                       |  | 2002               |      | 2001              |  | 2002    |      | 2001   
|                |                                                       |  |                    |      |                   |  |         |      |        
|Net sales       |                                                       |  | 100.0              | %    |                   |  | 100.0   | %    |         |  | 100.0 | %    |  |  | 100.0 | %   
|                | Cost of sales, occupancy and buying expenses          |  |                    | 50.0 |                   |  |         | 52.2 |         |  |       | 50.6 |  |  |       | 53.3 | 
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|                | Gross profit                                          |  |                    | 50.0 |                   |  |         | 47.8 |         |  |       | 49.4 |  |  |       | 46.7 | 
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|Other expenses: |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|                | Selling, general and administrative                   |  |                    | 37.2 |                   |  |         | 39.4 |         |  |       | 36.8 |  |  |       | 38.0 | 
|                | Depreciation and amortization                         |  |                    | 4.3  |                   |  |         | 5.3  |         |  |       | 4.1  |  |  |       | 5.0  | 
|                | Interest expense, net                                 |  |                    | 0.4  |                   |  |         | 0.6  |         |  |       | 0.4  |  |  |       | 0.8  | 
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|                |                                                       |  | 41.9               |      |                   |  | 45.4    |      |         |  | 41.4  |      |  |  | 43.9  |     
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|                | Income from continuing operations before
income taxes |  |                    | 8.1  |                   |  |         | 2.4  |         |  |       | 8.0  |  |  |       | 2.8  | 
|Income taxes    |                                                       |  | 2.8                |      |                   |  | 0.8     |      |         |  | 2.8   |      |  |  | 1.0   |     
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     
|                | Income from continuing operations                     |  |                    | 5.3  |                   |  |         | 1.5  |         |  |       | 5.2  |  |  |       | 1.8  | 
|                |                                                       |  |                    |      |                   |  |         |      |         |  |       |      |  |  |       |     

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to inventories, investments, intangible assets, income taxes,
financing operations, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.

Inventory Valuation  We mark down our inventory for estimated unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory markdowns may be required, which
could reduce our margins and operating results. Management records these
inventory markdowns periodically based on the various assumptions, including
customer

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##### Table of Contents



demand and preferences. Our success is largely dependent upon managements
ability to gauge the fashion tastes of our customers and provide merchandise
that satisfies customer demand. Any failure to provide appropriate merchandise
in quantities that mirror demand could increase future inventory write-downs.
Additionally, our inventories are valued using the retail method in North
America and Bijoux, and average cost in the United Kingdom and France.
Fluctuations in demand for inventory affect the value of our inventory.

Asset Impairment  We invest in property and equipment in connection with the
opening and remodeling of stores. We evaluate the recoverability of these
assets periodically and record an impairment charge when we believe the cash
flow may not be sufficient to recover the assets. Future adverse changes in
market conditions or poor operating results of underlying assets could result
in losses or an inability to recover the carrying value of the investments that
may not be reflected in an investments current carrying value, thereby
possibly requiring an impairment charge in the future. In addition, we make
investments through our international subsidiaries in intangible assets upon
the acquisition and opening of many of our store locations in Europe. We
evaluate the market value of these assets periodically and record an impairment
charge when we believe an asset has experienced a decline in value that is
other than temporary.

