##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 30, 2005
 OR
 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 001-08899
 Claires Stores, Inc.
  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)
 Registrants telephone number, including area code: (954) 433-3900
 þ o
 þ o
 o þ




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX
 PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets at July 30, 2005 and
January 29, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income for the Three and Six Months Ended
July 30, 2005 and July 31, 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended July 30, 2005 and July 31, 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 6. Exhibits
    
    
    18SIGNATURE PAGE
    
    
    19Section 302 Certification of Co-CEOSection 302 Certification of Co-CEOSection 302 Certification of CFOSection 906 Certification of Co-CEOSection 906 Certification of Co-CEOSection 906 Certification of CFO
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 July 30, 2005
    
    
    Jan. 29, 2005(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    328,185
    
    
    $
    191,006Short-term investments
    
    
    
    
    
    
    134,613Inventories
    
    
    120,018
    
    
    
    110,072Prepaid expenses and other current assets
    
    
    68,599
    
    
    
    57,635Total current assets
    
    
    516,802
    
    
    
    493,326Property and equipment:Land and building
    
    
    18,151
    
    
    
    18,151Furniture, fixtures and equipment
    
    
    243,461
    
    
    
    238,022Leasehold improvements
    
    
    220,413
    
    
    
    211,721482,025
    
    
    
    467,894Less accumulated depreciation and amortization
    
    
    (272,731
    )
    
    
    (263,368
    )209,294
    
    
    
    204,526Intangible assets, net
    
    
    51,562
    
    
    
    52,474Other assets
    
    
    14,236
    
    
    
    14,736Goodwill
    
    
    198,889
    
    
    
    201,067264,687
    
    
    
    268,277Total assets
    
    $
    990,783
    
    
    $
    966,129LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    60,150
    
    
    $
    41,994Income taxes payable
    
    
    9,594
    
    
    
    30,600Accrued expenses
    
    
    82,177
    
    
    
    94,344Total current liabilities
    
    
    151,921
    
    
    
    166,938Long-term liabilities:Deferred tax liability
    
    
    22,969
    
    
    
    24,293Deferred rent expense
    
    
    20,404
    
    
    
    19,21143,373
    
    
    
    43,504Commitments 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 $0.05 per share;
authorized 40,000,000 shares, issued and outstanding
5,120,803
shares and 5,125,432 shares, respectively
    
    
    256
    
    
    
    256Common stock par value $0.05 per share; authorized
300,000,000 shares, issued and outstanding 94,136,182
shares and 93,858,213 shares, respectively
    
    
    4,707
    
    
    
    4,693Additional paid-in capital
    
    
    53,696
    
    
    
    50,477Accumulated other comprehensive income, net of tax
    
    
    18,772
    
    
    
    28,041Retained earnings
    
    
    718,058
    
    
    
    672,220795,489
    
    
    
    755,687Total liabilities and stockholders equity
    
    $
    990,783
    
    
    $
    966,129
  3




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##### Table of Contents



CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Six Months EndedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Net sales
    
    $
    325,042
    
    
    $
    305,223
    
    
    $
    627,750
    
    
    $
    586,814Cost of sales, occupancy and buying expenses
    
    
    151,848
    
    
    
    141,920
    
    
    
    290,543
    
    
    
    267,444Gross profit
    
    
    173,194
    
    
    
    163,303
    
    
    
    337,207
    
    
    
    319,370Other expenses (income)Selling, general and administrative
    
    
    111,574
    
    
    
    103,413
    
    
    
    222,091
    
    
    
    207,688Depreciation and amortization
    
    
    11,776
    
    
    
    10,944
    
    
    
    24,124
    
    
    
    21,603Interest and other income
    
    
    (3,083
    )
    
    
    (1,267
    )
    
    
    (5,044
    )
    
    
    (2,477
    )120,267
    
    
    
    113,090
    
    
    
    241,171
    
    
    
    226,814Income before income taxes
    
    
    52,927
    
    
    
    50,213
    
    
    
    96,036
    
    
    
    92,556Income taxes
    
    
    17,469
    
    
    
    17,468
    
    
    
    30,876
    
    
    
    32,119Net income
    
    
    35,458
    
    
    
    32,745
    
    
    
    65,160
    
    
    
    60,437Foreign currency translation adjustments
    
    
    (7,615
    )
    
    
    2,114
    
    
    
    (9,269
    )
    
    
    (2,949
    )Comprehensive income
    
    $
    27,843
    
    
    $
    34,859
    
    
    $
    55,891
    
    
    $
    57,488Net income per share:Basic
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61Diluted
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61
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CLAIRES STORES, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJuly 30, 2005
    
