<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DECEMBER 1, 1999
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
CLAIRE'S STORES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-8899 59-0940416
------------------------------------ ------------------------------------
(Commission File Number) (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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 1, 1999, Claire's Stores, Inc. (the "Registrant")
completed the acquisition of substantially all of the assets and
certain liabilities of the AfterThoughts divisions of wholly owned
subsidiaries of Venator Group, Inc. ("AfterThoughts"), which
acquisition was the subject of this initial Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the business acquired for the
periods specified in Rule 3-05(b) of Regulation S-X:
Audited Financial Statements of AfterThoughts
Report of Independent Auditors
Combined Balance Sheets as of January 30, 1999 and
January 31, 1998
Combined Statements of Operations for the years ended
January 30, 1999, January 31, 1998 and January 25,
1997
Combined Statements of Cash Flows for the years ended
January 30, 1999, January 31, 1998 and January 25,
1997
Notes to Combined Financial Statements
Unaudited Financial Statements of AfterThoughts
Condensed Combined Balance Sheet as of October 30,
1999
Condensed Combined Statements of Operations for the
nine months ended October 30, 1999 and October 31,
1998
Condensed Combined Statements of Cash Flows for the
nine months ended October 30, 1999 and October 31,
1998
Notes to Unaudited Condensed Combined Financial
Statements
(b) Pro forma financial information relative to the acquired
business required pursuant to Article 11 of Regulation S-X.
The following Exhibits are provided in accordance with the
provisions of Item 601 of Regulation S-K and are filed herewith unless
otherwise noted.
(c) Exhibits
23.1 Consent of KPMG LLP
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Venator Group, Inc.
We have audited the accompanying combined balance sheets of AfterThoughts
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.) as of January
30, 1999 and January 31, 1998 and the related combined statements of operations
and cash flows for each of the years in the three-year period ended January 30,
1999. These combined financial statements are the responsibility of
AfterThoughts' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of AfterThoughts as of
January 30, 1999 and January 31, 1998 and the results of its operations and its
cash flows for each of the years in the three-year period ended January 30, 1999
in conformity with generally accepted accounting principles.
KPMG LLP
October 25, 1999
New York, New York
<PAGE> 4
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Combined Balance Sheets
January 30, 1999 and January 31, 1998
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,595,256 1,453,476
Other receivables, net 795,094 176,990
Merchandise inventories 25,296,858 24,024,364
Prepaid expenses and other current assets 1,773,630 975,430
----------- ----------
Total current assets 29,460,838 26,630,260
Property and equipment, net 39,228,202 26,795,003
----------- ----------
Total assets $68,689,040 53,425,263
=========== ==========
Liabilities and Divisional Equity
Current liabilities:
Accounts payable $ 3,697,001 3,965,096
Accrued liabilities 8,153,134 7,641,341
----------- ----------
Total current liabilities 11,850,135 11,606,437
Deferred rent liability 2,110,496 2,396,752
----------- ----------
Total liabilities 13,960,631 14,003,189
----------- ----------
Divisional equity 54,728,409 39,422,074
----------- ----------
Total liabilities and divisional equity $68,689,040 53,425,263
=========== ==========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
<PAGE> 5
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Combined Statements of Operations
Years Ended January 30, 1999, January 31, 1998 and January 25, 1997
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Sales $ 194,586,078 173,708,799 170,027,241
------------- ----------- -----------
Cost of sales 104,710,000 98,926,329 94,342,391
------------- ----------- -----------
Gross profit 89,876,078 74,782,470 75,684,850
Selling, general and administrative expense 78,979,646 73,131,624 82,179,092
Depreciation and amortization expense 7,174,572 5,752,344 7,165,902
Interest expense 878,806 364,175 44,764
------------- ----------- -----------
Income (loss) before income tax expense (benefit) 2,843,054 (4,465,673) (13,704,908)
------------- ---------- ----------
Income tax expense (benefit):
Current 1,499,156 (3,965,104) (3,983,953)
Deferred (361,935) 2,178,835 (1,498,010)
------------- ----------- -----------
Total income tax expense (benefit) 1,137,221 (1,786,269) (5,481,963)
------------- ----------- -----------
Net income (loss) $ 1,705,833 (2,679,404) (8,222,945)
============= =========== ==========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
<PAGE> 6
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Combined Statements of Cash Flows
Years Ended January 30, 1999, January 31, 1998 and January 25, 1997
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