Goodwill Impairment  We continually evaluate whether events and changes in
circumstances warrant revised estimates of useful lives or recognition of an
impairment loss of unamortized goodwill. The conditions that would trigger an
impairment assessment of unamortized goodwill include a significant, sustained
negative trend in our operating results or cash flows, a decrease in demand for
our products, a change in the competitive environment and other industry and
economic factors. We measure impairment of unamortized goodwill utilizing the
discounted cash flow method. The estimated cash flows are then compared to our
goodwill amounts. If the unamortized balance of the goodwill exceeds the
estimated cash flows, the excess of the unamortized balance is written off.
Future cash flows may not meet projected amounts, which could result in
impairment. We adopted SFAS No. 142 in the first quarter of Fiscal 2003. With
the adoption of SFAS No. 142, we assessed the impact based on a two-step
approach to assess goodwill based on applicable reporting units and reassessed
any intangible assets, including goodwill, recorded in connection with our
previous acquisitions. We recorded approximately $2.2 and $6.6 million of
amortization on goodwill during the three and nine months ended November 3,
2001 and would have recorded approximately $2.2 and $6.6 million of
amortization during the three and nine months ended November 2, 2002 had SFAS
No. 142 not been adopted. In lieu of amortization, we were required to perform
an initial impairment review of our goodwill and an annual impairment review
each year thereafter. As of November 2, 2002, we had unamortized goodwill of
approximately $196.1 million. Our initial impairment review has been completed
and we determined that no goodwill impairment existed as of February 3, 2002.
We have also determined that none of our intangible assets, other than
goodwill, have indefinite lines and that the existing useful lives are
appropriate.

Accounting for Leases  We finance certain leasehold improvements and equipment
used in our stores through transactions accounted for as non-cancelable
operating leases. As a result, the rental expense for these leasehold
improvements and equipment is recorded during the term of the lease contract in
our consolidated financial statements, generally over four to seven years. In
the event that any of the real property leases where leasehold improvements or
equipment is located that are subject to these non-cancelable operating leases
is terminated by us or our landlord prior to the scheduled expiration date of
the real property lease, we will be required to accrue all future rent payments
under these operating leases as a charge against our earnings in the year of
termination.

Deferred Taxes  We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. While we
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for a valuation allowance, in the
event we were to determine that we would not be able to realize our
11Table of Contents

deferred tax assets in the future, an adjustment to the valuation allowance
would be made. Likewise, should we determine that we would not be able to
realize all or part of a net deferred tax asset in the future, an adjustment to
the deferred tax asset would be charged to income in the period such
determination was made.

Results of Operations

The operating results of Claires Nippon Co., Ltd. (Nippon) are accounted for
under the equity method. As a result, any losses incurred by Nippon in excess
of our investment and advances are not reflected in our income statement
because the operations are not part of our consolidated group. Accordingly the
operating results of Nippon are not included in the following analysis. In
addition, the assets and liabilities of Nippon are not included in our
condensed consolidated balance sheets. Under the equity method, our original
investment in Nippon was recorded at cost and had been adjusted periodically to
recognize our proportionate share of earnings or losses from Nippon since the
acquisition date. In May 2002, we made an additional investment in Nippon of
approximately $.8 million.

Net sales for the three months ended November 2, 2002 increased approximately
12.7%, or $25.9 million, over the comparable period ended November 3, 2001.
The increase for the period resulted primarily from a same-store sales increase
during the period of 8% and an increase in average sales per store for new
stores. The average sales per store in new stores increased during the quarter
primarily due to a higher percentage of our new stores being located in Europe,
which typically generate higher sales per store than our stores in North
America. Net sales for the nine months ended November 2, 2002 increased
approximately 6.3%, or $40.8 million, over the comparable period ended November
3, 2001. The increase for the period resulted primarily from a same-store
sales increase of 3% and an increase in average sales per store for new stores.
The increase in same-store sales during the three and nine month period was
driven primarily by an increase in average units per transaction and average
retail per unit. We believe these increases have been primarily due to the
merchandise assortments and value oriented merchandise prices being favorable
to consumer preferences.

Gross profit for the three months ended November 2, 2002 increased 2.2% as a
percentage of sales, or $17.5 million, compared to the three months ended
November 3, 2001. The increase as a percentage of sales was primarily caused
by higher merchandise margins. The higher merchandise margins were achieved by
taking fewer markdowns during the quarter as we maintained inventory levels in
line with expected customer demand. In addition, the same-store sales increase
during the period allowed for leverage on occupancy costs, which are primarily
fixed in nature. Gross profit for the nine months ended November 2, 2002
increased 2.7% as a percentage of sales, or $37.3 million, compared to the
comparable period ended November 3, 2001. The increase as a percentage of
sales was primarily caused by higher merchandise margins, resulting from fewer
markdowns during the nine months ended November 2, 2002 as discussed above. In
addition, the same-store sales increase during the period allowed for leverage
on occupancy costs, which are primarily fixed in nature.