    
    July 31, 2004(In thousands)Cash flows from operating activities:Net income
    
    $
    65,160
    
    
    $
    60,437Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    24,124
    
    
    
    21,603Amortization of intangible assets
    
    
    502
    
    
    
    565Loss on retirement of property and equipment
    
    
    1,582
    
    
    
    2,075Gain on sale of intangible assets
    
    
    
    
    
    
    (170
    )Stock compensation expense
    
    
    1,605
    
    
    
    Increase in Inventories
    
    
    (11,839
    )
    
    
    (22,329
    )Prepaid expenses and other assets
    
    
    (14,087
    )
    
    
    (10,779
    )Increase (decrease) in Trade accounts payable
    
    
    19,878
    
    
    
    11,267Income taxes payable
    
    
    (21,257
    )
    
    
    (22,424
    )Accrued expenses
    
    
    (10,266
    )
    
    
    336Deferred income taxes
    
    
    (25
    )
    
    
    3,804Deferred rent expense
    
    
    1,421
    
    
    
    (178
    )Net cash provided by operating activities
    
    
    56,798
    
    
    
    44,207Cash flows from investing activities:Acquisition of property and equipment
    
    
    (34,433
    )
    
    
    (34,587
    )Acquisition of intangible assets
    
    
    (3,492
    )
    
    
    (3,719
    )Purchase of short-term investments
    
    
    (82,334
    )
    
    
    Sale of short-term investments
    
    
    216,947
    
    
    
    Net cash provided by (used in) investing activities
    
    
    96,688
    
    
    
    (38,306
    )Cash flows from financing activities:Proceeds from stock options exercised
    
    
    1,628
    
    
    
    23Dividends paid
    
    
    (19,321
    )
    
    
    (12,521
    )Net cash used in financing activities
    
    
    (17,693
    )
    
    
    (12,498
    )Effect of foreign currency exchange rate changes on cash
and cash equivalents
    
    
    1,386
    
    
    
    (263
    )Net increase (decrease) in cash and cash equivalents
    
    
    137,179
    
    
    
    (6,860
    )Cash and cash equivalents at beginning of period
    
    
    191,006
    
    
    
    224,630Cash and cash equivalents at end of period
    
    $
    328,185
    
    
    $
    217,770
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CLAIRES STORES, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Basis of Presentation and Significant Accounting PoliciesThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These statements
should be read in conjunction with the consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended January 29, 2005 filed with the
Securities and Exchange Commission, including Note 1 to the consolidated financial statements
included therein which discusses principles of consolidation and a summary of significant
accounting policies. These statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which require management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The most significant
estimates include valuation of inventories, valuation of goodwill and intangible assets,
provisions for income taxes, contingencies and litigation. Actual results could differ from
these estimates. Due to the seasonal nature of the Companys business, the results of
operations for interim periods of the year are not necessarily indicative of the results of
operations on an annualized basis. Certain prior period amounts have been reclassified to
conform to the current period presentation.2.
    
    Earnings Per ShareThe information required to compute basic and diluted earnings per share is as follows (in
thousands, except per share data):
 Three Months Ended
    
    
    Six Months EndedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    35,458
    
    
    $
    32,745
    
    
    $
    65,160
    
    
    $
    60,437Denominator:Weighted average number of shares
outstandingBasic
    
    
    99,056
    
    
    
    98,917
    
    
    
    99,025
    
    
    
    98,917Effect of dilutive stock options
    
    
    363
    
    
    
    359
    
    
    
    363
    
    
    
    342Effect of dilutive restricted stock awards
    
    
    22
    
    
    
    
    
    
    
    13
    
    
    
    Diluted
    
    
    99,441
    
    
    
    99,276
    
    
    
    99,401
    
    
    
    99,259Net income per share:Basic
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61Diluted
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61
 Options to purchase 17,582 shares of common stock for the three months ended July 31, 2004
were not included in the computation of diluted earnings per share because their effect would be
anti-dilutive. All outstanding options and restricted stock awards for the three months ended
July 30, 2005 were included in the computation of diluted earnings per share.Options to purchase 8,791 shares of common stock for the six months ended July 31, 2004 were not
included in the computation of diluted earnings per share because their effect would be
anti-dilutive. All outstanding options and restricted stock awards for the six months ended
July 30, 2005 were included in the computation of diluted earnings per share.
 6




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3.
    
