Annual Reports

 
Quarterly Reports

  • 10-Q (Dec 16, 2013)
  • 10-Q (Sep 16, 2013)
  • 10-Q (Jun 17, 2013)
  • 10-Q (Dec 7, 2012)
  • 10-Q (Sep 10, 2012)
  • 10-Q (Jun 11, 2012)

 
8-K

 
Other

Gymboree 10-Q 2006
Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended October 28, 2006

OR

 

¨ 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.)

 

500 Howard Street, San Francisco, California   94105
(Address of principal executive offices)   (Zip code)

(415) 278-7000

(Registrant’s telephone number, including area code)

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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨                Accelerated Filer    þ                Non-accelerated filer    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  þ

As of November 24, 2006, 31,623,779 shares of the registrant’s common stock were outstanding.

 



Table of Contents

TABLE OF CONTENTS

 

Part I - FINANCIAL INFORMATION

   3

Item 1. FINANCIAL STATEMENTS

   3

CONDENSED CONSOLIDATED BALANCE SHEETS

   3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

   4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   14

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   15

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   22

Item 4. CONTROLS AND PROCEDURES

   23

Part II – OTHER INFORMATION

   23

Item 1. LEGAL PROCEEDINGS

   23

Item 1A. RISK FACTORS

   24

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

   24

Item 6. EXHIBITS

   25

SIGNATURES

   26

Exhibit Index

   27

 

2


Table of Contents

Part I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

    

October 28,

2006

   

January 28,

2006

   

October 29,

2005

 

Assets

      

Current Assets

      

Cash and cash equivalents

   $ 25,549     $ 32,037     $ 34,132  

Marketable securities

     97,600       115,000       58,275  

Accounts receivable

     14,243       12,027       12,095  

Merchandise inventories

     104,694       100,474       100,814  

Prepaid income taxes

     11,471       5,285       8,615  

Prepaid expenses

     3,260       2,755       2,928  

Deferred income taxes

     3,710       4,470       2,772  

Current assets of discontinued operations

     —         479       514  
                        

Total current assets

     260,527       272,527       220,145  
                        

Property and Equipment

      

Land and buildings

     10,375       10,375       10,375  

Leasehold improvements

     159,280       153,737       152,615  

Furniture, fixtures and equipment

     154,854       149,309       154,502  
                        
     324,509       313,421       317,492  

Less accumulated depreciation and amortization

     (178,976 )     (167,366 )     (169,000 )
                        
     145,533       146,055       148,492  

Deferred Income Taxes

     3,538       4,067       3,411  

Lease Rights and Other Assets

     1,210       2,129       1,558  
                        

Total Assets

   $ 410,808     $ 424,778     $ 373,606  
                        

Liabilities and Stockholders’ Equity

      

Current Liabilities

      

Accounts payable

   $ 54,251     $ 45,186     $ 45,404  

Accrued liabilities

     65,360       55,303       44,990  

Current liabilities of discontinued operations

     —         732       956  
                        

Total current liabilities

     119,611       101,221       91,350  
                        

Long-Term Liabilities

      

Deferred rent and other liabilities

     46,654       48,480       47,599  
                        

Total Liabilities

     166,265       149,701       138,949  
                        

Stockholders’ Equity

      

Common stock, including additional paid-in capital ($.001 par value: 100,000,000 shares authorized, 31,613,812, 32,774,860 and 31,397,459 shares issued and outstanding at October 28, 2006, January 28, 2006 and October 29, 2005, respectively)

     125,652       91,353       70,404  

Retained earnings

     119,689       184,599       164,247  

Accumulated other comprehensive gain (loss)

     (798 )     (875 )     6  
                        

Total stockholders’ equity

     244,543       275,077       234,657  
                        

Total Liabilities and Stockholders’ Equity

   $ 410,808     $ 424,778     $ 373,606  
                        

See notes to condensed consolidated financial statements.