Selling, general and administrative expenses for the three months ended
November 2, 2002 decrease 2.2% as a percentage of sales, compared to the three
months ended November 3, 2001. The decrease as a percentage of sales was
caused primarily by the effect of positive same-store sales during the quarter
on our corporate overhead. Selling, general and administrative expenses
increased $5.1 million, or 6% over the comparable period. Selling, general and
administrative expenses for the nine months ended November 2, 2002 decreased
1.2% as a percentage of sales, compared to the comparable period ended November
3, 2001. These expenses increased by $7.3 million, or 3% over the comparable
period. We achieved this limited increase primarily as a result of expense
management controls in areas such as store payroll and advertising.

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Depreciation and amortization for the three months ended November 2, 2002 was
$9.9 million as compared to $10.9 million for the three months ended November
3, 2001. The decrease of $1 million was due to goodwill no longer being
amortized in accordance with the provisions of SFAS No. 142, offset by
additional depreciation on capital expenditures since November 3, 2001. We
recorded $2.2 million of amortization of goodwill during the three months ended
November 3, 2001. Our net income would have been $3.8 million or $0.08 per
diluted share without goodwill amortization expense during that period.
Depreciation and amortization for the nine months ended November 2, 2002 was
$28 million as compared to $32 million for the nine months ended November 3,
2001. The decrease of $4 million was due to goodwill no longer being
amortized, offset by additional depreciation on capital expenditures made since
November 3, 2001. We recorded $6.6 million of amortization of goodwill during
the nine months ended November 3, 2001. Our net income would have been $8.5
million, or $0.17 per diluted share without goodwill amortization expense
during that period.

Interest and other was $976 thousand and $2.8 million for the three and nine
months ended November 2, 2002, respectively, as compared to $1.3 million and
$5.4 million for the three and nine months ended November 3, 2001,
respectively. The $ .3 million and $2.6 million decrease in interest expense,
net was due primarily to lower interest rates on our credit facilities and
lower outstanding debt balances during the period. In addition, we have
received $280,000 and $736,000 during the three and nine months ended November
2, 2002 and November 3, 2001 relative to fees collected for services rendered
to the new owners of Mr. Rags.

Our effective tax rate was 35% during the periods ended November 2, 2002 and
November 3, 2001.

In January 2002, our Board of Directors authorized the disposition of the Mr.
Rags stores, which represented our apparel segment. In connection with the
plan to dispose of Mr. Rags, we recorded a loss on disposal of Lux Corp., net
of tax of $12.9 million in the consolidated financial statements as of February
2, 2002. Included in the loss on disposal was an estimate of proceeds from the
sale of closing date inventory of $4.4 million, net of tax and an estimate of
operating losses of Mr. Rags during the six month phase out period of $2.5
million, net of tax. On May 17, 2002, we sold the stock of Lux Corporation,
d/b/a Mr. Rags for (i) an initial payment of $5 million, (ii) deferred payments
to be paid aggregating $10 million payable as 1% of net sales during the first
year and 2% of net sales thereafter, and (iii) an amount to be paid equal to
approximately 48% of the gross sales of the inventory of Mr. Rags as of the
closing date. Through the date of disposition, the operations of Mr. Rags were
accounted for as a discontinued operation in our unaudited condensed
consolidated financial statements. The deferred payments aggregating $10
million were not included in our estimate of loss on disposition as the timing
and amount could not be reasonably estimated due to the uncertainty of the
financial condition of the acquired business. In order to conform to the
separate presentation of the net assets and operating results of Mr. Rags as a
discontinued operation, certain prior period amounts have been reclassified to
conform to current period presentation.

