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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 31, 2004 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 Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ No o The number of shares of the registrants Common Stock and Class A Common
Stock outstanding as of August 27, 2004 was 93,776,343 and 5,139,613,
respectively.




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CLAIRES STORES, INC. AND SUBSIDIARIES
INDEX PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets at July 31, 2004 and January 31, 2004
    
    
    3Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended July 31, 2004 and August 2, 2003
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2004 and August 2, 2003
    
    
    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
    
    
    17Item 4. Submission of Matters to Vote of Security Holders
    
    
    17Item 6. Exhibits and Reports on Form 8-K
    
    
    18SIGNATURE PAGE
    
    
    19Amended & Restated ByLawsSection 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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PART I. FINANCIAL INFORMATION
CLAIRES STORES, INC. AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS July 31, 2004
    
    Jan. 31, 2004(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    217,770
    
    
    $
    224,630Inventories
    
    
    114,649
    
    
    
    92,498Prepaid expenses and other current assets
    
    
    54,853
    
    
    
    42,895Total current assets
    
    
    387,272
    
    
    
    360,023Property and equipment:Land and building
    
    
    18,151
    
    
    
    18,151Furniture, fixtures and equipment
    
    
    233,817
    
    
    
    225,425Leasehold improvements
    
    
    197,096
    
    
    
    186,760449,064
    
    
    
    430,336Less accumulated depreciation and amortization
    
    
    (253,297
    )
    
    
    (244,484
    )195,767
    
    
    
    185,852Intangible assets, net
    
    
    45,646
    
    
    
    43,896Other assets
    
    
    15,257
    
    
    
    16,351Goodwill
    
    
    199,258
    
    
    
    199,802260,161
    
    
    
    260,049Total Assets
    
    $
    843,200
    
    
    $
    805,924LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    48,852
    
    
    $
    37,754Income taxes payable
    
    
    6,581
    
    
    
    29,148Accrued expenses
    
    
    76,550
    
    
    
    76,424Total current liabilities
    
    
    131,983
    
    
    
    143,326Long-term liabilities:Deferred tax liability
    
    
    15,987
    
    
    
    12,148Deferred rent expense
    
    
    17,789
    
    
    
    18,00033,776
    
    
    
    30,148Commitments 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 40,000,000 shares, issued and outstanding 5,141,727
shares and 5,221,660 shares, respectively
    
    
    257
    
    
    
    261Common stock par value $.05 per share; authorized
300,000,000 shares, issued and outstanding 93,775,605
shares and 93,693,448 shares, respectively
    
    
    4,689
    
    
    
    4,685Additional paid-in capital
    
    
    49,415
    
    
    
    49,392Accumulated other comprehensive income, net of tax
    
    
    17,160
    
    
    
    20,109Retained earnings
    
    
    605,920
    
    
    
    558,003677,441
    
    
    
    632,450Total Liabilities and Stockholders Equity
    
    
    843,200
    
    
    $
    805,924
 See accompanying notes to unaudited condensed consolidated financial statements. 3




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CLAIRES STORES, INC. AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME Three Months Ended
    
    Six Months EndedJuly 31,
    
    Aug. 2,
    
    July 31,
    
    Aug. 2,2004
    
    2003
    
    2004
    
    2003(In thousands, except per share amounts)Net sales
    
    $
    305,223
    
    
    $
    264,949
    
    
    $
    586,814
    
    
    $
    504,705Cost of sales, occupancy and buying expenses
    
    
    141,920
    
    
    
    127,084
    
    
    
    267,444
    
    
    
    242,224Gross profit
    
    
    163,303
    
    
    
    137,865
    
    
    
    319,370
    
    
    
    262,481Other expenses (income)Selling, general and administrative
    
    
    103,381
    
    
    
    93,602
    
    
    
    207,626
    
    
    
    184,592Depreciation and amortization
    
    
    10,944
    
    
    
    10,391
    
    
    
    21,603
    
    
    
    20,245Interest expense
    
    
    32
    
    
    
    644
    
    
    
    62
    
    
    
    1,416Interest and other income
    
    
    (1,267
    )
    
    
    (900
    )
    
    
    (2,477
    )
    
    
    (1,844
    )113,090
    
    
    
    103,737
    
    
    
    226,814
    
    
    
    204,409Income before income taxes
    
    
    50,213
    
    
    
    34,128
    
    
    
    92,556
    
    
    
    58,072Income taxes
    
    
    17,468
    
    
    
    11,947
    
    
    
    32,119
    
    
    
    20,325Net income
    
    
    32,745
    
    
    
    22,181
    
    
    
    60,437
    
    
    
    37,747Foreign currency translation adjustments
    
    
    2,114
    
    
    
    199
    
    
    
    (2,949
    )
    
    
    1,366Comprehensive income
    
    $
    34,859
    
    
    $
    22,380
    
    
    $
    57,488
    
    
    $
    39,113Net income per share:Basic
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.39Diluted
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.38Weighted average number of shares outstanding:Basic
    
    
    98,917
    
    
    
    97,802
    
    
    
    98,217
    
    
    