 

3


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

     13 Weeks Ended     39 Weeks Ended  
     October 28,
2006
    October 29,
2005
    October 28,
2006
    October 29,
2005
 

Net sales:

        

Retail

   $ 212,922     $ 174,507     $ 552,098     $ 464,582  

Play & Music

     2,708       2,576       7,956       7,505  
                                

Total net sales

     215,630       177,083       560,054       472,087  

Cost of goods sold, including buying and occupancy expenses

     (110,013 )     (95,779 )     (298,425 )     (278,918 )
                                

Gross profit

     105,617       81,304       261,629       193,169  

Selling, general and administrative expenses

     (77,221 )     (60,956 )     (207,173 )     (170,879 )
                                

Operating income

     28,396       20,348       54,456       22,290  

Other income, net

     1,083       488       4,142       989  
                                

Income from continuing operations before income taxes

     29,479       20,836       58,598       23,279  

Income tax expense

     (12,062 )     (9,725 )     (22,754 )     (10,600 )
                                

Income from continuing operations

     17,417       11,111       35,844       12,679  

Income from discontinued operations, net of income taxes

     —         46       —         653  
                                

Net income

   $ 17,417     $ 11,157     $ 35,844     $ 13,332  
                                

Basic per share amounts:

        

Income from continuing operations

   $ 0.56     $ 0.36     $ 1.13     $ 0.41  

Income from discontinued operations, net of income taxes

     —         —         —         0.02  
                                

Net income

   $ 0.56     $ 0.36     $ 1.13     $ 0.43  
                                

Diluted per share amounts:

        

Income from continuing operations

   $ 0.53     $ 0.35     $ 1.08     $ 0.40  

Income from discontinued operations, net of income taxes

     —         —         —         0.02  
                                

Net income

   $ 0.53     $ 0.35     $ 1.08     $ 0.42  
                                

Weighted average shares outstanding:

        

Basic

     31,332       31,370       31,798       31,263  

Diluted

     32,735       32,051       33,206       31,767  

See notes to condensed consolidated financial statements.

 

4


Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     39 Weeks Ended  
     October 28,
2006
    October 29,
2005
 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 35,844     $ 13,332  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Income from discontinued operations, net of income taxes

     —         (653 )

Depreciation and amortization

     21,523       21,889  

Deferred income tax provision

     1,058       10,504  

Loss on disposal of property and equipment and other

     7,035       287  

Excess tax benefits from exercise of share based awards

     (6,931 )     —    

Tax benefit from exercise of stock options

     10,183       794  

Share-based compensation expense

     7,649       210  

Change in assets and liabilities:

    

Accounts receivable

     (2,005 )     4,459  

Merchandise inventories

     (3,954 )     (3,733 )

Prepaid expenses and other assets

     704       52  

Prepaid income taxes

     (6,186 )     (4,879 )

Accounts payable

     9,015       6,074  

Accrued liabilities

     4,903       7,975  

Deferred and other liabilities

     545       1,652  
                

Net cash provided by continuing operations

     79,383       57,963  

Net cash used in discontinued operations

     —         (4,193 )
                

Net cash provided by operating activities

     79,383       53,770  
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from sales and maturities of marketable securities

     927,735       362,125  

Purchases of marketable securities

     (910,335 )     (390,400 )

Capital expenditures

     (26,122 )     (24,377 )

Proceeds from sale of assets and other

     42       18  
                

Net cash used in investing activities

     (8,680 )     (52,634 )
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Exercise of stock options

     25,712       2,660  

Repurchases of common stock

     (110,000 )     —    

Excess tax benefits from share based awards

     6,931       —    
                

Net cash (used in) provided by financing activities

     (77,357 )     2,660  
                

Effect of exchange rate fluctuations on cash

     166       (263 )
                

Net (Decrease) Increase in Cash and Cash Equivalents

     (6,488 )     3,533  

CASH AND CASH EQUIVALENTS:

    

Beginning of Period

     32,037       30,599  
                

End of Period

   $ 25,549     $ 34,132  
                

NON-CASH INVESTING ACTIVITIES:

    

Capital expenditures incurred, but not yet paid

   $ 7,133     $ 2,192  

OTHER CASH FLOW INFORMATION:

    

Cash paid for income taxes

   $ 17,761     $ 5,362  

Cash paid for interest

   $ 59     $ 91  

See notes to condensed consolidated financial statements.