During the nine months ended November 2, 2002, we recorded approximately $2
million, net of tax, gain on disposal of Mr. Rags. This gain represents
proceeds in excess of our original estimates for the sale of the closing date
inventory of Mr. Rags of $3.0 million, net of tax, $ .5 million net of tax, of
operating losses of Mr. Rags during the phase out period below our original
estimates, and $1.3 million net of tax, which represents an accrual for a
portion of guaranteed lease payments on operating leases for which we remain
liable if the new owner of Mr. Rags were to default on the lease payments.

We remain as a guarantor on 12 operating leases for store locations and $5.0
million in gross future lease payments on operating leases for equipment and
leasehold improvements of Lux Corp. As of November 2, 2002, the new owners of
Mr. Rags have met all obligations relating to their guaranteed
leases, however, certain other payments due us have been delayed due
to cash flow deficiencies. Based
on our review of the financial performance of Mr. Rags and its impact on the
new owners ability to fulfill the commitments under the leases, $2.0 million
was

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accrued as a liability. We have also entered into a service agreement with the
new owner of Mr. Rags under which we will perform certain administrative
services for the benefit of Mr. Rags, for an initial period of
one year with no decision making authority. The
agreement can be cancelled by either party upon written notice in accordance
with the terms of the service agreement. As of November 2, 2002, we have
received approximately $736,000 for these services and have included them
within interest and other within its statement of operations.

Quarterly Information and Seasonality

The specialty retail industry is seasonal in nature and a disproportionately
higher level of our revenues and earnings are generated in the fall and holiday
selling seasons. Our working capital requirements and inventories increase
substantially in the third quarter in anticipation of the holiday selling
season.

Liquidity and Capital Resources

In connection with the acquisition of Afterthoughts in December of 1999, we
entered into a credit facility pursuant to which we financed $200 million of
the purchase price for Afterthoughts. 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 a margin of 125 basis points over the London
Interbank Borrowing Rate. The margin is adjusted periodically based on our
performance as it relates to certain financial covenants. On November 2, 2002,
approximately $25 million was outstanding on this line of credit, while $105
million was outstanding under the term loan. Also, on November 2, 2002, the
borrowings under this credit facility were in compliance with all debt
covenants. We cannot re-borrow amounts repaid under the term loan. As a
result, we have no future availability under the term loan. We can re-borrow
amounts repaid under the revolving line of credit, subject to the terms of the
credit facility. As of November 2, 2002, we had $15 million of availability
under the revolving line of credit.

We are required to maintain financial ratios under our credit facility.
Required financial ratios include fixed charge coverage ratio, consolidated
leverage ratio and current ratio. The credit facility also contains other
restrictive covenants which limit, among other things, our ability to make
dividend distributions and repurchase shares of our Common stock. If these
financial ratios and other restrictive covenants are not maintained, our bank
will have the option to require immediate repayment of all amounts outstanding
under the credit facility. The most likely result would require us to either
renegotiate certain terms of the credit agreement, obtain a waiver from the
bank, or obtain a new credit agreement with another bank, which may contain
different terms.

Our cash flow from operations, together with our cash balances, provides
adequate liquidity to meet our operational needs and debt obligations. Cash
and cash equivalents totaled $130.1 million at November 2, 2002.

Net cash provided by operating activities from continuing operations was $62.9
million for the nine months ended November 2, 2002 compared to $47.6 million
for the nine months ended November 3, 2001. The primary increase of net cash
provided by operating activities from continuing operations as compared to the
prior period was an increase in net income, offset by an increase in the use of
funds for inventory accumulation in advance of the holiday shopping season.

Inventory at November 2, 2002 increased 36% compared to the inventory balance
at the end of our February 2, 2002 fiscal year. This increase is primarily a
result of the seasonally adjusted levels of inventory that we carry to meet
expected future sales demand. Inventory at November 2, 2002 increased 2.7% as
compared to inventory at November 3, 2001.

