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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 12, 2005
THE CHILDREN'S PLACE RETAIL STORES, INC.
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 0-23071 31-1241495
-------- -------- -----------
(State or other jurisdiction (Commission (IRS Employer ID
of incorporation) File Number) Number)
915 SECAUCUS ROAD, NEW JERSEY 07094
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 558-2400
______________________________________________________________________________
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 13, 2005, The Children's Place Retail Stores, Inc. (the "Company")
announced that it completed its previously announced analysis of its
leases-related accounting practices and concluded that certain of these
accounting practices were incorrect and should be changed. As a result, the
Company announced that it is restating its financial results for fiscal 2002 and
fiscal 2003, and its previously filed financial results should no longer be
relied upon. In its announcement, the Company included updated financial
information, giving effect to these changes, for the fourth quarter and fiscal
year ended January 29, 2005 as well as certain restated financial information
for the fiscal years ended January 31, 2004 and February 1, 2003. The Company
stated that full financial results for these fiscal years would be included in
the Company's Form 10-K for the year ended January 29, 2005 to be filed with the
Securities and Exchange Commission.
Additional information about the change in the Company's accounting
practices and its restatement of its financial results is set forth below in
Item 4.02 and Item 8.01.
A copy of the Company's April 13, 2005 press release is attached as Exhibit
99.1.
ITEM 4.02. NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW.
On March 10, 2005, The Children's Place Retail Stores, Inc. (the "Company")
reported preliminary unaudited financial results for the fourth quarter and
fiscal year ended January 29, 2005 ("fiscal 2004"). In this report, the Company
noted that such preliminary results excluded the effect of any potential
corrections to the Company's lease-related accounting practices. At that time,
the Company stated that, like many other companies, it was engaged in an
evaluation of its lease-related accounting practices in light of a recent
clarification from the Securities and Exchange Commission ("SEC") and that,
while this evaluation had not been completed, and therefore no decisions had
been made, management believed that a restatement of the Company's previously
issued financial statements was likely.
On April 12, 2005, the Company completed its analysis and reviewed the
results with its audit committee and independent registered public accounting
firm. The Company has concluded that certain of its lease-related accounting
practices were incorrect. Therefore, the Company is restating its financial
results, and advises users that such financial results contained in the
Company's prior filings with the SEC should no longer be relied upon. Restated
results for the years ended January 31, 2004 and February 1, 2003 will be
included in the Company's Annual Report on Form 10-K for the year ended January
29, 2005 to be filed with the SEC.
Under FASB Technical Bulletin 88-1, "Issues Related to Accounting for
Leases," lease incentives such as landlord construction allowances received to
defray construction costs incurred by the Company should be reflected as a
deferred lease incentive, amortized over the lease term and reflected as a
reduction to rent expense. The Company had previously classified landlord
construction allowances as a reduction to property and equipment instead of as a
deferred lease incentive. The Company has corrected its accounting policy to
treat landlord construction allowances as deferred lease incentives.
In addition, under the requirements of FASB Technical Bulletin 85-3,
"Accounting for Operating Leases with Scheduled Rent Increases," rent expense is
required to be recognized on a straight-line basis over the lease term. In prior
periods, the Company had incorrectly determined that the term of the lease
begins on the commencement date of the lease, which generally coincides with the
store opening date. The Company has corrected this policy to properly commence
the lease for accounting purposes when the Company takes physical possession of
the property to begin construction. This has the effect of including the
construction period in the determination of the period over which rent is
calculated. The Company continues to capitalize occupancy costs incurred prior
to the commencement of store pre-opening activities. These capitalized costs are
amortized over the remaining lease term. The net effect of this correction was
to decrease rent expense with a corresponding increase in depreciation expense
and to increase the amount of deferred rent liability with the corresponding
increase in leasehold improvements.
Additional information about these restatements and corrections is
contained under Item 8.01 below.
ITEM 8.01 OTHER EVENTS
As a result of the correction to its accounting for leases, the Company is
revising its previously-announced preliminary unaudited fourth quarter and
fiscal 2004 financial results due to the recording of additional lease incentive
income of $16,000 after tax. As a result, the Company is now reporting net
income of $24.0 million, or diluted net income per share of $0.85 and diluted
income before extraordinary gain per share of $0.84 for the fourth quarter of
fiscal 2004. For the full fiscal 2004, net income was $43.3 million, or diluted
net income per share of $1.57 and diluted income before extraordinary gain per
share of $1.56.
On a restated basis, net income for the year ended January 31, 2004
("fiscal 2003") and for the year ended February 1, 2003 ("fiscal 2002") was
$22.9 million, or diluted net income per share of $0.85, and $8.1 million, or
diluted net income per share of $0.30, respectively.