    97,750Diluted
    
    
    99,276
    
    
    
    98,244
    
    
    
    99,259
    
    
    
    98,170
 See accompanying notes to unaudited condensed consolidated financial
statements. 4




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CLAIRES STORES, INC. AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003(In thousands)Cash flows from operating activities:Net income
    
    $
    60,437
    
    
    $
    37,747Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    21,603
    
    
    
    20,245Amortization of intangible assets
    
    
    565
    
    
    
    753Loss on retirement of property and equipment
    
    
    2,075
    
    
    
    1,045Gain on sale of intangible assets
    
    
    (170
    )
    
    
    (211
    )(Increase) decrease in -
Inventories
    
    
    (22,329
    )
    
    
    (2,318
    )Prepaid expenses and other assets
    
    
    (10,779
    )
    
    
    (7,745
    )Increase (decrease) in -
Trade accounts payable
    
    
    11,201
    
    
    
    1,983Income taxes payable
    
    
    (22,424
    )
    
    
    (9,785
    )Accrued expenses
    
    
    402
    
    
    
    5,589Deferred income taxes
    
    
    3,804
    
    
    
    3,231Deferred rent expense
    
    
    (178
    )
    
    
    (153
    )Net cash provided by operating activities
    
    
    44,207
    
    
    
    50,381Cash flows from investing activities:Acquisition of property and equipment
    
    
    (34,587
    )
    
    
    (25,740
    )Acquisition of intangible assets
    
    
    (3,719
    )
    
    
    (3,181
    )Net cash used in investing activities
    
    
    (38,306
    )
    
    
    (28,921
    )Cash flows from financing activities:Principal payments on term loan
    
    
    
    
    
    
    (7,125
    )Proceeds from stock options exercised
    
    
    23
    
    
    
    1,026Dividends paid
    
    
    (12,521
    )
    
    
    (4,753
    )Net cash used in financing activities
    
    
    (12,498
    )
    
    
    (10,852
    )Effect of foreign currency exchange rate changes on cash
and cash equivalents
    
    
    (263
    )
    
    
    2,093Net decrease in cash and cash equivalents
    
    
    (6,860
    )
    
    
    12,701Cash and cash equivalents at beginning of period
    
    
    224,630
    
    
    
    195,482Cash and cash equivalents at end of period
    
    $
    217,770
    
    
    $
    208,183
 See accompanying notes to unaudited condensed consolidated financial
statements. 5




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CLAIRES STORES, INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q, and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Annual Report on Form 10-K for
the year ended January 31, 2004 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 our 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, leasehold improvement financing, 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. Additionally,
all references in the Companys financial statements to number of shares,
per share amounts, stock option data and market prices of the Companys
Common stock have been restated to give effect to the 2-for-1 stock split of
the Companys Common stock and Class A common stock in the form of a 100%
stock dividend in December 2003.  2.
    
    Earnings Per Share
Basic net income per share is based on the weighted average number of shares
of Class A common stock and Common stock outstanding during the period
presented, while diluted net income per share includes the dilutive effect
of stock options. Options to purchase 17,582 shares of common stock for the
quarter 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 as of August 2, 2003 were included in the computation of
diluted earnings per share.  Options to purchase 8,791 and 7,272 shares of common stock for the six
months ended July 31, 2004 and August 2, 2003, respectively, were not
included in the computation of diluted earnings per share because their
effect would be anti-dilutive.  3.
    
    Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) 123, Accounting for
Stock Based Compensation, as amended by SFAS 148, Accounting for Stock
Based Compensation-Transition and Disclosure, allows entities to choose
between a fair value based method of accounting for employee stock options
or similar equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25 (APB 25),
Accounting for Stock Issued to Employees. Entities electing to account
for employee stock options or similar equity instruments under APB 25 must
make pro forma disclosures of net income and earnings per share as if the
fair value method of accounting had been applied. The Company has elected
to apply the provisions of APB 25 in the preparation of its unaudited
condensed consolidated financial statements and provide pro forma disclosure
of net income and earnings per share as required under SFAS 123 and SFAS 148
(dollars in thousands, except per share data). 6




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Three Months Ended
    
    Six Months EndedJuly 31,
    
    Aug. 2,
    
    July 31,
    
    Aug. 2,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    32,745
    
    
    $
    22,181
    
    
    $
    60,437
    
    
    $
    37,747Stock-based employee compensation
expense not included in reported net
income, net of tax
    
    
    (507
    )
    
    
    (160
    )
    
    
    (1,027
    )
    
    
    (334
    )Stock-based employee compensation
expense included in reported net
income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income  pro forma
    
    $
    32,238
    
    
    $
    22,021
    
    
    $
    59,410
    
    
    $
    37,413Basic net income per share  as reported
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.39Basic net income per share  pro forma
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.60
    
    
    $
    0.38Diluted net income per share  as reported
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.38Diluted net income per share  pro forma
    
    $
    0.32
    
    
    $
    0.22
    
    
    $
    0.60
    
    
    $
    0.38
  4.
    