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Net cash used in investing activities of $35 million for the nine months ended
November 2, 2002 was primarily as a result of capital expenditures of $36.6
million offset by the sale of short-term investments

Net cash provided by financing activities was $4 million for the nine months
ended November 2, 2002 as compared to $2.7 million provided by financing
activities for the nine months ended November 3, 2001. The cash used in
financing activities during the first nine months of Fiscal 2003 was to fund
dividends on our Class A and Common stock.

For the nine months ended November 2, 2002, we opened 162 stores and closed 110
stores ending the quarter with 2,927 stores.

We believe that our significant cash balances, consistent ability to generate
cash flow from operations and available funds under our credit facility will be
sufficient to fund our operations, debt and currently anticipated capital
expenditure plans for Fiscal 2003.

During the nine months ended November 2, 2002, the U.S. dollar weakened against
the major currencies included in our consolidated financial statements. As a
result, the cumulative foreign currency translation adjustment increased
shareholders equity by $14.9 million for the nine months ended November 2,
2002.

In December 2002, after consultation with an
expert in the executive compensation field, we entered into a three-year employment agreement with our
Chairman, with successive one-year renewal terms. The agreement provides that
our Chairman will be paid an annual base salary of $1.0 million, the base
salary for our Chairman prior to entering into the agreement, and a one-time
$3.0 million transition bonus, of which $1.5 million was paid upon signing of
the employment agreement, and $1.5 million will be paid upon achievement of
certain milestones as set forth in the agreement. The agreement also provides
that, in consideration of certain restrictive covenants agreed to by our
Chairman and other exclusive rights granted to us by our Chairman for the
benefit of the Company and, as long as the milestones referenced above have
been met, our Chairman will also be paid a $1.3 million annual bonus during the
remaining term of the agreement, payable in quarterly installments, commencing
November 1, 2003.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995, or the Act, provides a
safe harbor for forward-looking statements made by or on our behalf. We and
our representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission and in our press releases
and reports to shareholders. All statements which address operating
performance, events or developments that we expect or anticipate will occur in
the future, including statements relating to new store openings, customer
demand and future operating results, are forward-looking statements within the
meaning of the Act and as defined in Section 21E of the Securities Exchange Act
of 1934, as amended. These statements may also be identified by their use of
forward-looking terminology, such as believes, expects, may, should,
would, will, intends, plans, estimates, and anticipates.
Forward-looking statements are and will be based on managements then current
views and assumptions regarding future events and operating performance, and we
assume no obligation to update any forward-looking statement. Forward-looking
statements involve known or unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements, or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include but are not limited
to: fluctuations in sales and same-store sales results, fashion trends,
dependence on foreign suppliers, competition from other retailers,
relationships with mall developers and operators, general economic conditions,
success of joint ventures and relationships with and reliance upon third
parties, and uncertainties generally associated with

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specialty retailing. Additional information concerning these risks and
uncertainties is contained in our filings with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended
February 2, 2002.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency

We are exposed to market risk from foreign currency exchange rate fluctuations
on the U.S. dollar value of foreign currency denominated transactions and our
investment in foreign subsidiaries. We manage this exposure to market risk
through our regular operating and financing activities, but currently do not
use foreign currency purchased put options or foreign exchange forward
contracts. During the first nine months of Fiscal 2003, included in
comprehensive income and stockholders equity is $14.9 million reflecting the
unrealized gain on foreign currency translation. Based on our average net
currency positions at November 2, 2002, the potential gain or loss due to a 10%
adverse change on foreign currency exchange rates could be significant to our
Statement of Operations.

Interest Rates

Our exposure to market risk for changes in interest rates is limited to our
cash, cash equivalents and debt. Based on our average invested cash balances
and outstanding debt during the first nine months of Fiscal 2003, a 10%
increase in the average effective interest rate during the remainder of Fiscal
2003 would not have materially impacted our annual net interest expense.