From Operating Activities:
Net income (loss) $ 1,705,833 (2,679,404) (8,222,945)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,174,572 5,752,344 7,165,902
Impairment of long-lived assets 763,000 -- 2,947,289
Retirements of property and equipment 667,109 1,430,753 34,686
Deferred rent (286,256) (234,474) (74,792)
Change in assets and liabilities:
Other receivables (618,104) 149,678 194,500
Merchandise inventories (1,272,494) 2,805,697 (4,868,332)
Prepaid expenses and other current assets (798,200) (49,400) (96,819)
Accounts payable (268,095) 2,179,870 (1,465,244)
Accrued liabilities 511,793 (982,550) 4,133,979
------------ ---------- ----------
Net cash provided by (used in) operating activities 7,579,158 8,372,514 (251,776)
------------ ---------- ----------
From Investing Activities:
Capital expenditures (21,037,880) (10,825,189) (3,265,106)
------------ ---------- ----------
Net cash used in investing activities (21,037,880) (10,825,189) (3,265,106)
------------ ---------- ----------
From Financing Activities:
Net change in divisional equity 13,600,502 2,714,342 3,500,184
------------ ---------- ----------
Net cash provided by financing activities 13,600,502 2,714,342 3,500,184
------------ ---------- ----------
Net change in cash 141,780 261,667 (16,698)
Cash at Beginning of Year 1,453,476 1,191,809 1,208,507
------------ ---------- ----------
Cash at End of Year $ 1,595,256 1,453,476 1,191,809
============ ========== ==========
</TABLE>
See Accompanying Notes to Combined Financial Statements.
<PAGE> 7
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(1) ORGANIZATION AND NATURE OF BUSINESS
AfterThoughts (the "Company") operates in the United States and Canada.
The U.S. operation is a division of Venator Group Specialty, Inc.
("VGS") and the Canadian operation is a division of Venator Group
Canada, Inc. ("VGC"). Both VGS and VGC are wholly owned subsidiaries of
Venator Group, Inc. ("Venator"). These combined financial statements
include the financial position and the operating results of both the
U.S. and Canadian operations of AfterThoughts. All significant
intercompany accounts and transactions have been eliminated. The
Company is a retailer that specializes in fashion accessories and
personal care products. Sales were $188,137,343, $167,705,566 and
$164,176,753 in the U.S. and $6,448,735, $6,003,233 and $5,850,488 in
Canada for the years ended January 30, 1999, January 31, 1998 and
January 25, 1997, respectively.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
These accompanying combined financial statements include
allocations for certain corporate and affiliate expenses,
including interest, workers' compensation and general
liability insurance, and other corporate overhead such as
accounting, MIS and administrative and managerial support.
Allocations are based upon the Company's share of expense paid
by Venator on behalf of its divisions for consolidated
policies and programs. The total selling, general and
administrative costs allocated to the Company for 1998, 1997
and 1996 were $11,391,280, $9,705,298, and $11,627,000,
respectively. Since certain allocations and transactions may
not be the same as those that would result from transactions
among unrelated parties, the accompanying combined financial
statements may not necessarily be indicative of the actual
financial position, results of operations and cash flows that
would have resulted if the Company were an independent entity.
Additionally, such allocations may not be reflective of the
costs that will be incurred in the future. Management believes
that the basis for the allocations were reasonable.
The Company shares space in a distribution facility of an
affiliated company. Equipment for each is maintained
separately. The Company is charged for rent and other
distribution facility operating costs based on the square
footage utilized within the facility and for direct costs
attributable to its operations. These combined financial
statements include only the Company's proportionate share of
the distribution facility's operating costs. The total costs
included in cost of sales were $2,604,000, $2,124,000 and
$1,921,000 for 1998, 1997 and 1996, respectively. The
accompanying combined financial statements exclude any assets,
liabilities, revenue and expense associated with the
affiliate's operations.
The Company sources product through an affiliated entity
overseas. The costs incurred for this service totaled
$1,163,000, $985,000 and $712,000 for 1998, 1997 and 1996,
respectively, and are included in cost of sales in the
accompanying combined statements of operations.
<PAGE> 8
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(2) CONTINUED
(b) REPORTING YEAR
Beginning with 1998, the reporting period for the Company is
the Saturday closest to the last day in January, representing
the 52 weeks ended January 30, 1999. Previously, the reporting
period ended on the last Saturday in January. The 1997
reporting year represents the 53 weeks ended January 31, 1998.
The 1996 reporting year represents the 52 weeks ended January
25, 1997. References to years in these combined financial
statements relate to fiscal years rather than calendar years.