    Stock-Based CompensationStatement of Financial Accounting Standards (SFAS) 123, Accounting for Stock Based
Compensation, as amended by SFAS 148, Accounting for Stock Based Compensation-Transition and
Disclosure, allows entities to choose between a fair value based method of accounting for
employee stock options or similar equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25 (APB 25), Accounting for
Stock Issued to Employees.Entities electing to account for employee stock options or similar equity instruments under APB
25 must make pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company has elected to apply the provisions of APB
25 in the preparation of its unaudited condensed consolidated financial statements and provide
pro forma disclosure of net income and earnings per share as required under SFAS 123 and SFAS
148 (dollars in thousands, except per share data).
 Three Months Ended
    
    
    Six Months EndedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    35,458
    
    
    $
    32,745
    
    
    $
    65,160
    
    
    $
    60,437Stock-based employee compensation
expense determined under the fair
value based methods, net of income
tax
    
    
    (846
    )
    
    
    (507
    )
    
    
    (1,736
    )
    
    
    (1,027
    )Stock-based employee compensation
expense included in reported net
income, net of income tax
    
    
    627
    
    
    
    
    
    
    
    1,043
    
    
    
    Net income  pro forma
    
    $
    35,239
    
    
    $
    32,238
    
    
    $
    64,467
    
    
    $
    59,410Basic net income per share  as reported
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61Basic net income per share  pro forma
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.65
    
    
    $
    0.60Diluted net income per share  as
reported
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61Diluted net income per share  pro forma
    
    $
    0.35
    
    
    $
    0.32
    
    
    $
    0.65
    
    
    $
    0.60
 4.
    
    New Accounting PronouncementsIn December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R,
Share-Based Payment, a revision of SFAS 123. The standard requires companies to expense the
grant-date fair value of stock options and other equity-based compensation issued to employees.
On April 15, 2005, the Securities and Exchange Commission announced an amendment to the
compliance dates for SFAS 123R that delays the effective date to annual periods beginning after
June 15, 2005. The Company will be required to recognize the expense attributable to stock
options granted or vested subsequent to the Companys fiscal year ending January 28, 2006. The
Company is evaluating the requirements of SFAS 123R and has not yet determined the method of
adoption or the effect of adopting SFAS 123R.In March 2005, the FASB issued FASB Interpretation (FIN) 47, Accounting for Conditional Asset
Retirement Obligations, which is an interpretation of SFAS 143, Accounting for Asset
Retirement Obligations. This interpretation clarifies terminology within SFAS 143 and requires
an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liabilitys fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005. The Company does
not expect the adoption of this interpretation to have a material impact on our financial
condition or results of operations.5.
    
    Segment InformationThe Company is organized based on the geographic markets in which it operates. Under this
structure, the Company currently has two reportable segments: North America and International.
The Company accounts for the results of operations of Claires Nippon under the equity method
and includes the results within Interest and other income in the Companys Condensed
Consolidated Statements of Operations and Comprehensive Income within the Companys North
American division. Net sales and Income before income taxes for the periods presented were as
follows (dollars in thousands):
 7




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Net Sales
    
    
    Income Before Income TaxesThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004North America
    
    $
    222,929
    
    
    $
    214,260
    
    
    $
    439,269
    
    
    $
    422,460
    
    
    $
    36,586
    
    
    $
    35,501
    
    
    $
    77,883
    
    
    $
    77,494International
    
    
    102,113
    
    
    
    90,963
    
    
    
    188,481
    
    
    
    164,354
    
    
    
    16,341
    
    
    
    14,712
    
    
    
    18,153
    
    
    
    15,062Total
    
    $
    325,042
    
    
    $
    305,223
    
    
    $
    627,750
    
    
    $
    586,814
    
    
    $
    52,927
    
    
    $
    50,213
    
    
    $
    96,036
    
    
    $
    92,556
 6.
    
    Income TaxesThe Companys effective income tax rate during the three and six months ended July 30, 2005 was
33.0% and 32.2%, respectively, as compared to 34.8% and 34.7% during the comparable periods of
Fiscal 2005. The Companys lower effective income tax rate for the three and six month periods
ended July 30, 2005 was the result of a change in the mix of earnings between U.S. and foreign
operations and tax planning.On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed into law. The AJCA
includes a special one-time deduction of 85% of certain foreign earnings that are repatriated,
as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings
repatriations in Fiscal 2006. The Company continues to evaluate the provisions of the law to
determine whether it will repatriate foreign earnings and the impact, if any, this provision
will have on its consolidated financial statements. Earnings under consideration for
repatriation range from $0 to $45 million and the related income tax effects from such
repatriation cannot be reasonably estimated at this time.7.
    