Item 4. Controls and Procedures

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Based on their evaluation of our disclosure controls and procedures
conducted within 90 days of the date of filing this report on Form 10-Q,
our acting co-Chief Executive Officers and our Chief Financial Officer
have concluded that our disclosure controls and procedures, as of the
date of their evaluation, have been designed and are being operated in a
manner that provides reasonable assurance that the information required
to be disclosed by us in reports filed under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.
|   
|(b) |  | Changes in Internal Controls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | There were no significant changes in our
internal controls or in other factors that
could significantly affect these controls
subsequent to the date of their
evaluation, including any corrective
actions with regard to significant
deficiencies and material weaknesses.                                                                                                                                                                                                                                                                                                                                                                

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PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

|     |  |                                                                                                                                                             
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Employment Agreement, dated December 4, 2002,
between Claires Stores, Inc. and Rowland Schaefer.                                                           
|    
|99.1 |  | Certification of Acting Co-Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|    
|99.2 |  | Certification of Acting Co-Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|    
|99.3 |  | Certification of Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.          

(b)  Reports on Form 8-K

|   |  |                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------
|1. |  | Form 8-K filed with the Securities and Exchange
Commission on September 13, 2002 to report an Item 9 event
(Regulation FD Disclosure)

Items 1 through 5 are not applicable and have been omitted.

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SIGNATURE

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

|                        |  |                                                                
|----------------------- |  | ---------------------------------------------------------------
|                        |  | CLAIRES STORES, INC.                                          
|                        |  |                                                                
|                        |  | (Registrant)                                                   
|                       
|                       
|                       
|Date: December 16, 2002 |  | /s/ Ira D. Kaplan                                              
|                        |  |                                                                
|                        |  | Ira D. Kaplan
Senior Vice President and
Chief Financial Officer

CERTIFICATION

I, Marla Schaefer, acting co-Chief Executive Officer of Claires Stores, Inc.
(the Company), certify that:

1.     I have reviewed this quarterly report on Form 10-Q of the Company;

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

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

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

|    |  |                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|   
|(b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|   
|(c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee of
the Companys board of directors (or persons performing the equivalent
function):

|    |  |                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data and
have identified for the Companys auditors any material
weaknesses in internal controls; and
|   
|(b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     

6.     The Companys other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                                 
|----------------------- |  | ------------------------------------------------
|Date: December 16, 2002 |  | /s/ Marla Schaefer                              
|                        |  |                                                 
|                        |  | Marla Schaefer
Acting Co-Chief Executive Officer

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CERTIFICATION

I, E. Bonnie Schaefer, acting co-Chief Executive Officer of Claires Stores,
Inc. (the Company), certify that:

1.     I have reviewed this quarterly report on Form 10-Q of the Company;

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

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

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

|    |  |                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|   
|(b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|   
|(c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee of
the Companys board of directors (or persons performing the equivalent
function):

|    |  |                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data and
have identified for the Companys auditors any material
weaknesses in internal controls; and
|   
|(b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     

6.     The Companys other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                                     
|----------------------- |  | ----------------------------------------------------
|Date: December 16, 2002 |  | /s/ E. Bonnie Schaefer                              
|                        |  |                                                     
|                        |  | E. Bonnie Schaefer
Acting Co-Chief Executive
Officer

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CERTIFICATION

I, Ira D. Kaplan, Chief Financial Officer of Claires Stores, Inc. (the
Company), certify that:

1.     I have reviewed this quarterly report on Form 10-Q of the Company;

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

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

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

|    |  |                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Company,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|   
|(b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|   
|(c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee of
the Companys board of directors (or persons performing the equivalent
function):

|    |  |                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys
ability to record, process, summarize and report financial data and
have identified for the Companys auditors any material
weaknesses in internal controls; and
|   
|(b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     

6.     The Companys other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                      
|----------------------- |  | -------------------------------------
|Date: December 16, 2002 |  | /s/ Ira D. Kaplan                    
|                        |  |                                      
|                        |  | Ira D. Kaplan
Chief Financial Officer

20