(c) USE OF ESTIMATES
The combined financial statements have been prepared in
conformity with generally accepted accounting principles,
which require management to make estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenue and
expense during the reporting period. Actual results are not
expected to differ significantly from those estimates.
(d) CASH
As part of Venator's overall cash management strategy, the
Company periodically transfers its cash to Venator. Cash on
the accompanying combined balance sheets represents cash at
the stores and cash not yet transferred to Venator.
(e) MERCHANDISE INVENTORIES
Merchandise inventories are valued at the lower of cost or
market using the retail inventory method. The U.S. merchandise
inventories of $24,327,956 and $23,056,052 for 1998 and 1997,
respectively, are determined on the last-in, first-out
("LIFO") basis. The excess of current cost over the stated
LIFO cost of such merchandise inventories as of January 30,
1999 and January 31, 1998 was $1,317,771 and $1,011,771,
respectively.
Two suppliers accounted for approximately 26 percent of the
merchandise purchased during 1998. The Company considers
vendor relations to be satisfactory.
<PAGE> 9
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(2) CONTINUED
(f) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Significant additions and
improvements to property and equipment are capitalized.
Depreciation of furniture, fixtures and equipment is
calculated on a straight-line basis over the estimated useful
lives of the related assets, ranging from 3 to 10 years.
Leasehold improvements are amortized on a straight-line basis
over the shorter of the remaining lease term or the estimated
useful life of the asset. Maintenance and repairs are charged
to current operations as incurred. Major renewals or
replacements that substantially extend the useful life of an
asset are capitalized and depreciated.
(g) REVENUE RECOGNITION
Revenue is recognized at the point of sale.
(h) RECOVERABILITY OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"),
an impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amounts of long-lived
tangible and intangible assets may not be recoverable. Assets
are grouped and evaluated at the lowest level for which there
are identifiable cash flows that are largely independent of
the cash flows of other groups of assets. The Company has
identified this lowest level of cash flows to be principally
individual stores. The Company considers historical
performance and future estimated results in its evaluation of
potential impairment and then compares the carrying amount of
the asset to the estimated future cash flows expected to
result from the use of the asset. If the carrying amount of
the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of the impairment by
comparing the carrying amount of the asset to its fair value.
The estimation of fair value is generally determined by
discounting expected future cash flows at the rate that
Venator utilizes to evaluate potential investments. The
Company estimates fair value based on the best information
available using estimates, judgments and projections as
considered necessary. The Company recorded impairment charges
of long-lived assets, such as store fixtures and leasehold
improvements, of $763,000 and $2,947,289, for 1998 and 1996,
respectively, which are included in selling, general, and
administrative expense in the accompanying combined statements
of operations.
(i) STORE PRE-OPENING AND CLOSING COSTS
Store pre-opening costs are charged to expense as incurred. In
the event a store is closed before its lease has expired, the
estimated post-closing lease obligation is provided for when
the decision to close the store is made.
<PAGE> 10
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(2) CONTINUED
(j) DIVISIONAL EQUITY
Divisional equity consists of VGS's and VGC's combined equity
in the Company, net of any intercompany obligations and income
tax accounts.
(k) FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Canadian operations
is the local currency. The translation of the local currency
into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet
date and for revenue and expense accounts using the
weighted-average rates of exchange prevailing during the year.
Gains and losses resulting from such translation are included
in divisional equity.
(l) INCOME TAXES
The Company's results are included in the income tax returns
of Venator, VGS and VGC. The provision for income taxes is
calculated at a rate of 40 percent, which approximates the
Company's combined effective federal, state, local and foreign
tax rate as if the Company operated on a stand-alone basis.
The net tax effect is included within divisional equity in the
accompanying combined balance sheets.
(m) FAIR VALUE
The carrying amounts reflected in the combined balance sheets
for cash, other receivables, accounts payable and accrued
liabilities approximate fair value due to the short maturities
of these instruments.
(n) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," in the
first quarter of 1998. There are no significant differences
between net income (loss) and comprehensive income (loss) for
each of the years presented.
(o) SEGMENT INFORMATION
On January 30, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The
Company has determined that it operates in one business
segment.
<PAGE> 11
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(3) PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Furniture, fixtures and equipment $ 42,885,224 $ 32,534,356
Alterations to leased buildings 46,225,196 42,944,166
------------ ------------
89,110,420 75,478,522
Accumulated depreciation and amortization (49,882,218) (48,683,519)
------------ ------------
Property and Equipment, net $ 39,228,202 $ 26,795,003
============ ============
</TABLE>
Retirements of $6,642,982, $5,300,759 and $3,805,664, at cost, were
recorded in 1998, 1997 and 1996, respectively. The net book values of
these retired assets were $667,109, $1,430,753 and $34,686 for 1998,
1997 and 1996, respectively.