    New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities (FIN 46R), which
replaced FIN 46. FIN 46R addresses how a business enterprise should
evaluate whether it has a controlling interest in an entity through means
other than voting rights. This interpretation requires a variable interest
entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities
or is entitled to receive a majority of the entitys residual returns or
both. The interpretation also requires disclosures about variable interest
entities that the Company is not required to consolidate but in which it has
a significant variable interest. The Company has determined that it has no
interests that qualify as variable interest entities.  5.
    
    Segment Information
The Company is organized based on the geographic markets in which it
operates. Under this structure, the Company currently has two reportable
segments: North America and International. Net sales for the periods
presented were as follows: Three Months Ended
    
    Six Months EndedJuly 31,
    
    Aug. 2,
    
    July 31,
    
    Aug. 2,2004
    
    2003
    
    2004
    
    2003North America
    
    $
    214,260
    
    
    $
    189,336
    
    
    $
    422,460
    
    
    $
    366,158International
    
    
    90,963
    
    
    
    75,613
    
    
    
    164,354
    
    
    
    138,547Total
    
    $
    305,223
    
    
    $
    264,949
    
    
    $
    586,814
    
    
    $
    504,705
 7




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##### Table of Contents



Income before income taxes for the periods presented was as follows: Three Months Ended
    
    Six Months EndedJuly 31,
    
    Aug. 2,
    
    July 31,
    
    Aug. 2,2004
    
    2003
    
    2004
    
    2003North America
    
    $
    35,501
    
    
    $
    25,793
    
    
    $
    77,494
    
    
    $
    48,188International
    
    
    14,712
    
    
    
    8,335
    
    
    
    15,062
    
    
    
    9,884Total
    
    $
    50,213
    
    
    $
    34,128
    
    
    $
    92,556
    
    
    $
    58,072
  6.
    
    Statements of Cash Flows
Payments of income taxes were $49.9 million and $27.5 million for the six
months ended July 31, 2004 and August 2, 2003, respectively. Payments of
interest were $60 thousand and $1.5 million for the six months ended July
31, 2004 and August 2, 2003. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Managements Discussion and Analysis is designed to provide the reader of the
financial statements with a narrative on our results of operations, financial
position and liquidity, risk management activities, significant accounting
policies and critical estimates, and the future impact of accounting standards
that have been issued but are not yet effective. Managements Discussion and
Analysis is presented in the following sections: Overview, Critical Accounting
Policies and Estimates, Results of Operations and Analysis of Consolidated
Financial Condition. It is useful to read Managements Discussion and Analysis
in conjunction with the Unaudited Condensed Consolidated Financial Statements
and related notes thereto contained elsewhere in this document. Annually, our fiscal years end on the Saturday closest to January 31. As a
result, both our current and prior fiscal years consist of four 13-week
quarters. We refer to the prior fiscal year ended January 31, 2004 as Fiscal
2004, and the current fiscal year ending January 29, 2005 as Fiscal 2005. All
references to earnings per share relate to diluted earnings per share from net
income. We include a store in the calculation of comparable store sales once it has
been in operation sixty weeks after its initial opening. If a store is closed
during a fiscal period, the stores sales will be included in the computation
of comparable store sales for that fiscal month, quarter and year to date
period only for the days in which it was operating as compared to those same
days in the comparable period. Relocated, remodeled and expanded square
footage stores are classified the same as the original store and are not
considered new stores upon relocation, remodeling or completion of their
expansion. Overview We are a leading specialty retailer of value-priced fashion accessories and
jewelry for pre-teens and teenagers as well as young adults. We are organized
based on our geographic markets, which include our North American operations
and our International operations. As of July 31, 2004 we operated a total of
2,833 stores in all 50 states of the United States, Puerto Rico, Canada, the
Virgin Islands, the United Kingdom, Switzerland, Austria, Germany, (the latter
three collectively referred to as S.A.G.), France and Ireland. The stores are
operated mainly under the trade names Claires Boutiques, Claires
Accessories, Icing by Claires, Afterthoughts and The Icing. We are in
the process of transitioning our Afterthoughts stores to Icing by Claires
stores to capitalize on the Claires brand name. We also operate 134 stores in
Japan through a 50:50 joint venture with AEON Co. Ltd. (Claires Nippon).
We account for the results of operations of Claires Nippon under the equity
method whose results are included within Interest and other income in our
Statement of Operations within our North American division. In addition, we
license 55 stores in the Middle East under a licensing and merchandising
agreement with Al Shaya Co. Ltd. and 2 stores in South Africa under similar
agreements with the House of Busby Limited. We account for the goods we sell
under the merchandising agreements within Gross profit in our North American
division and the license fees we charge within Interest and other income
within our International division in our Statement of Operations. 8