 

5


Table of Contents

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 (the “Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006.

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, except for adjustments related to the retirement of the Company’s former Chairman and Chief Creative Officer discussed in Note 8 and the planned closure of the Janeville division discussed in Note 9.

The results of operations for the 39 weeks ended October 28, 2006, are not necessarily indicative of the operating results that may be expected for the fiscal year ending February 3, 2007 (“fiscal 2006”).

 

2. Stock Based Compensation

Effective January 29, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 123(R) “Share-Based Payment,” using the modified prospective transition method. Under this transition method, compensation cost for (1) all share-based payments granted prior to, but not vested as of January 28, 2006, is based on the grant date fair value estimated in accordance with the original pro forma footnote disclosure provisions of FASB Statement No. 123 and (2) all share-based payments granted subsequent to January 28, 2006, is based on the grant date fair value estimated in accordance with the provisions of FASB Statement No. 123(R). Share-based compensation expense is recognized over the requisite service period using the straight-line amortization method.

The Company recognized share-based compensation expense, before income taxes, of $1.7 million and $7.6 million for the 13 and 39 weeks ended October 28, 2006, respectively, as a component of selling, general and administrative expenses. Share-based compensation expense in the 13 weeks ended October 28, 2006 consisted of $0.9 million for stock options, $0.7 million for restricted stock awards and restricted stock units, and $95,000 for stock issued pursuant to the 1993 Employee Stock Purchase Plan (“Purchase Plan”). Share-based compensation expense for the 39 weeks ended October 28, 2006 consisted of $5.8 million for stock options (including a charge of $2.2 million related to the retirement of the Company’s former Chairman and Chief Creative Officer discussed in Note 8), $1.7 million for restricted stock awards and restricted stock units, and $0.2 million for stock issued pursuant to the Purchase Plan. The Company recognized an income tax benefit related to share-based compensation expense of approximately $0.6 million and $2.4 million for the 13 and 39 weeks ended October 28, 2006, respectively (including approximately $0.8 million during the 39 weeks ended October 28, 2006 related to the retirement of the Company’s former Chairman and Chief Creative Officer discussed in Note 8).

 

6


Table of Contents

Prior to the adoption of FASB Statement No. 123(R), the Company presented all benefits of tax deductions resulting from the exercise of share-based compensation as operating cash flows in the Statements of Cash Flows. FASB Statement No. 123(R) requires the benefits of tax deductions in excess of the compensation cost recognized for those awards (excess tax benefits) to be classified as financing cash flows. For the 39 weeks ended October 28, 2006, the Company reported $6.9 million in excess tax benefits as a financing cash inflow.

Had share-based compensation expense been determined based upon the fair values at the grant dates for awards under the Company’s equity incentive plans and Purchase Plan in accordance with FASB Statement No. 123, the Company’s net income and income per common share for the 13 and 39 weeks ended October 29, 2005 would have been as follows:

 

     13 Weeks Ended     39 Weeks Ended  
    

October 29,

2005

   

October 29,

2005

 
     (in thousands, except per share
data)
 
    

Net income, as reported

   $ 11,157     $ 13,332  

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

     63       132  

Deduct: Total stock-based employee compensation expense determined under fair value based method, for awards granted or settled, net of related tax effects

     (1,068 )     (3,548 )
                

Pro forma net income

   $ 10,152     $ 9,916  
                

Basic income per share

    

As reported

   $ 0.36     $ 0.43  

Pro forma

     0.32       0.32  

Diluted income per share

    

As reported

   $ 0.35     $ 0.42  

Pro forma

     0.32       0.31  

The fair value of option grants issued under equity incentive plans and rights to purchase shares under the Purchase Plan is estimated on the date of grant using the Black-Scholes option valuation model. For purposes of this model, no dividends have been assumed. Expected stock price volatilities are estimated based on the Company’s historical volatility. The risk-free interest rates are based on U.S. Treasury yields in effect at the time of the grant for notes with comparable terms as the awards. The expected term of options granted is based on analyses of historical employee termination rates and option exercises, giving consideration to expectations of future employee behavior. The expected term of rights to purchase shares under the Purchase Plan is based on the length of the purchase period. Assumptions used in the Black-Scholes valuation model are presented below:

