UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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| For the quarterly period ended November 2, 2002 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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| For the transition period from to | ||
Commission file number 000-21250
The Gymboree Corporation
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Delaware
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94-2615258 | |
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
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700 Airport Boulevard, Burlingame,
California (Address of principal executive offices) |
94010-1912 (Zip code) |
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(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
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
As of December 9, 2002, 29,132,015 shares of the registrant’s common stock were outstanding.
TABLE OF CONTENTS
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| Part I Financial Information | |||||||
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Item 1.
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Financial Statements | ||||||
| Condensed Consolidated Balance Sheets | 3 | ||||||
| Condensed Consolidated Statements of Operations | 4 | ||||||
| Condensed Consolidated Statements of Cash Flows | 5 | ||||||
| Notes to Condensed Consolidated Financial Statements | 6 | ||||||
| Independent Accountants’ Report | 9 | ||||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk | 13 | |||||
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Item 4.
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Controls and Procedures | 14 | |||||
| Part II Other Information | |||||||
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Item 1.
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Legal Proceedings | 14 | |||||
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Item 6.
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Exhibits and Reports on Form 8-K | 14 | |||||
| Signatures | 15 | ||||||
| Certifications | 16 | ||||||
| Exhibit Index | 18 | ||||||
2
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements |
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| November 2, | February 2, | November 3, | ||||||||||||
| 2002 | 2002 | 2001 | ||||||||||||
| (In thousands, except per share and | ||||||||||||||
| store data) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
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Current Assets
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Cash and cash equivalents
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$ | 38,197 | $ | 8,429 | $ | 2,428 | ||||||||
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Accounts receivable
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4,979 | 7,693 | 5,444 | |||||||||||
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Merchandise inventories
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71,148 | 63,584 | 77,628 | |||||||||||
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Prepaid expenses and deferred taxes
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10,410 | 14,240 | 10,081 | |||||||||||
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Total current assets
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124,734 | 93,946 | 95,581 | |||||||||||
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Property and Equipment
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Land and buildings
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10,371 | 9,943 | 9,943 | |||||||||||
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Leasehold improvements
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91,445 | 87,983 | 86,978 | |||||||||||
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Furniture, fixtures and equipment
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127,081 | 117,373 | 114,069 | |||||||||||
| 228,897 | 215,299 | 210,990 | ||||||||||||
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Less accumulated depreciation and amortization
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(122,068 | ) | (107,170 | ) | (101,613 | ) | ||||||||
| 106,829 | 108,129 | 109,377 | ||||||||||||
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Lease Rights, Deferred Taxes and Other
Assets
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4,453 | 17,554 | 26,709 | |||||||||||
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Total Assets
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$ | 236,016 | $ | 219,629 | $ | 231,667 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
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Current Liabilities
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Borrowings on revolving line of credit
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$ | — | $ | — | $ | 15,557 | ||||||||
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Accounts payable
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26,126 | 20,261 | 19,149 | |||||||||||
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Accrued liabilities
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31,942 | 23,732 | 25,377 | |||||||||||
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Current portion of long-term debt
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— | 685 | 652 | |||||||||||
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Total current liabilities
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58,068 | 44,678 | 60,735 | |||||||||||
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Long-Term Liabilities
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Long-term debt, net of current portion
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— | 8,830 | 8,979 | |||||||||||
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Deferred rent and other liabilities
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21,318 | 23,692 | 24,574 | |||||||||||
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Term loan
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— | — | 7,000 | |||||||||||
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Total Liabilities
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79,386 | 77,200 | 101,288 | |||||||||||
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Stockholders’ Equity
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Common stock, including excess paid-in capital
($.001 par value: 100,000,000 shares authorized, 29,093,177,
28,691,746 and 28,543,466 shares outstanding at November 2,
2002, February 2, 2002 and November 3, 2001,
respectively)
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47,865 | 44,484 | 43,021 | |||||||||||
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Retained earnings
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109,452 | 98,269 | 87,787 | |||||||||||
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Accumulated other comprehensive loss
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(687 | ) | (324 | ) | (429 | ) | ||||||||
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Total stockholders’ equity
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156,630 | 142,429 | 130,379 | |||||||||||
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Total Liabilities and Stockholders’
Equity
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$ | 236,016 | $ | 219,629 | $ | 231,667 | ||||||||
See notes to condensed consolidated financial statements.