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We have two store concepts: Claires Accessories, which caters to
fashion-conscious girls and teens in the 7 to 17 age range, and Icing by
Claires, which caters to fashion-conscious teens and young women in the 17 to
27 age range. Our merchandise typically ranges in price between $2 and $20,
with the average product priced at approximately $4. Our stores share a
similar format and our different store concepts and trade-names allow us to
have multiple store locations in a single mall. Although we face competition
from a number of small specialty store chains and others selling fashion
accessories, we believe that our stores comprise one of the largest chains of
specialty retail stores in the world, devoted to the sale of value-priced
fashion accessories for pre-teen, teenage and young adult females. Fundamentally, our business model is to offer the customer a compelling
price/value relationship and a wide array of products to choose from. We seek
to deliver a high level of profitability and cash flow by:  
    
    maximizing the effectiveness of our retail product pricing through
promotional activity  
    
    minimizing our product costs through economies of scale as the
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 While our financial results have grown steadily and record sales performance
was achieved during the first half of Fiscal 2005, the retail environment
remains very competitive. Managements plan for future growth is dependent on:  
    
    our ability to successfully identify merchandise appealing to our
customers and manage 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 segment, through additional store locations Our ability to achieve these objectives will be dependent on various factors,
including those outlined in Cautionary Note Regarding Forward-Looking
Statements and Risk Factors. Critical Accounting Policies and Estimates Our condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America. Preparation of these statements requires management to make
judgments and estimates. Some accounting policies have a significant impact on
amounts reported in these financial statements. A summary of significant
accounting policies and a description of accounting policies that are
considered critical may be found in our Fiscal 2004 Annual Report on Form 10-K,
filed on April 15, 2004, in the Notes to the Consolidated Financial Statements,
Note 1, and the Critical Accounting Policies and Estimates section therein. 9




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Results of Operations Consolidated Operations A summary of our consolidated results of operations is as follows (dollars in
thousands, except per share data): Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Net sales
    
    $
    305,223
    
    
    $
    264,949
    
    
    $
    586,814
    
    
    $
    504,705Net income
    
    $
    32,745
    
    
    $
    22,181
    
    
    $
    60,437
    
    
    $
    37,747Number of stores at the end of the period
    
    
    2,833
    
    
    
    2,829
    
    
    
    2,833
    
    
    
    2,829Net income per diluted share
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.61
    
    
    $
    0.38Comparable store sales
    
    
    10.0
    %
    
    
    5.0
    %
    
    
    11.0
    %
    
    
    6.0
    %Gross profit percentage
    
    
    53.5
    %
    
    
    52.0
    %
    
    
    54.4
    %
    
    
    52.0
    %Selling, general and administrative expenses
as a percentage of net sales
    
    
    33.9
    %
    
    
    35.3
    %
    
    
    35.4
    %
    
    
    36.6
    %
 Net sales for the three months ended July 31, 2004 increased by $40.3 million,
or 15.2% from the three months ended August 2, 2003. Net sales for the six
months ended July 31, 2004 increased by $82.1 million, or 16.3% over the
comparable period ended August 2, 2003. The increase in Net sales was
primarily attributable to comparable store sales increases and the effect of
changes in foreign exchange rates when translating our foreign operations at
higher exchange rates. The comparable store sales increases of 10% and 11% for
the three and six months ended July 31, 2004, respectively, contributed to
approximately $25.9 million and $53.1 million in increased Net sales for same
periods, respectively. The effect of the weak US dollar attributed to
approximately $7.8 million and $17.0 million of the increase during the three
and six months ended July 31, 2004, respectively. The positive comparable sales experienced in our North American division has
continued from the fourth quarter of Fiscal 2004 and were across most
merchandise categories, most notably in the jewelry related areas. We believe
we experienced this trend through successfully meeting our customers demands
for current fashion trends in jewelry and superior customer service in our
stores. The negative comparable store sales within our International division
that began during the second half of Fiscal 2004 and continued through the
first three months of Fiscal 2005 reversed itself to positive trends during the
second quarter of Fiscal 2005. The return to positive comparable sales was
stimulated by specific initiatives we employed at the end of Fiscal 2004,
including sharing best practices employed in our North American division for
merchandise selection, store operations and attentive customer service. Gross profit percentages increased by 150 basis points during the three months
ended July 31, 2004 as compared to the three months ended August 2, 2003, and
240 basis points during the six months ended July 31, 2004 as compared to the
six months ended August 2, 2003. The increase during the three and six months
was caused primarily by comparable store sales increasing at a rate faster than
the increase in our occupancy related costs, creating positive leverage on
those costs and also by improved merchandise margins relating to the shift in
business from accessories to jewelry in North America, as jewelry carries a
higher initial markup and profit margin than that of accessories. 10




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##### Table of Contents



The following table compares our percentage of sales of each product category
for each of the periods presented: Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Jewelry
    