(4) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Payroll and related costs $3,435,400 $2,368,221
Taxes other than income taxes 1,425,153 1,140,849
Accrued rent 633,299 280,872
Other 2,659,282 3,851,399
---------- ----------
$8,153,134 $7,641,341
========== ==========
</TABLE>
(5) LEASES
The Company is obligated under operating leases for its stores. In
addition, the Company is charged rent by affiliates for space in a
distribution facility and for its corporate headquarters. Some of the
store leases contain renewal options with varying terms and conditions.
Certain leases provide for additional rent payments based on a
percentage of store sales. The present value of operating leases is
discounted using interest rates ranging from 6 percent to 8 percent.
Rent expense consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Rent $31,860,430 30,392,249 30,977,150
Contingent rent based on sales 352,635 182,574 239,150
----------- ----------- -----------
Total rent expense $32,213,065 30,574,823 31,216,300
=========== =========== ===========
</TABLE>
<PAGE> 12
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(5) CONTINUED
Future minimum lease payments under non-cancelable operating leases
are:
<TABLE>
<S> <C> <C>
1999 $22,487,710
2000 19,431,961
2001 13,949,238
2002 10,110,436
2003 7,617,734
Thereafter 18,258,129
-----------
Total operating lease commitments $91,855,208
===========
Present value of lease commitments $74,227,946
===========
</TABLE>
(6) IMPACT OF AFFILIATE STORE CLOSINGS
On July 17, 1997, Venator announced that it was exiting its Domestic
General Merchandise ("GM") segment. The Company operated 53 stores in
locations occupied predominately by the GM segment. As the cost
associated with exiting these AfterThoughts locations was due to an
overall Venator strategic decision and not due to the historical or
projected operating results of these stores, these costs associated
with exiting these locations were absorbed by Venator and are not
reflected in the accompanying combined financial statements. The total
charge for the write-off of fixed assets, inventory markdowns,
severance and other charges absorbed by Venator was $2,377,000 during
1997. The accompanying combined financial statements include the assets
and results of operations of those stores that were operational during
the periods presented.
On the announcement date, 10 of the locations were exited; 6 additional
locations were exited during 1997 and 7 locations were exited during
1998. Of the remaining locations, the Company continues to operate in
14 locations where stand-alone lease agreements have been negotiated or
amended; 1 location will continue to operate until its lease expiration
on January 31, 2000 and 15 locations continue to operate under existing
lease agreements.
The following is a summary of sales that are included in the
accompanying combined statements of operations for these stores:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Stores closed $ 430,500 2,895,100 4,205,300
Stores subject to GM leases 4,453,200 3,946,300 3,930,400
---------- ---------- ----------
Total $4,883,700 6,841,400 8,135,700
========== ========== ==========
</TABLE>
Of the original liability recorded by Venator, the amount utilized
(related to stores that have been exited) was $548,000 and $867,000 in
1998 and 1997, respectively.
(7) EMPLOYEE BENEFIT PLANS
The Company's employees participate in certain pension benefit,
postretirement, 401(k) and medical plans provided by Venator. These
costs are charged directly by Venator to the Company. These benefits to
the employees of the Company would terminate upon the sale of the
Company.
<PAGE> 13
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
(8) AFFILIATE COMMITMENT
VGS, a material domestic subsidiary of Venator, is a subsidiary
guarantor under Venator's March 19, 1999 amended and restated revolving
credit agreement. Pursuant to the agreement, a security interest in
certain trademarks, service marks, patents and related general
intangibles of VGS and hence, the Company, has been granted.
(9) LEGAL PROCEEDINGS
The Company is subject to ordinary routine litigation incidental to its
business. Management does not believe that the outcome of any such
litigation will have a material effect on the Company's financial
position, liquidity or results of operations.
<PAGE> 14
AFTERTHOUGHTS
(DIVISIONS OF WHOLLY OWNED SUBSIDIARIES OF VENATOR GROUP, INC.)
