GYMBOREE CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the quarterly period ended August 3, 2002

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the transition period from to

Commission file number 000-21250

The Gymboree Corporation

(Exact name of registrant as specified in its charter)


Delaware		94-2615258
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

700 Airport Boulevard, Burlingame, California (Address of principal executive offices)		94010-1912 (Zip code)

Registrant’s telephone number, including area code

(650) 579-0600

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

As of September 12, 2002, 28,982,731 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS


Part I -- FINANCIAL INFORMATION
	Item 1. Financial Statements
	CONDENSED CONSOLIDATED BALANCE SHEETS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
	EXHIBIT INDEX
EXHIBIT 10.49
EXHIBIT 10.50
EXHIBIT 10.51
EXHIBIT 15
EXHIBIT 99.1
EXHIBIT 99.2

TABLE OF CONTENTS


			Page
			Number

Part I Financial Information
	Item 1.	Financial Statements Condensed Consolidated Balance Sheets		2
		Condensed Consolidated Statements of Operations		3
		Condensed Consolidated Statements of Cash Flows		4
		Notes to Condensed Consolidated Financial Statements		5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		11
Part II Other Information
	Item 1.	Legal Proceedings		12
	Item 4.	Submission of Matters to a Vote of Security Holders		12
	Item 6.	Exhibits and Reports on Form 8-K		13
Signatures				14
Exhibit Index				16

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


			August 3,			February 2,			August 4,
			2002			2002			2001


			(In thousands, except per share
			and store data)
			(Unaudited)
ASSETS
Current Assets
	Cash and cash equivalents		$	20,114		$	8,429		$	6,359
	Income tax receivable			16,563
	Accounts receivable			6,855			7,693			6,353
	Merchandise inventories			64,151			63,584			80,961
	Prepaid expenses and deferred taxes			9,252			14,240			17,581

		Total current assets		116,935			93,946			111,254

Property and Equipment
	Land and buildings			10,371			9,943			9,943
	Leasehold improvements			88,652			87,983			86,624
	Furniture, fixtures and equipment			123,367			117,373			111,079

				222,390			215,299			207,646
	Less accumulated depreciation and amortization			(117,142	)		(107,170	)		(96,439	)

				105,248			108,129			111,207
Lease Rights, Deferred Taxes and Other Assets				5,124			17,554			20,890

	Total Assets		$	227,307		$	219,629		$	243,351

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Borrowings on revolving line of credit		$	—		$	—		$	26,672
	Accounts payable			22,160			20,261			28,630
	Accrued liabilities			24,744			23,732			18,689
	Current portion of long-term debt			529			685			651

		Total current liabilities		47,433			44,678			74,642

Long-Term Liabilities
	Long-term debt, net of current portion			8,603			8,830			9,140
	Deferred rent and other liabilities			22,074			23,692			25,090
	Term loan			—			—			7,000

	Total Liabilities			78,110			77,200			115,872

Stockholders’ Equity
	Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized, 28,988,372, 28,691,746 and 28,261,177 shares outstanding at August 3, 2002, February 2, 2002 and August 4, 2001, respectively)			47,014			44,484			41,783
	Retained earnings			103,154			98,269			85,993
	Accumulated other comprehensive loss			(971	)		(324	)		(297	)

		Total stockholders’ equity		149,197			142,429			127,479

	Total Liabilities and Stockholders’ Equity		$	227,307		$	219,629		$	243,351

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



		13 Weeks Ended						26 Weeks Ended						Var %
														in Dollar Amount
		August 3,			August 4,			August 3,			August 4,
		2002			2001			2002			2001			13 Weeks			26 Weeks


		(In thousands, except per share and store data)
		(Unaudited)
Net sales		$	103,914		$	97,747		$	232,937		$	221,750			6	%		5	%
Cost of goods sold, including buying and occupancy expenses			(64,240	)		(68,430	)		(138,555	)		(149,769	)		-6	%		-7	%

	Gross profit		39,674			29,317			94,382			71,981			35	%		31	%
Selling, general and administrative expenses			(41,655	)		(40,851	)		(87,449	)		(83,907	)		2	%		4	%
Play and music income, net			32			312			880			1,012			-90	%		-13	%