    
    58.7
    %
    
    
    55.1
    %
    
    
    58.7
    %
    
    
    54.6
    %Accessories
    
    
    41.3
    %
    
    
    44.9
    %
    
    
    41.3
    %
    
    
    45.4
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 In calculating gross profit and gross profit percentages, we exclude the costs
related to our distribution center. These costs are included instead in
Selling, general and administrative expenses. Other retail companies may
include these costs in cost of sales, so our gross profit percentages may not
be comparable to those retailers. Selling, general and administrative expenses increased $9.8 million for the
three months ended July 31, 2004 as compared to the three months ended August
2, 2003, and $23.0 million for the six months ended July 31, 2004 as compared
to the six months ended August 2, 2003. The increase was primarily
attributable to increases in employee compensation. Additional hours worked in
our North American stores were necessary to maintain the service levels
required to achieve the resulting positive comparable store sales experienced
during the period. In addition, during the three and six months ended July 31,
2004, increased store, field and corporate bonuses were earned in North America
due to the positive comparable store sales and profit results achieved during
the period. As a percentage of Net sales, Selling, general and administrative
expenses improved by 140 basis points and 120 basis points for the three and
six months ended July 31, 2004 and August 2, 2003, respectively. This
improvement was primarily due to comparable store sales increases greater than
the overall increases in the underlying expenses. Our effective income tax rate during the three months and six months of Fiscal
2005 was 34.8% and 34.7%, respectively, as compared to 35.0% during the
comparable periods of Fiscal 2004. During the three months ended July 31,
2004, the Company recorded net benefits to the provision for income taxes
totaling approximately $400 thousand attributable to concluded tax examinations
that were settled more favorably than anticipated. We estimate that our tax
rate for the remainder of Fiscal 2005 will be approximately 35.0%. Our tax
rate in future periods will depend on several variables, including the mix of
earnings between domestic and international operations and our overall level of
earnings, and could also be affected by the resolution of tax contingencies for
amounts different from our current estimates. Net income increased by approximately $10.6 million during the three months
ended July 31, 2004 as compared to the three months ended August 2, 2003 and
$22.7 million during the six months ended July 31, 2004 as compared to the six
months ended August 2, 2003. These increases were made possible primarily by
the increase in comparable store sales, positive leverage on operating expenses
and improved merchandise margins achieved during the period. Segment Operations We are organized into two business segments  North America and International.
Following is a discussion of results of operations by business segment. 11




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##### Table of Contents



North America Division Key statistics and results of operations for our North American division are as
follows (dollars in thousands): Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Net sales
    
    $
    214,260
    
    
    $
    189,336
    
    
    $
    422,460
    
    
    $
    366,158Number of stores at the end of the period
    
    
    2,121
    
    
    
    2,155
    
    
    
    2,121
    
    
    
    2,155Comparable store sales
    
    
    13.0
    %
    
    
    7.0
    %
    
    
    15.0
    %
    
    
    8.0
    %Gross profit percentage
    
    
    52.5
    %
    
    
    52.1
    %
    
    
    55.3
    %
    
    
    52.8
    %
 Net sales in North America during the three months ended July 31, 2004
increased by $24.9 million, or 13.2%, from the three months ended August 2,
2003. Net sales for the six months ended July 31, 2004 increased by $56.3
million, or 15.4%, over the comparable period ended August 2, 2003. The
increase in Net sales for the three and six month periods was primarily
attributable to comparable store sales increases of 13% and 15%, respectively.
Since we acquired the Afterthoughts stores in December of 1999, 414 stores have
been closed or not renewed and 247 stores have been renamed to either Claires
or Icing by Claires. We believe that the closing and renaming of these stores
have contributed to the comparable store increases experienced during the
second quarter of Fiscal 2005, and we plan to continue to rename the remaining
stores upon lease renewal or as landlords permit. The positive comparable sales experienced in North America were across most
merchandise categories, most notably in the jewelry related areas. We believe
we experienced this trend through successfully meeting our customers demands
for current fashion trends in jewelry and superior customer service in our
stores. In addition, best practices in merchandise buying, planning and
allocation from Claires have been shared with the Icing by Claires and
Afterthoughts stores, which we believe have contributed significantly to the
comparable store sales increases experienced during the second quarter of
Fiscal 2005. The higher concentration of sales in jewelry as compared to accessories
experienced during the three and six months ended July 31, 2004 and August 2,
2003 has had the result of improved gross profit percentages due to the higher
initial markup realized on jewelry. The following table compares our
percentage of sales of each product category for each of the periods presented: Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Jewelry
    
    
    65.8
    %
    
    
    62.3
    %
    
    
    65.8
    %
    
    
    61.6
    %Accessories
    
    
    34.2
    %
    
    
    37.7
    %
    
    
    34.2
    %
    
    
    38.4
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 International Division Key statistics and results of operations for our International division are as
follows (dollars in thousands): Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Net sales
    
    $
    90,963
    
    
    $
    75,613
    
    
    $
    164,354
    
    
    $
    138,547Number of stores at the end of the period
    
    
    712
    
    
    
    674
    
    
    
    712
    
    
    
    674Comparable store sales
    
    
    4.0
    %
    
    
    (1.0
    %)
    