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
OCTOBER 30, 1999
<PAGE> 15
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Unaudited Condensed Combined Balance Sheet
<TABLE>
<CAPTION>
AS OF
OCTOBER 30, 1999
-----------------
<S> <C>
ASSETS
Cash $ 1,488,583
Merchandise inventories 28,848,081
Prepaid expenses and other 2,432,718
Property and equipment, net 41,230,645
-----------
Total assets $74,000,027
===========
LIABILITIES AND DIVISIONAL EQUITY
Accounts payable $ 5,363,750
Accrued liabilities 7,114,929
Deferred rent liability 1,917,336
-----------
Total liabilities 14,396,015
Divisional equity 59,604,012
-----------
Total liabilities and
divisional equity $74,000,027
===========
</TABLE>
See Accompanying Notes to Unaudited Condensed Combined Financial Statements.
<PAGE> 16
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Unaudited Condensed Combined Statement of Operations
For the Nine Months Ended
<TABLE>
<CAPTION>
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Sales $ 146,158,650 $ 129,806,103
Cost of sales 76,455,136 70,512,800
------------- -------------
Gross profit 69,703,514 59,293,303
Selling, general and administrative expenses 52,660,901 55,927,733
Depreciation and amortization 6,596,648 5,196,705
Interest expense 947,681 797,268
------------- -------------
Income (loss) before income tax expense (benefit) 9,498,284 (2,628,403)
Income tax expense (benefit) 3,799,314 (1,051,361)
------------- -------------
Net income (Loss) $ 5,698,970 $ (1,577,042)
============= =============
</TABLE>
See Accompanying Notes to Unaudited Condensed Combined Financial Statements.
<PAGE> 17
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Unaudited Condensed Combined Statement of Cash Flows
For the Nine Months Ended
<TABLE>
<CAPTION>
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
From Operating Activities:
Net income (loss) $ 5,698,970 $ (1,577,042)
Depreciation and amortization 6,596,648 5,196,705
Loss on retirement of property and equipment 592,627 1,231,953
Deferred rent liability (193,160) (247,256)
Change in assets and liabilities:
Merchandise Inventories (3,551,223) (4,023,906)
Prepaid expenses and other assets 136,006 (1,065,627)
Accounts Payable 1,666,749 250,218
Accrued liabilities (1,038,205) 1,920,308
------------ ------------
Net cash provided by operating activities 9,908,412 1,685,353
------------ ------------
From Investing Activities:
Capital expenditures (9,191,718) (15,936,714)
------------ ------------
Net cash used in investing activities (9,191,718) (15,936,714)
------------ ------------
From Financing Activities:
Net Change in divisional equity (823,367) 14,208,222
------------ ------------
Net cash used in financing activities (823,367) 14,208,222
------------ ------------
Net change in cash (106,673) (43,139)
Cash at beginning of year 1,595,256 1,453,476
------------ ------------
Cash at end of period $ 1,488,583 $ 1,410,337
============ ============
</TABLE>
See Accompanying Notes to Unaudited Condensed Combined Financial Statements.
<PAGE> 18
AFTERTHOUGHTS
(Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
Notes to Unaudited Condensed Combined Financial Statements
(1) Basis of Presentation.
The accompanying unaudited condensed combined financial statements have been
prepared by AfterThoughts, divisions of wholly owned subsidiaries of Venator
Group, Inc without audit, pursuant to generally accepted accounting principles.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted. These unaudited combined condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's audited combined financial statements as of
January 30, 1999, January 31, 1998 and for each of the years in the three year
period ended January 30, 1999 included elsewhere herein.
In the opinion of the management of AfterThoughts, the unaudited condensed
combined financial statements reflect all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the condensed combined
financial position of AfterThoughts, divisions of wholly owned subsidiaries of
Venator Group, Inc as of October 30, 1999 and the condensed results of
operations and cash flows for the nine month periods ended October 30, 1999 and
October 31, 1998 in accordance with generally accepted accounting principles.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
(2)
On December 1, 1999, substantially all of the assets and certain liabilities of
AfterThoughts were acquired by Claire's Stores, Inc.
<PAGE> 19
CLAIRE'S STORES, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to
the acquisition by Claire's Stores, Inc. ("Claire's) of substantially all of the
assets and certain liabilities of AfterThoughts, a division of the Venator
Group, Inc. ("AfterThoughts") and ("Venator") on December 1, 1999, the
("Acquisition"). The Acquisition was accounted for under the purchase method of
accounting.
The unaudited pro forma combined balance sheet gives effect to the Acquisition
as if it had occurred on October 30, 1999. The unaudited pro forma combined
statements of operations give effect to these transactions as if they had
occurred on February 1, 1998 and January 31, 1999. The unaudited pro forma
combined statements of operations reflect the operating results of Claire's and
AfterThoughts for the year ended January 30, 1999 and the interim nine month
period ended October 30, 1999.