	Operating income (loss)		(1,949	)		(11,222	)		7,813			(10,914	)		N/M			N/M
Foreign exchange gains (losses), net			139			(65	)		481			(148	)		N/M			N/M
Net interest expense			(150	)		(628	)		(352	)		(1,453	)		-76	%		-76	%

	Income (loss) before income taxes		(1,960	)		(11,915	)		7,942			(12,515	)		N/M			N/M
Income tax benefit (expense)			755			4,587			(3,058	)		4,818			N/M			N/M

	Net income (loss)	$	(1,205	)	$	(7,328	)	$	4,884		$	(7,697	)		N/M			N/M

Income (loss) per share:
	Basic	$	(0.04	)	$	(0.26	)	$	0.17		$	(0.27	)
	Diluted		(0.04	)		(0.26	)		0.16			(0.27	)
Weighted average shares outstanding:
	Basic		28,943			28,169			28,869			28,114
	Diluted		28,943			28,169			30,539			28,114
Number of stores at end of period			571			577			571			577

N/M — Not meaningful

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



			26 Weeks Ended

			August 3,			August 4,
			2002			2001


			(In thousands)
			(Unaudited)
Cash Flows from Operating Activities:
Net income (loss)			$	4,884		$	(7,697	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			13,316			12,044
	Deferred income taxes			16,139			(4,129	)
	Loss on disposal of property and equipment			1,338			334
	Tax benefit from exercise of stock options			270			143
	Changes in assets and liabilities:
		Accounts receivable		838			1,381
		Income tax receivable		(16,563	)
		Merchandise inventories		(802	)		(3,320	)
		Prepaid expenses and other assets		152			1,322
		Accounts payable		1,898			(2,522	)
		Accrued liabilities		601			(2,093	)

	Net cash provided by (used in) operating activities			22,071			(4,537	)

Cash Flows from Investing Activities:
Capital expenditures				(12,263	)		(9,098	)
Proceeds from sale of assets				—			3,195

	Net cash (used in) provided by investing activities			(12,263	)		(5,903	)

Cash Flows from Financing Activities:
Proceeds from issuance of stock				2,259			1,332
Proceeds from borrowings				—			10,447
Payments on long-term debt				(382	)		(286	)

	Net cash provided by financing activities			1,877			11,493

Net Increase in Cash and Cash Equivalents				11,685			1,053
Cash and Cash Equivalents at Beginning of Period				8,429			5,306

Cash and Cash Equivalents at End of Period			$	20,114		$	6,359

See notes to condensed consolidated financial statements.

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements of The Gymboree Corporation and our wholly owned subsidiaries (“Gymboree”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended February 2, 2002.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature. Certain prior year amounts have been reclassified to conform to the current year presentation.

The results of operations for the twenty-six weeks ended August 3, 2002 are not necessarily indicative of the operating results that may be expected for the year ending February 1, 2003.

The condensed consolidated financial statements as of August 3, 2002 and August 4, 2001 and for the three-month and six-month periods then ended have been reviewed, prior to filing, by the registrant’s independent accountants whose report covering their review of the financial statements is included on page 8.

2. Income (Loss) Per Share

Basic earnings per share are calculated by dividing net income (loss) for the period by the weighted average common shares outstanding for that period. Diluted earnings per share includes the effects of dilutive instruments, such as stock options, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. The following summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.



	13 Weeks Ended				26 Weeks Ended

	August 3,		August 4,		August 3,		August 4,
	2002		2001		2002		2001


	(In thousands)
Weighted average number of shares — basic		28,943		28,169		28,869		28,114
Add: effect of dilutive securities		—		—		1,670		—

Weighted average number of shares — diluted		28,943		28,169		30,539		28,114

Anti-dilutive options and warrants of 536,654 and 2,052,585 for the 13 weeks ended in 2002 and 2001, respectively, and 601,807 and 1,181,669 for the 26 weeks ended in 2002 and 2001, respectively, were excluded from the above computations of weighted average shares for diluted income (loss) per share as the effect would be anti-dilutive.

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

3. Comprehensive Income (Loss)

Comprehensive Income (Loss), which includes net income

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