    
    0.0
    %
    
    
    0.0
    %Gross profit percentage
    
    
    55.8
    %
    
    
    51.9
    %
    
    
    52.1
    %
    
    
    49.9
    %
 12




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##### Table of Contents



Our objective is to increase sales in the International division primarily
through store growth and comparable store sales increases. We also continue to
explore adding operations in countries in which we do not currently operate. Net sales in our International division during the three months ended July 31,
2004 increased by $15.4 million, or 20.3%, from the three months ended August
2, 2003. Net sales for the six months ended July 31, 2004 increased by $ 25.8
million, or 18.6% over the comparable period ended August 2, 2003. The
increase in Net sales for the three months ended July 31, 2004 was primarily
attributable to the effects of the weak US dollar when translating our foreign
operations at higher exchange rates of approximately $7.8 million, the net
addition of 7 stores and by comparable store sales increases of 4%, or
approximately $2.6 million during the period. The increase in net sales for
the six months ended July 31, 2004 was primarily attributable to approximately
$17.0 million benefit of higher exchange rates and the net addition of 12
stores during the period. We actively employed strategic initiatives within our International division
over the past few quarters in an attempt to reverse the negative comparable
store sales trend in our International division. These initiatives included
sharing best practices for merchandise selection, store operations and
attentive customer service. In addition, we are investing in operational
systems infrastructure in order to facilitate the greater level of complexity
and precision now required of the business. Gross profit percentages improved by 390 basis points and 220 basis points for
the three and six months ended July 31, 2004. This was accomplished by
achieving a lower cost of goods sold of approximately $0.8 million and $2.0
million during the three and six month periods, respectively, primarily due to
the relative weakness of the US dollar. The lower cost of goods sold was
realized as a result of merchandise purchased by our International division in
US dollars. In addition, the shift to a higher percentage of sales of jewelry
had a positive impact on merchandise margins during both periods. The higher concentration of sales in jewelry as compared to accessories
experienced during the three and six months ended July 31, 2004 and August 2,
2003 has had the result of improved gross profit percentages due to the higher
initial markup realized on jewelry. The following table compares our
percentage of sales of each product category for each of the periods presented: Three Months Ended
    
    Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003
    
    July 31, 2004
    
    Aug. 2, 2003Jewelry
    
    
    42.0
    %
    
    
    37.3
    %
    
    
    40.5
    %
    
    
    36.3
    %Accessories
    
    
    58.0
    %
    
    
    62.7
    %
    
    
    59.5
    %
    
    
    63.7
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Analysis of Consolidated Financial Condition A summary of cash flows from operating, investing and financing activities is
outlined in the table below (dollars in thousands): Six Months EndedJuly 31, 2004
    
    Aug. 2, 2003Operating activities
    
    $
    44,207
    
    
    $
    50,381Investing activities
    
    $
    (38,306
    )
    
    $
    (28,921
    )Financing activities
    
    $
    (12,498
    )
    
    $
    (10,852
    )
 13




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##### Table of Contents



We have consistently satisfied operating liquidity needs and planned capital
expenditure programs through our internally generated cash flows. At July 31,
2004, we had approximately $217.8 million in cash and cash equivalents, a
decrease of $6.9 million from January 31, 2004. We ended the second quarter of
Fiscal 2005 with no borrowed debt outstanding. The net decrease in cash and
cash equivalents was due to cash generated from operations, offset by capital
expenditures and the payment of dividends. Our major source of cash from operations is store sales, nearly all of which
are generated on a cash or credit card basis. Our primary outflow of cash from
operations is the purchase of inventory, net of accounts payable, operational
costs, the payment of current taxes and capital expenditures. Cash flows
provided by operating activities in the first half of Fiscal 2005 reflect
higher net income as compared to the first half of Fiscal 2004, offset by a
greater investment in inventories, the increases in dividend payments and the
payment of income taxes. The increase in inventory is primarily attributable
to our decision to bring in back-to-school season inventory earlier than in the
prior year and at levels sufficient to meet expected future demand. Our working capital at July 31, 2004 was $255.3 million compared to $216.7
million at January 31, 2004. Our $34.6 million of capital expenditures were made primarily to remodel
existing stores and to open new stores. We generally experience a noticeable
increase in sales in locations where a store has been recently remodeled. We
also invested approximately $3.7 million in intangible assets within our
International division representing acquired lease rights on new store
locations in certain countries. We expect to fund between $55.0 million and
$65.0 million of capital expenditures and $5.0 million to $10.0 million of
purchased lease rights in Fiscal 2005 in an effort to continue to expand and
remodel our store base. We paid dividends of $12.5 million during the six months ended July 31, 2004,
an increase of approximately $7.8 million from the six months ended August 2,
2003. Dividends were increased during the first and second quarter of Fiscal
2005. We currently expect to pay at least $27.9 million in dividends in Fiscal
2005. Liquidity and Capital Resources We entered into a new credit facility in March 2004. This credit facility is a
revolving line of credit of up to $60.0 million, is secured by inventory in the
United States and expires on March 31, 2009. The borrowings under this
facility are limited based on certain calculations of availability, based
primarily on the amount of inventory and cash on hand in the United States. At
July 31, 2004, the entire amount of $60.0 million would have been available for
borrowing by us, subject to reduction for $2.6 million of outstanding letters
of credit. The credit facility is cancelable by us without penalty and
borrowings would bear interest at a margin of 75 basis points over the London
Interbank Borrowing Rate (LIBOR) at July 31, 2004. The credit facility also
contains other restrictive covenants which limit, among other things, our
ability to make dividend distributions. Our non-US subsidiaries have credit facilities totaling approximately $781,000
with banks. The facilities are used for working capital requirements, letters
of credit and various guarantees. These credit facilities have been arranged
in accordance with customary lending practices in their respective countries of
operation. At July 31, 2004, there were no borrowings under these credit
facilities. Management believes that our present ability to borrow is greater than our
established credit lines. However, if market conditions change and sales were
to dramatically decline or we could not control operating costs or other
expenses, our cash flows and liquidity could be reduced, and we could
experience an increase in borrowing costs, or even a reduction in or
elimination of our access to debt and/or equity markets. 14