Prior to the Acquisition, AfterThoughts operated as a division of Venator and
certain overhead costs and other expenses were allocated to AfterThoughts by
Venator. Accordingly, the unaudited pro forma combined financial statements
include such overhead costs and other expenses.
Claire's has preliminarily analyzed the savings that it expects to realize from
reductions in redundant operations and elimination of certain corporate overhead
allocations. Claire's has not and cannot quantify these savings until completion
of the integration of AfterThoughts.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what
Claire's financial position or results of operations would actually have been if
such acquisition had occurred on those dates and are not necessarily
representative of Claire's financial position or results of operations for any
future period. Since the companies were not under common control or management,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with other financial statements and notes thereto included
elsewhere herein and in Claire's Form 10-K for the fiscal year ended January 30,
1999 on file with the Securities and Exchange Commission.
<PAGE> 20
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
OCTOBER 30, 1999
---------------------------------------------------------
PRO FORMA
CLAIRE'S AFTERTHOUGHTS ADJUSTMENTS COMBINED
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 101,547 $ 1,489 $ (51,298) $ 51,738
Short Term Investments 16,547 -- -- 16,547
Inventories 101,303 28,848 -- 130,151
Prepaids and Other Current Assets 29,571 2,432 (1,562) 30,441
--------- --------- --------- ---------
Total Current Assets 248,968 32,769 (52,860) 228,877
Property & Equipment:
Land and building 17,275 -- -- 17,275
Furniture, fixtures and equipment 141,654 41,231 (7,300) 175,585
Leasehold improvements 103,485 -- (4,000) 99,485
--------- --------- --------- ---------
262,414 41,231 (11,300) 292,345
Less accumulated depreciation and
amortization (132,106) -- -- (132,106)
--------- --------- --------- ---------
130,308 41,231 (11,300) 160,239
Goodwill, net 26,294 -- 186,860 213,154
Other Assets 31,922 -- 2,720 34,642
--------- --------- --------- ---------
Total Assets $ 437,492 $ 74,000 $ 125,420 $ 636,912
========= ========= ========= =========
Current Liabilities:
Loan Payable to Bank $ 822 $ -- $ -- $ 822
Trade Accounts Payable 37,521 5,364 (5,364) 37,521
Income Taxes Payable 2,099 -- -- 2,099
Accrued Expenses 24,539 7,115 (2,115) 29,539
Dividends Payable 2,043 -- -- 2,043
--------- --------- --------- ---------
Total Current Liabilities 67,024 12,479 (7,479) 72,024
Deferred Credits 13,027 1,917 (1,917) 13,027
Long Term Debt -- -- 200,000 200,000
--------- --------- --------- ---------
13,027 1,917 198,083 213,027
Preferred stock -- -- -- --
Class A common stock 144 -- -- 144
Common stock 2,417 -- -- 2,417
Additional paid-in capital 27,936 -- -- 27,936
Accumulated other comprehensive income (1,131) -- -- (1,131)
Divisional equity -- 59,604 (59,604) --
Retained earnings 328,527 -- (5,580) 322,947
--------- --------- --------- ---------
357,893 59,604 (65,184) 417,497
Treasury stock, at cost (452) -- -- (452)
--------- --------- --------- ---------
Stockholders' Equity 357,441 59,604 (65,184) 351,861
--------- --------- --------- ---------
Total Liabilities & Equity $ 437,492 $ 74,000 $ 125,420 $ 636,912
========= ========= ========= =========
</TABLE>
<PAGE> 21
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 30, 1999
--------------------------------------------------------
PRO FORMA
CLAIRE'S AFTERTHOUGHTS ADJUSTMENTS PRO FORMA
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 661,856 $ 194,586 $ -- $ 856,442
Cost of sales, occupancy and buying expenses 319,067 104,710 -- 423,777
--------- --------- --------- ---------
Gross profit 342,789 89,876 -- 432,665
Other expenses:
Selling, general and administrative 208,631 78,980 -- 287,611
Depreciation and amortization 21,878 7,174 7,474 36,526
Loss (Gain) on investments 4,800 -- -- 4,800
Interest (income) expense, net (6,256) 879 17,555 12,178
--------- --------- --------- ---------
229,053 87,033 25,029 341,115
Income from continuing operations before income taxes 113,736 2,843 (25,029) 91,550
Income taxes 42,084 1,137 (9,511) 33,710
--------- --------- --------- ---------
Income from continuing operations $ 71,652 $ 1,706 $ (15,518) $ 57,840
========= ========= ========= =========
Income from continuing operations per share - Basic $ 1.41 $ 1.14
Income from continuing operations per share - Diluted $ 1.40 $ 1.13
Average common shares outstanding - Basic 50,649 50,649
Average common shares outstanding - Diluted 51,108 51,108
</TABLE>
<PAGE> 22
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 30, 1999
--------------------------------------------------------
PRO FORMA
CLAIRE'S AFTERTHOUGHTS ADJUSTMENTS PRO FORMA
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 539,503 $ 146,159 $ -- $ 685,662