    Statements of Cash FlowsPayments of income taxes were $50.6 million and $49.9 million for the six
months ended July 30, 2005 and July 31, 2004, respectively.
 
 Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    8




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Overview
    
    
    maximizing the effectiveness of our retail product pricing through promotional activity
    
    minimizing our product costs through economies of scale as the worlds leading
mall-based retailer of value-priced accessories and jewelry
    
    reinvesting operating cash flows into opening new stores, remodeling existing stores and
infrastructure in order to create future revenues and build brand name loyalty
  
    
    successfully identifying merchandise appealing to our customers and managing our
inventory levels
    
    displaying our merchandise at convenient, accessible locations staffed with personnel
that provide courteous and professional customer service
    
    sourcing our merchandise to achieve a positive value/price relationship
    
    increasing sales at existing store locations
    
    expanding our sales, especially in our International division, through additional store locations
 9




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Critical Accounting Policies and Estimates
  Results of Operations
 Consolidated Operations
  Three Months Ended
    
    
    Six Months EndedJuly 30,

    
    July 31,

    
    July 30,

    
    July 31,2005

    
    2004
    
    2005

    
    2004Net sales
    
    $
    325,042
    
    
    $
    305,223
    
    
    $
    627,750
    
    
    $
    586,814Comparable store sales
    
    
    5.0
    %
    
    
    10.0
    %
    
    
    5.0
    %
    
    
    11.0
    %Gross profit percentage
    
    
    53.3
    %
    
    
    53.5
    %
    
    
    53.7
    %
    
    
    54.4
    %Selling, general and administrative expenses
as a percentage of Net sales
    
    
    34.3
    %
    
    
    33.9
    %
    
    
    35.4
    %
    
    
    35.4
    %Net income
    
    $
    35,458
    
    
    $
    32,745
    
    
    $
    65,160
    
    
    $
    60,437Net income per diluted share
    
    $
    0.36
    
    
    $
    0.33
    
    
    $
    0.66
    
    
    $
    0.61Number of stores at the end of the period (1)
    
    
    2,851
    
    
    
    2,833
    
    
    
    2,851
    
    
    
    2,833
 
 (1)
    
    Number of stores excludes Claires Nippon and stores operated under licensing agreements    10




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Three Months Ended
    
    Six Months EndedJuly 30,
    
    July 31,
    
    July 30,
    
    July 31,2005
    
    2004
    
    2005
    
    2004Jewelry
    
    
    60.0
    %
    
    
    59.0
    %
    
    
    59.0
    %
    
    
    59.0
    %Accessories
    
    
    40.0
    %
    
    
    41.0
    %
    
    
    41.0
    %
    
    
    41.0
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
       11




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##### Table of Contents



Segment Operations
  North America
  Three Months Ended
    
    
    Six Months EndedJuly 30,

    
    July 31,

    
    July 30,

    
    July 31,2005

    
    2004

    
    2005

    
    2004Net sales
    
    $
    222,929
    
    
    $
    214,260
    
    
    $
    439,269
    
    
    $
    422,460Comparable store sales
    
    
    3.0
    %
    
    
    13.0
    %
    
    
    3.0
    %
    
    
    15.0
    %Gross profit percentage
    
    
    52.5
    %
    
    
    52.5
    %
    
    
    54.1
    %
    
    
    55.3
    %Number of stores at
the end of the period
(1)
    
    
    2,115
    
    
    
    2,121
    
    
    
    2,115
    
    
    
    2,121
 
 (1)
    
    Number of stores excludes Claires Nippon and stores operated under licensing agreements     Three Months Ended
    
    Six Months EndedJuly 30,
    
    July 31,
    
    July 30,
    
    July 31,2005
    
    2004
    
    2005
    
    2004Jewelry
    
    
    67.0
    %
    
    
    66.0
    %
    
    
    67.0
    %
    
    
    66.0
    %Accessories
    
    
    33.0
    %
    
    
    34.0
    %
    
    
    33.0
    %
    
    
    34.0
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 12




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##### Table of Contents



International
  Three Months Ended
    
    
    Six Months EndedJuly 30,

    
    July 31,

    
    July 30,

    
    July 31,2005

    
    2004

    
    2005

    
    2004Net sales
    
    $
    102,113
    
    
    $
    90,963
    
    
    $
    188,481
    
    
    $
    164,354Comparable store sales
    
    
    9.0
    %
    
    
    4.0
    %
    
    
    9.0
    %
    
    
    0.0
    %Gross profit percentage
    
    
    55.1
    %
    
    
    55.8
    %
    
    
    52.8
    %
    
    
    52.1
    %Number of stores at
the end of the period
(1)
    