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##### Table of Contents



Cautionary Note Regarding Forward-Looking Statements and Risk Factors We and our representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission and in our press releases
and reports to shareholders. All statements which address operating
performance, events or developments that we expect or anticipate will occur in
the future, including statements relating to our future financial performance,
business strategy, planned capital expenditures and new store openings for
Fiscal 2005, are forward-looking statements. The 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, including changes in
estimates and judgments discussed under Critical Accounting Policies and
Estimates which may cause our actual results, performance or achievements, or
industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Some of these risks, uncertainties and other factors are as
follows: changes in consumer preferences and consumer spending; competition;
general economic, political and social conditions, such as war, political
unrest and terrorism or natural disasters; currency fluctuations and exchange
rate adjustments; changes in laws, including employment laws relating to
overtime pay, tax laws and import laws; uncertainties generally associated with
the specialty retailing business; and disruptions in our supply of inventory.
In addition, the Company typically earns a disproportionate share of its
operating income in the fourth quarter due to seasonal buying patterns, which
are difficult to forecast with certainty. Additional discussion of these and
other risks and uncertainties is contained elsewhere in this Item 2, in Item 3,
Quantitative and Qualitative Disclosures About Market Risk and in the
Companys Form 10-K for Fiscal 2004 under Cautionary Note Regarding
Forward-Looking Statements and Risk Factors. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency We are exposed to market risk from foreign currency exchange rate fluctuations
on the US dollar value of foreign currency denominated transactions and our
investment in foreign subsidiaries. We manage this exposure to market risk
through our regular operating and financing activities, and foreign currency
options. Exposure to market risk for changes in foreign exchange rates relates
primarily to foreign operations buying, selling and financing in currencies
other than local currencies and to the carrying value of net investments in
foreign subsidiaries. We manage our exposure to foreign exchange rate risk
related to our foreign operations buying, selling and financing in currencies
other than local currencies by using foreign currency options from time to time
to hedge foreign currency transactional exposure. At July 31, 2004, we had
entered into foreign currency options with notional amounts of $15.7 million,
which are accounted for as cash-flow hedges. We do not hedge the translation
exposure related to our net investment in foreign subsidiaries, since we
generally have no near term intent to repatriate funds from such subsidiaries.
During the three and six months ended July 31, 2004, included in Comprehensive
income and Stockholders equity is $2.1 million and $(2.9) million,
respectively, reflecting the unrealized gain (loss) on foreign currency
translation. Based on our average net currency positions in Fiscal 2004, the
potential gain or loss due to a 10% adverse change on foreign currency exchange
rates could be significant to our operations. Certain of our subsidiaries make significant US dollar purchases from Asian
suppliers particularly in China. There continues to be speculation that China
may elect to adjust the exchange rate of the Chinese Yuan against the US
dollar. Currently, the Chinese Yuan has a fixed exchange rate against the US
dollar. If China adjusts the exchange rate or allows the value to float, we
may experience increases in our cost of merchandise imported from China. The results of operations of foreign subsidiaries, when translated into US
dollars, reflect the average rates of exchange for the periods presented. As a
result, similar results in local currency can vary significantly upon
translation into US dollars if exchange rates fluctuate significantly from one
period to the next. 15




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##### Table of Contents



Interest Rates Our exposure to market risk for changes in interest rates is limited to our
cash, cash equivalents and debt. Based on our average invested cash balances
during the first six months of Fiscal 2005, a 10% increase in the average
effective interest rate in the remainder of Fiscal 2005 would not have a
material impact on our annual interest income or interest expense. 
 Item 4. Controls and Procedures Based on their evaluation as of the end of the period covered by this report,
our co-Chief Executive Officers and our Chief Financial Officer have concluded
that our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, are effective to ensure that
the information required to be disclosed by us in reports that we file 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 and
that such information is accumulated and communicated to our management,
including our co-Chief Executive Officers and Chief Financial Officer as
appropriate to allow timely decisions regarding required disclosure. In addition, there were no changes in our internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting. 16