Cost of sales, occupancy and buying expenses 269,254 76,455 -- 345,709
--------- --------- --------- ---------
Gross profit 270,249 69,704 -- 339,953
Other expenses:
Selling, general and administrative 185,215 52,661 -- 237,876
Depreciation and amortization 19,595 6,597 5,606 31,798
Gain on investments (3,929) -- -- (3,929)
Interest (income) expense, net (4,566) 948 13,166 9,548
--------- --------- --------- ---------
196,315 60,206 18,772 275,293
Income from continuing operations before income
taxes 73,934 9,498 (18,772) 64,660
Income taxes 27,088 3,799 (7,133) 23,754
--------- --------- --------- ---------
Income from continuing operations $ 46,846 $ 5,699 $ (11,639) $ 40,906
========= ========= ========= =========
Income from continuing operations per share -
Basic $ 0.92 $ 0.80
Income from continuing operations per share -
Diluted $ 0.91 $ 0.80
Average common shares outstanding - Basic 50,943 50,943
Average common shares outstanding - Diluted 51,341 51,341
</TABLE>
<PAGE> 23
CLAIRE'S STORES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 - GENERAL
The historical financial statements reflect the financial position and results
of operations of Claire's and AfterThoughts. The periods included in these pro
forma combined financial statements are as of October 30, 1999 and for year
ended January 30, 1999 and the nine month period ended October 30, 1999. The
audited historical financial statements of Claire's have been previously filed
on Form 10K and the audited financial statements of AfterThoughts as of and for
the years ended January 30, 1999 and January 31, 1998 and the unaudited
condensed combined financial statements as of October 30, 1999 and the nine
months ended October 30, 1999 and October 31, 1998 are included elsewhere in
this Form 8-K/A.
NOTE 2 - ACQUISITION
Claire's acquired substantially all of the assets of AfterThoughts on December
1, 1999. The Acquisition is accounted for using the purchase method of
accounting. The premium of the purchase price over the fair value of the assets
acquired is recorded as goodwill and will be amortized over a period of 25
years. The carrying value of intangible assets acquired is periodically reviewed
by Claire's based on the expected future un-discounted operating cash flows of
AfterThoughts.
The $250 million purchase price of AfterThoughts was financed by Claire's
entering into a credit facility pursuant to which it financed $200 million of
the purchase price. The credit facility bears interest at an initial rate of 125
basis points over LIBOR.
<PAGE> 24
NOTE 3 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments as of October 30, 1999:
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
OCTOBER 30, 1999
---------------------------------------------------------------
PRO FORMA
(A) (B) (C) ADJUSTMENTS
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents $ (51,298) $ (51,298)
Short Term Investments --
Inventories --
Prepaids and Other Current Assets (1,562) (1,562)
--------- -------- ---------- ---------
Total Current Assets (52,860) -- -- (52,860)
Property & Equipment:
Land and building --
Furniture, fixtures and equipment (5,300) (2,000) (7,300)
Leasehold improvements (1,000) (3,000) (4,000)
--------- -------- ---------- ----------
-- (6,300) (5,000) (11,300)
Less accumulated depreciation and amortization --
--------- -------- ---------- ----------
-- (6,300) (5,000) (11,300)
Goodwill, net 181,860 5,000 186,860
Other Assets 2,000 720 2,720
--------- -------- ---------- ----------
Total Assets $ 131,000 $ (5,580) $ -- $ 125,420
========= ======== ========== ==========
Current Liabilities:
Loan Payable to Bank $ --
Trade Accounts Payable (5,364) (5,364)
Income Taxes Payable --
Accrued Expenses (2,115) (2,115)
Dividends Payable --
--------- -------- ---------- ----------
Total Current Liabilities (7,479) -- -- (7,479)
Deferred Credits (1,917) (1,917)
Long Term Debt 200,000 200,000
--------- -------- ---------- ----------
198,083 -- -- 198,083
Preferred stock --
Class A common stock --
Common stock --
Additional paid-in capital --
Accumulated other comprehensive income --
Divisional equity (59,604) (59,604)
Retained earnings (5,580) (5,580)
--------- -------- ---------- ----------
(59,604) (5,580) -- (65,184)
Treasury stock, at cost --
--------- -------- ---------- ----------
Stockholders' Equity (59,604) (5,580) -- (65,184)
--------- -------- ---------- ----------
Total Liabilities & Equity $ 131,000 $ (5,580) $ -- $ 125,420
========= ======== ========== ==========
</TABLE>
(A) Reflects the elimination of assets and liabilities of AfterThoughts
which were not acquired or assumed by Claire's, the payment of $50
million of the purchase price and professional fees in connection with
the
<PAGE> 25
acquisition and debt financing and the $200 million debt incurred to
finance the Acquisition and the recording of goodwill.