 

     Periods ended  
     October 28,
2006
    October 29,
2005
 

Expected dividend rate

   0 %   0 %

Expected volatility

   42.3 %   46.0 %

Stock option risk-free interest rate

   4.6 %   4.3 %

Purchase Plan risk-free interest rate

   4.8 %   N/A  

Stock option expected lives (years)

   4.1     4.1  

Purchase Plan expected lives (years)

   0.75     N/A  

 

7


Table of Contents

The Company’s policy is to issue new shares for restricted stock awards, upon exercise of stock options, on payment of restricted stock units, and for purchases under the Purchase Plan.

Stock Options

The following table summarizes stock option activity during the 39 weeks ended October 28, 2006:

 

    

Number of
shares

(in thousands)

    Weighted
average
exercise
price per
share
   Weighted
average
remaining
contractual
life (in
years)
   Aggregate
intrinsic
value (in
thousands)

Outstanding at January 28, 2006

   3,870     $ 14.51      

Granted

   21       23.45      

Exercised

   (1,726 )     14.90      

Forfeited

   (202 )     14.07      

Expired

   (23 )     22.27      
                    

Outstanding at October 28, 2006

   1,940     $ 14.21    7.5    $ 64,029
                    

Vested and Expected to Vest at October 28, 2006 (1)

   1,788     $ 14.23    7.4    $ 58,967
                    

Exercisable at October 28, 2006

   819     $ 14.35    6.6    $ 26,915
                    

 

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options outstanding.

The weighted average fair value of options granted during the 39 weeks ended October 28, 2006 was $9.26 per share. The total intrinsic value of options exercised during the 39 weeks ended October 28, 2006 was $29.5 million.

As of October 28, 2006, there was $5.7 million of total unrecognized compensation cost, before income taxes, related to nonvested stock options, that is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock and Restricted Stock Units

Restricted stock has the same voting rights as other common stock and are issued and outstanding shares. Restricted stock units do not have voting rights, and the underlying shares are not considered to be issued and outstanding until vested.

 

8


Table of Contents

In the 39 weeks ended October 28, 2006, the Company granted 391,000 shares of restricted stock, 280,000 of which are subject to performance conditions for fiscal 2006. The extent to which these performance conditions are satisfied will affect the total number of shares of restricted stock that could ultimately vest over four years. The satisfaction of the performance conditions will be finally determined during the first quarter of fiscal 2007 based on fiscal 2006 results. The Company recognizes expense related to performance based awards over the requisite service period using the straight-line attribution method based on the outcome that is probable.

The fair value of restricted stock and restricted stock units is based on the fair value of the Company’s common stock on the date of grant.

Restricted stock award activity during the 39 weeks ended October 28, 2006 is summarized as follows:

 

     Number of
shares (in
thousands)
   Weighted
average
grant
date fair
value per
share

Nonvested at January 28, 2006

   100    $ 12.90

Granted

   391      22.41
       

Nonvested at October 28, 2006

   491    $ 20.47
       

As of October 28, 2006, there was $5.8 million of unrecognized compensation cost, before income taxes, related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of 3.1 years.

The following table summarizes restricted stock unit activity during the 39 weeks ended October 28, 2006:

 

     Number of
shares
(in
thousands)
    Weighted
average
remaining
contractual
life (in
years)
   Aggregate
intrinsic
value (in
thousands)

Outstanding at January 28, 2006

   —         

Granted

   198       

Forfeited

   (6 )     
           

Outstanding at October 28, 2006

   192     3.3    $ 9,055
                 

Vested and Expected to Vest at October 28, 2006 (1)

   149     3.3    $ 7,040
                 

Vested at October 28, 2006

   —       —      $ —  
                 

 

(1) The expected to vest restricted stock units are the result of applying the pre-vesting forfeiture rate assumptions to total unvested units outstanding.

 

9


Table of Contents

The weighted average grant-date fair value of restricted stock units granted during the 39 weeks ended October 28, 2006 was $24.47 per share.

As of October 28, 2006, there was $2.9 million of unrecognized compensation cost, before income taxes, related to nonvested restricted stock units, which is expected to be recognized over a weighted-average period of 3.3 years.