    
    736
    
    
    
    712
    
    
    
    736
    
    
    
    712
 
 (1)
    
    Number of stores excludes Claires Nippon and stores operated under licensing agreements      Three Months Ended
    
    Six Months EndedJuly 30,
    
    July 31,
    
    July 30,
    
    July 31,2005
    
    2004
    
    2005
    
    2004Jewelry
    
    
    45.0
    %
    
    
    42.0
    %
    
    
    44.0
    %
    
    
    40.0
    %Accessories
    
    
    55.0
    %
    
    
    58.0
    %
    
    
    56.0
    %
    
    
    60.0
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 13




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##### Table of Contents



Analysis of Consolidated Financial Condition
  Six Months EndedJuly 30,
    
    
    July 31,2005
    
    
    2004Operating activities
    
    $
    56,798
    
    
    $
    44,207Investing activities
    
    $
    96,688
    
    
    $
    (38,306
    )Financing activities
    
    $
    (17,693
    )
    
    $
    (12,498
    )
         14




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##### Table of Contents



Liquidity and Capital Resources
    Cautionary Note Regarding Forward-Looking Statements and Risk Factors
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency
  15




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##### Table of Contents



Interest Rates
  
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  16




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
         COMMON
    
    
    
    
    
    
    CLASS ASTOCK
    
    
    VOTES
    
    
    STOCK
    
    
    VOTESDIRECTOR NOMINEE
    
    VOTES FOR
    
    
    WITHHELD
    
    
    VOTES FOR
    
    
    WITHHELDMarla L. Schaefer
    
    
    87,818,609
    
    
    
    1,528,245
    
    
    
    50,085,430
    
    
    
    15,340E. Bonnie Schaefer
    
    
    87,863,233
    
    
    
    1,483,621
    
    
    
    50,085,430
    
    
    
    15,340Ira D. Kaplan
    
    
    85,280,734
    
    
    
    4,066,120
    
    
    
    50,087,070
    
    
    
    13,700Bruce G. Miller
    
    
    85,493,388
    
    
    
    3,853,466
    
    
    
    50,087,070
    
    
    
    13,700Steven H. Tishman
    
    
    87,894,197
    
    
    
    1,452,667
    
    
    
    50,087,070
    
    
    
    13,700Ann Spector Lieff
    
    
    88,440,242
    
    
    
    906,612
    
    
    
    50,085,430
    
    
    
    15,340Martha Clark Goss
    
    
    88,284,400
    
    
    
    1,062,454
    
    
    
    50,087,070
    
    
    
    13,700
  VOTED
    
    
    
    
    
    BROKERSHARES
    
    VOTED FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTECommon stock
    
    
    64,923,538
    
    
    
    14,020,096
    
    
    
    206,113
    
    
    
    10,197,107Class A stock
    
    
    48,514,770
    
    
    
    421,010
    
    
    
    92,850
    
    
    
    1,072,140
  17




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##### Table of Contents



VOTED
    
    
    
    
    
    BROKERSHARES
    
    VOTED FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTECommon stock
    
    
    14,750,557
    
    
    
    60,117,771
    
    
    
    4,281,419
    
    
    
    10,197,107Class A stock
    
    
    289,840
    
    
    
    48,711,910
    
    
    
    21,880
    
    
    
    1,072,140
 
 Item 6. Exhibits
 31.1
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.2
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.3
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a).32.1
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.3
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 Items 2, 3 and 5 are not applicable and have been omitted.
 18




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##### Table of Contents



SIGNATURE
  CLAIRES STORES, INC.
(Registrant)September 7, 2005
    
    
    
    /s/ Marla L. SchaeferMarla L. SchaeferCo-Chairman of the Board of Directors(principal co-executive officer and
director)September 7, 2005
    
    
    
    /s/ E. Bonnie SchaeferE. Bonnie SchaeferCo-Chairman of the Board of Directors(principal co-executive officer and
director)September 7, 2005
    
    
    
    /s/ Ira D. KaplanIra D. Kaplan, Senior Vice President,Chief Financial Officer and Director(principal financial and accounting
officer and director)
 19




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a).31.2
    
    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a).31.3
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a).32.1
    
    Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 20