(B) Recognizes the write-off of assets related to one time, non-recurring
charges for closing of certain Claire's store locations in connection
with the Acquisition. Such charges will be recorded in the fourth
quarter of fiscal 2000 and are estimated for pro forma purposes at $9
million on a before-tax-basis, $5.6 million on an after-tax basis.
(C) Recognizes the adjustment necessary to reflect the fair value of fixed
assets in connection with closing of certain AfterThoughts store
locations in connection with the Acquisition.
<PAGE> 26
NOTE 4 - UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
The following table summarizes the unaudited pro forma combined statement of
operations adjustments:
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 30, 1999
------------------------------------------------------
PRO FORMA
(A) (B) (C) ADJUSTMENTS
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net sales $ --
Cost of sales, occupancy and buying expenses --
-------- -------- -------- --------
Gross profit -- -- -- --
Other expenses:
Selling, general and administrative --
Depreciation and amortization 7,474 7,474
Gain on investments --
Interest (income) expense, net 17,555 17,555
-------- -------- -------- --------
17,555 7,474 -- 25,029
Income from continuing operations before Income
taxes (17,555) (7,474) -- (25,029)
Income taxes (9,511) (9,511)
-------- -------- -------- --------
Income from continuing operations $(17,555) $ (7,474) $ 9,511 $(15,518)
======== ======== ======== ========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 30, 1999
-----------------------------------------------------
PRO FORMA
(A) (B) (C) ADJUSTMENTS
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net sales $ --
Cost of sales, occupancy and buying expenses --
-------- -------- -------- --------
Gross profit -- -- -- --
Other expenses:
Selling, general and administrative --
Depreciation and amortization 5,606 5,606
Gain on investments --
Interest (income) expense, net 13,166 13,166
-------- -------- -------- --------
13,166 5,606 -- 18,772
Income from continuing operations before income taxes (13,166) (5,606) -- (18,772)
Income taxes (7,133) (7,133)
-------- -------- -------- --------
Income from continuing operations $(13,166) $ (5,606) $ 7,133 $(11,639)
======== ======== ======== ========
</TABLE>
- --------------------
(A) Reflects the net interest expense impact of the purchase price
including interest expense on the amount financed at prevailing rates,
foregone interest income on the cash portion of purchase price not
financed at prevailing rates and the amortization of debt issue costs,
for the respective periods shown.
(B) Reflects the amortization of goodwill recorded as a result of the
Acquisition over the estimated useful life of 25 years.
(C) Reflects federal and state income taxes relating to the other statement
of operations' adjustments at a combined statutory rate of 38%.
<PAGE> 27
EXHIBIT INDEX
23.1 Consent of KPMG LLP
<PAGE> 28
SIGNATURES
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 hereunto duly authorized.
CLAIRE'S STORES, INC.
Date: February 14, 2000 By: /s/ Ira D. Kaplan
----------------------------------
Name: Ira D. Kaplan
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To The Board of Directors of
Venator Group, Inc.:
We consent to the incorporation by reference in the registration statements (No.
333-58549) on Form S-3 and (No. 333-42027) on Form S-8 of Claire's Stores, Inc.
of our report dated October 25, 1999 with respect to the combined balance sheets
of Afterthoughts (Divisions of Wholly Owned Subsidiaries of Venator Group, Inc.)
as of January 30, 1999 and January 31, 1998 and the related combined statements
of operations and cash flows for each of the years in the three-year period
ended January 30, 1999, which report appears in the Form 8-K/A (Amendment No. 1)
of Claire's Stores, Inc. dated December 1, 1999.
/s/ KPMG LLP
New York, New York
February 14, 2000