Purchase Plan

As of October 28, 2006, there was approximately $67,000 of unrecognized compensation cost, before income taxes, related to the Purchase Plan, which is expected to be recognized in fiscal 2006.

 

3. Net Income Per Share

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

 

     13 Weeks Ended    39 Weeks Ended
    

October 28,

2006

  

October 29,

2005

  

October 28,

2006

  

October 29,

2005

     (in thousands)

Weighted average number of shares - basic

   31,332    31,370    31,798    31,263

Add: effect of dilutive securities

   1,403    681    1,408    504
                   

Weighted average number of shares - diluted

   32,735    32,051    33,206    31,767
                   

Options to purchase zero and 2,218,369 shares of common stock for the 13 weeks ended October 28, 2006 and October 29, 2005, respectively, and 5,914 and 2,609,718 shares of common stock for the 39 weeks ended October 28, 2006 and October 29, 2005, respectively, were excluded from the above computations of weighted average shares as the effect would have been anti-dilutive.

 

10


Table of Contents
4. Comprehensive Income

Comprehensive income, which includes net income, foreign currency translation adjustments and fluctuations in the fair market value of certain derivative financial instruments, is as follows:

 

     13 Weeks Ended    39 Weeks Ended
     October 28,
2006
    October 29,
2005
   October 28,
2006
   October 29,
2005
     (in thousands)

Net income

   $ 17,417     $ 11,157    $ 35,844    $ 13,332

Other comprehensive income (loss), net of tax

     (194 )     435      77      253
                            

Total comprehensive income

   $ 17,223     $ 11,592    $ 35,921    $ 13,585
                            

 

5. Segments

The Company has 2 reportable segments: retail stores and Play & Music. The retail stores segment includes four brands which sell high quality apparel: Gymboree (including an on-line store), Gymboree Outlet, Janie and Jack (including an on-line store) and Janeville (see Note 9). Corporate overhead (costs related to the Company’s distribution center and shared corporate services) is included in the retail stores segment. The following table provides the summary financial data of each reportable segment excluding discontinued operations (in thousands):

 

     13 Weeks Ended October 28, 2006    39 Weeks Ended October 28, 2006
     Retail
Stores
   Play & Music    Total    Retail
Stores
   Play & Music    Total

Net sales

   $ 212,922    $ 2,708    $ 215,630    $ 552,098    $ 7,956    $ 560,054

Depreciation and amortization

     7,110      111      7,221      21,186      337      21,523

Operating income

     27,574      822      28,396      51,940      2,516      54,456

Total assets

     406,489      4,319      410,808      406,489      4,319      410,808

Capital expenditures

     10,221      2      10,223      26,009      113      26,122
     13 Weeks Ended October 29, 2005    39 Weeks Ended October 29, 2005
     Retail
Stores
   Play & Music    Total    Retail
Stores
   Play & Music    Total

Net sales

   $ 174,507    $ 2,576    $ 177,083    $ 464,582    $ 7,505    $ 472,087

Depreciation and amortization

     7,192      113      7,305      21,510      379      21,889

Operating income

     19,785      563      20,348      20,888      1,402      22,290

Total assets

     367,210      5,882      373,092      367,210      5,882      373,092

Capital expenditures

     9,399      100      9,499      24,052      325      24,377

Net retail sales from the Company’s Canadian operations were $9.4 million and $7.5 million for the 13 weeks ended October 28, 2006 and October 29, 2005, respectively, and $23.6 million and $18.8 million for the 39 weeks ended October 28, 2006 and October 29, 2005, respectively. Long-lived assets held by the Company’s Canadian operations were $2.1 million and $2.5 million as of October 28, 2006 and October 29, 2005, respectively.

 

6. Common Stock Repurchases

The Board of Directors previously authorized the Company to utilize up to $110 million to purchase shares of the Company’s outstanding common stock. As of October 17, 2006, the Company completed its share repurchase program, having purchased a total of 3,277,654 shares of Company stock at a cost of $110 million ($100.8 million reduced retained earnings and $9.2 million reduced common stock). The Company retired the repurchased shares.