In addition to the changes in net income, net property and equipment, total
assets, total liabilities and total stockholders' equity as of January 29, 2005
were $222.7 million, $627.4 million, $315.7 million and $311.7 million,
respectively. As of January 31, 2004, restated net property and equipment, total
assets, total liabilities and total stockholders' equity were $211.5 million,
$426.2 million, $170.1 million and $256.1 million, respectively. While the
correction of the errors did not change total cash flows, changes in
classification were made in the consolidated statement of cash flows from cash
flows provided by investing activities to cash flows provided by operating
activities. For fiscal 2004, fiscal 2003 (as restated) and fiscal 2002 (as
restated), cash flows provided by operating activities approximated $212.9
million, $80.0 million and $58.3 million, respectively. Additionally, cash flows
used in investing activities for fiscal 2004, fiscal 2003 (as restated) and
fiscal 2002 (as restated) approximated $168.9 million, $43.5 million and $69.2
million, respectively.
The Company's revised unaudited financial information for the fourth
quarter and fiscal year ended January 29, 2005 and restated financial
information for the fiscal year ended January 31, 2004 are attached hereto as
Exhibit 99.1.
The Company reaffirms its adjusted earnings per share guidance of $2.10 to
$2.20 for the fiscal year ending January 28, 2006 ("fiscal 2005"), which
excludes the effects of the remaining $1.2 million non-cash charge related to
acquired Disney Store inventory, which will be reflected in the Company's first
quarter of fiscal 2005 financial results, and the effect of new accounting rules
requiring the expensing of stock options. The Company plans to initiate the
expensing of stock options prospectively beginning in the third quarter of
fiscal 2005, in accordance with the requirements of FASB Statement No. 123R. In
addition, the Company is reaffirming its guidance regarding investments in
capital expenditures and landlord construction allowances. The Company continues
to expect to invest approximately $110 million in capital expenditures and to
receive $10 million in landlord construction allowances in fiscal 2005, for net
capital-related expenditures of $100 million.
FORWARD-LOOKING STATEMENTS
This Form 8-K report contains forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
statements other than those that are purely historical are forward-looking
statements. Words such as "expect," "anticipate," "believe," "estimate,"
"intend," "plan," and similar expressions also identify forward-looking
statements. Forward-looking statements include statements regarding estimated
net income on a restated basis.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause the Company's actual results to differ
materially from those in the forward-looking statements. These factors include,
without limitation, the risk that additional information may arise from the
preparation of the Company's financial statements or other subsequent events
that would require the Company to make additional adjustments.
SECTION 9 FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits:
Exhibit 99.1 -- Press Release dated April 13, 2005
Exhibit 99.2 -- The Children's Place Retail Stores, Inc. and
Subsidiaries Unaudited Financial Statements for Fourth Quarter and
Fiscal Year 2004 (Revised).
[Remainder of page intentionally left blank;
signature on following page.]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE CHILDREN'S PLACE RETAIL STORES, INC.
By: /S/ SETH L. UDASIN
---------------------
Name: Seth L. Udasin
Title: Vice President and Chief Financial
Officer
Dated: April 13, 2005
INDEX TO EXHIBITS
Current Report on Form 8-K
dated April 12, 2005
The Children's Place Retail Stores, Inc.
Exhibit 99.1 Press Release dated April 13, 2005.
Exhibit 99.2 The Children's Place Retail Stores, Inc. and Subsidiaries
Unaudited Financial Information for Fourth Quarter and Fiscal
Year 2004 (Revised).
THE CHILDREN'S
PLACE
FOR IMMEDIATE RELEASE
- ---------------------
THE CHILDREN'S PLACE RETAIL STORES, INC. REPORTS RESULTS OF LEASE-RELATED
ACCOUNTING ASSESSMENT
PREVIOUSLY REPORTED FOURTH QUARTER & FISCAL 2004 EARNINGS PER SHARE
REMAIN UNCHANGED ~
SECAUCUS, NEW JERSEY - APRIL 13, 2005 - THE CHILDREN'S PLACE RETAIL STORES, INC.
(NASDAQ: PLCE), today announced that it has completed its previously announced
analysis of its lease-related accounting practices in light of an SEC
clarification in February. Upon review of the results with its audit committee
and independent auditors, the Company has concluded that certain of its
accounting practices relating to leases were incorrect and should be changed.
These accounting corrections do not materially impact fiscal 2003 net income
and, as anticipated, do not materially impact fiscal 2004 net income. All
related adjustments are detailed below, and final fourth quarter and fiscal year
income statements and balance sheets for fiscal 2004 and fiscal 2003 are
attached. Also as expected, these corrections do not impact the Company's
current fiscal 2005 adjusted earnings per share guidance of $2.10 to $2.20,
which excludes the effects of a non-cash item associated with the Disney Store
acquisition and new accounting rules requiring the expensing of stock options.