3
THE GYMBOREE CORPORATION
| Percentage Change in | |||||||||||||||||||||||||
| 13 Weeks Ended | 39 Weeks Ended | Dollar Amounts From | |||||||||||||||||||||||
| 2001 to 2002 | |||||||||||||||||||||||||
| November 2, | November 3, | November 2, | November 3, | ||||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | 13 weeks | 39 weeks | ||||||||||||||||||||
| (In thousands, except per share and store data) | |||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||
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Net sales
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$ | 144,094 | $ | 133,219 | $ | 377,031 | $ | 354,969 | 8 | % | 6 | % | |||||||||||||
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Cost of goods sold, including buying and
occupancy expenses
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(85,062 | ) | (85,325 | ) | (223,618 | ) | (235,094 | ) | (0 | ) | (5 | ) | |||||||||||||
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Gross profit
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59,032 | 47,894 | 153,413 | 119,875 | 23 | 28 | |||||||||||||||||||
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Selling, general and administrative expenses
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(48,612 | ) | (43,844 | ) | (136,060 | ) | (127,751 | ) | 11 | 7 | |||||||||||||||
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Play and music income, net
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443 | 226 | 1,324 | 1,238 | 96 | 7 | |||||||||||||||||||
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Operating income (loss)
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10,863 | 4,276 | 18,677 | (6,638 | ) | 154 | N/M | ||||||||||||||||||
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Foreign exchange gains (losses), net
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(96 | ) | (98 | ) | 385 | (246 | ) | (2 | ) | N/M | |||||||||||||||
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Interest expense, net
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(526 | ) | (1,261 | ) | (878 | ) | (2,713 | ) | (58 | ) | (68 | ) | |||||||||||||
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Income (loss) before income taxes
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10,241 | 2,917 | 18,184 | (9,597 | ) | 251 | N/M | ||||||||||||||||||
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Income tax benefit (expense)
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(3,943 | ) | (1,123 | ) | (7,001 | ) | 3,695 | 251 | N/M | ||||||||||||||||
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Net income (loss)
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$ | 6,298 | $ | 1,794 | $ | 11,183 | $ | (5,902 | ) | 251 | % | N/M | |||||||||||||
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Net income (loss) per share:
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Basic
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$ | 0.22 | $ | 0.06 | $ | 0.39 | $ | (0.21 | ) | ||||||||||||||||
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Diluted
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0.21 | 0.06 | 0.37 | (0.21 | ) | ||||||||||||||||||||
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Weighted average shares outstanding:
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Basic
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29,050 | 28,433 | 28,930 | 28,225 | |||||||||||||||||||||
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Diluted
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30,702 | 29,130 | 30,583 | 28,225 | |||||||||||||||||||||
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Number of stores at end of period
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585 | 581 | 585 | 581 | |||||||||||||||||||||
N/ M = not meaningful
See notes to condensed consolidated financial statements.
4
THE GYMBOREE CORPORATION
| 39 Weeks Ended | ||||||||||
| November 2, | November 3, | |||||||||
| 2002 | 2001 | |||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
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Cash Flows from Operating
Activities:
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Net income (loss)
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$ | 11,183 | $ | (5,902 | ) | |||||
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Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
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Depreciation and amortization
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20,747 | 18,068 | ||||||||
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Realization of net operating loss carryforward
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16,563 | — | ||||||||
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Provision for deferred income taxes
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(678 | ) | (2,024 | ) | ||||||
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Loss on disposal of property and equipment
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1,183 | 610 | ||||||||
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Tax benefit from exercise of stock options
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429 | 277 | ||||||||
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Changes in assets and liabilities:
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Accounts receivable
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2,714 | 2,290 | ||||||||
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Merchandise inventories
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(7,564 | ) | 48 | |||||||
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Prepaid expenses and other assets
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790 | 897 | ||||||||
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Accounts payable
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5,865 | (12,002 | ) | |||||||
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Accrued liabilities
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7,847 | 7,827 | ||||||||
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Deferred rent and other liabilities
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(1,822 | ) | (3,749 | ) | ||||||
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Net cash provided by operating activities
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57,257 | 6,340 | ||||||||
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Cash Flows from Investing
Activities:
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Capital expenditures
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(20,926 | ) | (13,569 | ) | ||||||
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Proceeds from sale of assets
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— | 3,195 | ||||||||
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Net cash used in investing activities
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(20,926 | ) | (10,374 | ) | ||||||
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Cash Flows from Financing
Activities:
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Proceeds from issuance of stock
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2,952 | 2,268 | ||||||||
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Proceeds from (payments on) borrowings
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— | (667 | ) | |||||||
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Payments on long-term debt
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(9,515 | ) | (445 | ) | ||||||
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Net cash (used in) provided by financing
activities
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(6,563 | ) | 1,156 | |||||||
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Net Increase (Decrease) in Cash and Cash
Equivalents
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29,768 | (2,878 | ) | |||||||
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Cash and Cash Equivalents at Beginning of
Period
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8,429 | 5,306 | ||||||||
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Cash and Cash Equivalents at End of
Period
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$ | 38,197 | $ | 2,428 | ||||||
See notes to condensed consolidated financial statements.
5
THE GYMBOREE CORPORATION
1. Basis of Presentation
The unaudited interim condensed consolidated financial statements which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (“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.
Gymboree operates two segments; its retail stores and its Play & Music programs. See Note 4 for additional information on the Play & Music financial results.
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 thirty-nine weeks ended November 2, 2002 are not necessarily indicative of the operating results that may be expected for the year ending February 1, 2003.
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 | 39 Weeks Ended | |||||||||||||||
| November 2, | November 3, | November 2, | November 3, | |||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
| (In thousands) | ||||||||||||||||
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Weighted average number of shares —
basic
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29,050 | 28,433 | 28,930 | 28,225 | ||||||||||||
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Add: effect of dilutive securities
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1,652 | 697 | 1,653 | — | ||||||||||||
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Weighted average number of shares —
diluted
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30,702 | 29,130 | 30,583 | &n | ||||||||||||