 

7. Credit Facility Amendment

On July 11, 2006, the Company entered into a Fourth Amendment to Credit Agreement (the “Fourth Amendment”), dated as of July 5, 2006, by and between the Company and certain of its subsidiaries (collectively, the “Borrowers”) and the Bank of America, N.A. (the “Lender”). The Fourth Amendment amends certain terms of the Credit Agreement dated as of August 11, 2003, as previously amended by the Waiver

 

11


Table of Contents

and First Amendment to Credit Agreement on December 3, 2004, the Second Amendment to Credit Agreement dated July 27, 2005 and the Third Amendment to Credit Agreement dated March 30, 2006 (collectively, the “Credit Agreement”). Among other things, the Fourth Amendment amends the Credit Agreement by:

i. Permitting the Company to purchase, redeem or otherwise acquire shares of its capital stock for cash in an aggregate amount of up to $110 million under certain circumstances and;

ii. Eliminating the Company’s requirement to comply in future periods with the financial covenant relating to consolidated tangible net worth.

 

8. Retirement of Chairman and Chief Creative Officer

On July 20, 2006, Lisa Harper, Chairman and Chief Creative Officer, retired from the Company. As a result, the Company recorded a charge of approximately $3.7 million, before income taxes, in selling, general, and administrative expenses in the 39 weeks ended October 28, 2006 related to cash compensation ($1.5 million) and accelerated vesting of certain stock options ($2.2 million).

 

9. Planned Closure of Janeville Division

On October 4, 2006, the Board of Directors authorized the Company to proceed with the closure of its Janeville division (17 stores), as a result of the division’s inability to achieve the level of financial performance expected by management and the desire to focus existing resources on other opportunities. The Company expects all Janeville stores to be closed in the fourth quarter of fiscal 2006. Beginning in the fourth quarter of 2006, the results of the Janeville division will be presented as discontinued operations and all prior periods will be reclassified to conform to such presentation. The Company anticipates recording incremental charges related to the closure of approximately $13.2 million, before income taxes, in fiscal 2006. These charges are largely related to asset impairment, lease terminations, cancellation of certain purchase commitments, and employee severance. In the 13 weeks ended October 28, 2006, the Company recognized a pre-tax charge of approximately $10.2 million, which consisted of approximately $7.6 million for asset impairment, $1.2 million for the cancellation of certain purchase commitments, $1.2 million for lease terminations, and $0.2 million for employee severance. Approximately $7.1 million of this charge is included in selling, general, and administrative expenses and $3.1 million is included in cost of goods sold on the accompanying condensed consolidated statement of income.

 

10. Distribution Center Expansion

In the second quarter of fiscal 2006, the Board of Directors approved the expansion of the Company’s distribution center in Dixon, California by approximately 161,000 square feet. The project, which commenced in October 2006, is estimated to cost approximately $15 million (including building and equipment) and is expected to be completed in the third quarter of fiscal 2007. On October 6, 2006, the Company entered into an agreement with a third party vendor for the design and construction of the expanded facility. The agreement requires the Company to pay approximately $9.5 million, subject to adjustment based on changes to construction orders, payable monthly based on work completed.

 

12


Table of Contents
11. Subsequent Event

In November 2006, the Company received approximately $1.2 million in connection with a legal settlement. Such amount will be recorded in other income in the fourth quarter of fiscal 2006.

 

13


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of The Gymboree Corporation:

We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of October 28, 2006 and October 29, 2005, and the related condensed consolidated statements of income for the thirteen and thirty-nine week periods then ended, and cash flows for the thirty-nine week periods then ended. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation as of January 28, 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 12, 2006, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph related to a change in accounting method. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 28, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/DELOITTE & TOUCHE LLP

San Francisco, California

December 5, 2006

 

14


Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report. The discussion in this report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, systems infrastructure development, future cash generated from operations and future cash needs. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and the Company’s actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise, service levels and new concepts, the level of promotional activity, gross margin achievement, the Company’s ability to manage inventory levels appropriately, unanticipated costs incurred in connection with the closure of the Janeville division, general economic conditions, success in meeting delivery targets, competitive market conditions, effects of future embargoes from countries used to source product, instability in countries where the Company’s merchandise is manufactured and the other factors described in this document. When used in this document, the words “believes,” “expects,” “estimates,” “anticipates,” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. The Company does not intend to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 and its other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company’s business, prospects and results of operations.