The Company continues to believe that fiscal 2005 net capital-related
expenditures will approximate $100 million, comprised of capital expenditures of
$110 million and landlord construction allowances of $10 million.
As a result of these corrections, the Company is restating its financial results
for fiscal 2002 and fiscal 2003, and advises users that its previously filed
financial results should no longer be relied upon. The Company is filing a Form
8-K today that describes the lease-related accounting corrections in more
detail. Restated results for the years ended January 31, 2004 and February 1,
2003 will be included in the Company's Form 10-K for the year ended January 29,
2005 to be filed with the Securities and Exchange Commission.
LEASE-RELATED ACCOUNTING PRACTICES
Historically, when the Company received landlord construction allowances, they
were classified on the balance sheet as a reduction of property and equipment
and then amortized as a reduction of depreciation expense over the estimated
useful life of the property. Consistent with the SEC clarification, the Company
will now account for landlord construction allowances as lease incentives and
record them as deferred liabilities, which are amortized as a reduction of rent
expense over the lease term.
In addition, the Company has revised its treatment of occupancy costs during
construction. Historically, the Company had incorrectly determined that the term
of the lease begins on the commencement date of the lease, which generally
coincides with the store opening date. The Company has corrected this policy to
properly commence the lease once it takes physical possession of the property,
which has the effect of including the construction phase in the period over
which rent is calculated. The Company continues to capitalize occupancy costs
incurred prior to the commencement of store pre-opening activities. These
capitalized costs are amortized over the remaining lease term. The net effect
was to decrease rent expense with a corresponding increase in depreciation
expense, and to increase the amount of deferred rent liability with a
corresponding increase in leasehold improvements.
As a result of these lease accounting corrections, the Company is increasing its
previously announced fourth quarter, and therefore, fiscal 2004 net income by
$16,000. As a result, there is no change to the Company's previously reported
earnings per share amounts for the fourth quarter and full fiscal 2004 periods.
In addition, the Company is decreasing its previously reported fiscal 2003 net
income by $52,000, which does not change earnings per share for that period.
Fiscal 2002 net income decreased by $853,000, or $0.03 per share.
- more -
PLCE: ANNOUNCES LEASE ACCOUNTING CORRECTIONS
PAGE 2
The impact of the lease-related accounting corrections on the Company's January
29, 2005, consolidated balance sheet is an increase in net property and
equipment of approximately $69.6 million, an increase in total assets of $71.4
million, an increase in total liabilities of $72.3 million and a decrease in
stockholders' equity of $0.9 million. The impact on the Company's January 31,
2004, consolidated balance sheet is an increase in net property and equipment of
approximately $64.8 million, an increase in total assets of $66.5 million, an
increase in total liabilities of $67.5 million, and a decrease in stockholders'
equity of $0.9 million.
While the corrections did not change total cash flows, they have changed the
classification of landlord construction allowances received from a reduction of
cash flows used in investing activities to an increase in cash flows provided by
operating activities. For the fiscal years ended January 29, 2005, January 31,
2004 (as restated), and February 1, 2003 (as restated), cash flows provided by
operating activities approximated $212.9 million, $80.0 million and $58.3
million, respectively. Additionally, cash flows used in investing activities for
those same fiscal years approximated $168.9 million, $43.5 million and $69.2
million, respectively.
Please refer to the attached income statements for the quarter and year and
consolidated balance sheets for ABOUT THE CHILDREN'S PLACE RETAIL STORES, INC.
The Children's Place Retail Stores, Inc. is a leading specialty retailer of
children's merchandise. The Company designs, contracts to manufacture and sells
high-quality, value-priced merchandise under the proprietary "The Children's
Place" and licensed "Disney Store" brand names. As of April 1, 2005, the Company
owned and operated 752 The Children's Place stores in North America, 306 Disney
Stores in North America and its online store, www.childrensplace.com.
USE OF NON-GAAP MEASURES
The Company is providing adjusted financial information as an addition to, and
not as a substitute for, financial measures presented in accordance with
generally accepted accounting principles ("GAAP"). To facilitate the analysis of
net income, the Company adjusted its fourth quarter and fiscal 2004 net income
to exclude a non-cash item and an extraordinary gain, both associated with the
Company's November 2004 acquisition of Disney Store North America. The Company
has excluded such items because it does not believe they are indicative of the
core business and believes that the adjusted presentation is a beneficial
supplemental disclosure to investors in analyzing its past and future
performance. Such presentation is a non-GAAP measure, and a reconciliation to
net income under accounting principles generally accepted in the United States
is attached. Adjusted net income and adjusted earnings per share are "Non-GAAP
financial measures" as defined by the Securities and Exchange Commission, and
may differ from non-GAAP financial measures used by other companies.