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings We are, from time to time, involved in routine litigation incidental to the
conduct of our business, including litigation instituted by persons injured
upon premises under our control, litigation regarding the merchandise that we
sell, including product and safety concerns regarding components in our
merchandise, litigation with respect to various employment matters, including
litigation with present and former employees, and litigation to protect our
trademark rights. Although litigation is routine and incidental to the conduct
of our business, like any business of our size and employing a significant
number of employees, such litigation can result in large monetary awards when
judges, juries or other finders of facts do not agree with managements
evaluation of possible liability or outcome of litigation. On November 7,
2003, the Official Committee of Unsecured Creditors of Lux Corporation, d/b/a
Mr. Rags, filed a complaint against us in the United States Bankruptcy Court
for the Central District of California. The complaint alleges that certain
payments made to us in connection with the sale of the stock of Lux Corporation
in May 2002 should be repaid to the bankruptcy estate because the payments are
avoidable, as such term is used under general bankruptcy laws. On December 8,
2003, we filed a Motion to Dismiss with the Bankruptcy Court, which was denied
on February 24, 2004. We filed an answer to the complaint on March 15, 2004.
We believe the claims are without merit and intend to defend the litigation
vigorously. We believe that current pending litigation will not have a
material adverse effect on our financial position, earnings or cash flows. 
 Item 4. Submission of Matters to Vote of Security Holders (a) Our 2004 annual meeting of shareholders was held on June 23, 2004 in
New York City. At the annual meeting, our shareholders voted on the following
matters:  1.
    
    The election of eight directors, each to serve for a one-year term; and  2.
    
    A shareholder proposal regarding our business operations in Northern
Ireland. Proxies for the annual meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition to our solicitation. At the annual meeting, each holder of record of our common stock, par
value $0.05 per share, and our Class A common stock, par value $0.05 per share,
at the close of business on April 30, 2004 was entitled to vote, in person or
by proxy, one vote for each share of our common stock and ten votes for each
share of our Class A common stock, as the case may be, held by the stockholder.
As of the record date, 93,719,071 shares of our common stock were outstanding
and 5,198,261 shares of our Class A common stock were outstanding. The holders of 85,842,293 shares of our common stock and 4,966,210 shares
of our Class A common stock (representing 49,662,100 votes) were either present
in person or represented by proxy, and constituted a quorum for the transaction
of business at the annual meeting. 17




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##### Table of Contents



(b) All of our nominees for directors were elected to serve a one-year
term by more than the required plurality of affirmative votes of the holders of
our common stock (one vote per share) and our Class A common stock (ten votes
per share), voting together as a single class: COMMON
    
    
    
    
    
    CLASS ASTOCK
    
    VOTES
    
    STOCK
    
    VOTESDIRECTOR NOMINEE
    
    VOTES FOR
    
    WITHHELD
    
    VOTES FOR
    
    WITHHELDMarla L. Schaefer
    
    
    75,476,766
    
    
    
    10,365,527
    
    
    
    49,644,460
    
    
    
    17,640E. Bonnie Schaefer
    
    
    73,973,770
    
    
    
    11,868,523
    
    
    
    49,644,460
    
    
    
    17,640Ira D. Kaplan
    
    
    75,607,155
    
    
    
    10,235,138
    
    
    
    49,644,460
    
    
    
    17,640Bruce G. Miller
    
    
    80,780,845
    
    
    
    5,061,448
    
    
    
    49,644,460
    
    
    
    17,640Todd D. Jick
    
    
    79,609,172
    
    
    
    6,233,121
    
    
    
    49,644,460
    
    
    
    17,640Steven H. Tishman
    
    
    80,028,017
    
    
    
    5,814,276
    
    
    
    49,644,460
    
    
    
    17,640Ann Spector Lieff
    
    
    81,101,547
    
    
    
    4,740,746
    
    
    
    49,644,460
    
    
    
    17,640
 (c) The shareholder proposal regarding our business operations in Northern
Ireland (referred to as the MacBride Principles) was not approved by the
required affirmative vote of a majority of the votes cast, either in person or
by proxy, at the annual meeting by the holders of the outstanding shares of our
common stock (one vote per share) and Class A common stock (ten votes per
share), voting together as a single class: VOTED
    
    
    
    
    
    BROKERSHARES
    
    VOTED FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTECommon stock
    
    
    9,101,024
    
    
    
    60,947,880
    
    
    
    8,036,612
    
    
    
    7,756,777Class A stock
    
    
    288,100
    
    
    
    48,392,430
    
    
    
    29,800
    
    
    
    951,770
 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits  3.1
    
    Amended and Restated Bylaws, adopted August 18,
2004.31.1
    
    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. (b) Reports on Form 8-K Other than Current Reports on Form 8-K under Item 12 and 7, which are not
deemed to be filed for purposes of the Securities Exchange Act of 1934, as
amended, the Company did not file any Current Reports on Form 8-K during the
quarterly period ended July 31, 2004. Items 2, 3 and 5 are not applicable and have been omitted. 18




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##### Table of Contents



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)September 2, 2004
    /s/ Marla L. SchaeferMarla L. SchaeferCo-Chairman of the Board of
Directors (principal
co-executive officer and
director)September 2, 2004
    /s/ E. Bonnie SchaeferE. Bonnie SchaeferCo-Chairman of the Board of
Directors (principal
co-executive officer and
director)September 2, 2004
    /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.
    
    DESCRIPTION3.1
    
    Amended and Restated Bylaws (adopted August 18, 2004)31.1
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.2
    
    Certification of Co-Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).31.3
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a).32.1
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Co-Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.3
    
    Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 20