THIS PRESS RELEASE MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS REGARDING
FUTURE CIRCUMSTANCES. THESE FORWARD-LOOKING STATEMENTS ARE BASED UPON THE
COMPANY'S CURRENT EXPECTATIONS AND ASSUMPTIONS AND ARE SUBJECT TO VARIOUS RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS INCLUDING, IN PARTICULAR,
THE RISKS AND UNCERTAINTIES DESCRIBED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. ACTUAL RESULTS, EVENTS, AND PERFORMANCE MAY
DIFFER. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE
NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE FORWARD-LOOKING
STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE INCLUSION OF
ANY STATEMENT IN THIS RELEASE DOES NOT CONSTITUTE AN ADMISSION BY THE CHILDREN'S
PLACE OR ANY OTHER PERSON THAT THE EVENTS OR CIRCUMSTANCES DESCRIBED IN SUCH
STATEMENT ARE MATERIAL.
CONTACT: The Children's Place
Seth Udasin, Chief Financial Officer, (201) 558-2409
Heather Anthony, Director, Investor Relations, (201) 558-2865
EXHIBIT 99.2
THE CHILDREN'S PLACE RETAIL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended:
----------------------------
January 29, January 31,
2005 2004
----------- -------------
(As restated)
Net sales $ 462,108 $ 234,569
Cost of sales 281,659 131,663
----------- --------------
Gross profit 180,449 102,906
Selling, general and
administrative expenses 128,982 65,922
Asset impairment charges 164 448
Depreciation and amortization 13,383 12,753
----------- --------------
Operating income 37,920 23,783
Interest expense (income), net 176 (127)
----------- --------------
Income before income taxes and
extraordinary gain 37,744 23,910
Provision for income taxes 14,042 8,787
----------- --------------
Income before extraordinary gain 23,702 15,123
Extraordinary gain (net of taxes) 273 --
----------- --------------
Net income $ 23,975 $ 15,123
=========== ==============
Basic income per share $ 0.89 $ 0.57
Basic weighted average number
of shares outstanding 27,076 26,726
Diluted income per share before
extraordinary gain $ 0.84 $ 0.55
Diluted income per share $ 0.85 $ 0.55
Diluted weighted average number
of shares outstanding 28,106 27,510
THE CHILDREN'S PLACE RETAIL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
52 Weeks Ended:
----------------------------
January 29, January 31,
2005 2004
----------- -------------
(As restated)
Net sales $ 1,157,548 $ 797,938
Cost of sales 705,681 476,961
----------- --------------
Gross profit 451,867 320,977
Selling, general and
administrative expenses 329,916 235,415
Asset impairment charges 164 448
Depreciation and amortization 51,835 48,700
----------- --------------
Operating income 69,952 36,414
Interest expense (income), net 22 (255)
----------- --------------
Income before income taxes and
extraordinary gain 69,930 36,669
Provision for income taxes 26,923 13,764
----------- --------------
Income before extraordinary gain 43,007 22,905
Extraordinary gain (net of taxes) 273 --
----------- --------------
Net income $ 43,280 $ 22,905
=========== ==============
Basic income per share $ 1.61 $ 0.86
Basic weighted average number
of shares outstanding 26,919 26,646
Diluted income per share before
extraordinary gain $ 1.56 $ 0.85
Diluted income per share $ 1.57 $ 0.85
Diluted weighted average number
of shares outstanding 27,633 27,099
THE CHILDREN'S PLACE RETAIL STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
January 29, 2005 January 31, 2004
------------------ ------------------
(As restated)
Current assets:
Cash and cash equivalents $ 165,196 $ 74,772
Accounts receivable 23,987 8,462
Inventories 161,969 96,128
Other current assets 41,007 20,070
------------------ ------------------
Total current assets 392,159 199,432
Property and equipment, net 222,722 211,454
Other assets, net 12,507 15,317
------------------ ------------------
Total assets $ 627,388 $ 426,203
================== ==================
Current liabilities:
Revolving credit facility $ 37,268 $ 0
Accounts payable 78,106 35,173
Accrued expenses and
other current liabilities 99,575 49,984
------------------ ------------------
Total current liabilities 214,949 85,157
Deferred rent liabilities 91,111 81,644
Other liabilities 9,665 3,317
------------------ ------------------
Total liabilities 315,725 170,118
Total Stockholders' equity 311,663 256,085
------------------ ------------------
Total liabilities and
stockholders' equity $ 627,388 $ 426,203
================== ==================