General

The Gymboree Corporation is a specialty retailer operating stores selling high quality apparel and accessories for children and women under the GYMBOREE®, JANIE AND JACK®, and JANEVILLE® brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC® brand. As of October 28, 2006, the Company operated a total of 709 stores: 577 Gymboree retail stores (549 in the United States and 28 in Canada), 37 Gymboree Outlet retail stores, 78 Janie and Jack retail shops and 17 Janeville retail stores in the United States. The Company also operates online stores at www.gymboree.com and www.janieandjack.com, and offers directed parent-child developmental play programs at 547 franchised and 3 company-operated centers in the United States and 27 other countries.

 

15


Table of Contents

During the quarter, the Company opened 8 Gymboree stores, 8 Janie and Jack shops, and 10 Gymboree Outlet stores. The Company also relocated or remodeled 7 Gymboree stores and closed 1 Gymboree store.

For the remainder of fiscal 2006, the Company plans to open approximately 3 Gymboree stores, 5 Gymboree Outlet stores and 3 Janie and Jack shops. The Company also expects to relocate or remodel 3 Gymboree stores.

The Company closed its United Kingdom and Ireland operations in fiscal 2004, and is in the process of liquidating the legal entities. The results of the United Kingdom and Ireland operations have been presented as discontinued operations in the accompanying financial statements as of January 28, 2006, and for the 13 and 39 weeks ended October 29, 2005. Results from the United Kingdom and Ireland entities in fiscal 2006 are not material and are included in continuing operations for all applicable periods relating to fiscal 2006.

As discussed in Note 9 to the condensed consolidated financial statements, the Company plans to close its Janeville division (17 stores) in the fourth quarter of fiscal 2006. As a result, during the 13 week period ended October 28, 2006, the Company incurred approximately $10.2 million in incremental pre-tax charges, which were included in selling, general and administrative expenses ($7.1 million) and cost of goods sold ($3.1 million). Beginning in the fourth quarter of 2006, the results of the Janeville division will be presented as discontinued operations and all prior periods will be reclassified to conform to such presentation.

Results of Operations

13 weeks ended October 28, 2006 compared to 13 weeks ended October 29, 2005

Net Sales

Net retail sales in the third quarter of fiscal 2006 increased to $212.9 million from $174.5 million in the same period last year, an increase of $38.4 million, or 22%. Comparable store sales increased 16% over the same period last year. This increase was primarily driven by strong product acceptance resulting in increased full price selling, and effective direct mail marketing and promotional events. Non-comparable store sales increased due to net store and square footage growth of 46 stores and approximately 104,000 square feet, respectively. There were 709 stores open at the end of the period compared to 663 as of the end of the same period last year.

Play & Music net sales in the third quarter of fiscal 2006 increased to $2.7 million from $2.6 million in the same period last year.

Gross Profit

Gross profit for the third quarter of fiscal 2006 increased to $105.6 million from $81.3 million in the same period last year. As a percentage of net sales, gross profit for the third quarter of fiscal 2006 increased 3.1 percentage points to 49.0% from 45.9% in the same period last year. Gross profit for the third quarter of fiscal 2006 includes approximately $3.1 million of charges related to the closure of the Janeville division (primarily $1.2 million for the cancellation of certain purchase commitments and $1.2 million for lease terminations). Excluding this item,

 

16


Table of Contents

gross profit as a percentage of sales for the third quarter of fiscal 2006 increased 4.5 percentage points to 50.4% from 45.9% in the same period last year. This increase was primarily due to an increase in full price selling due to strong customer acceptance of the product, lower product costs resulting from the Company’s product cost reduction strategies, and the leveraging of buying and occupancy expenses. In the fourth quarter of fiscal 2006, the Company will continue the implementation of its product cost reduction strategies, which focus on improved coordination of product design, merchandising and development, as well as greater efficiencies in product sourcing. The Company expects to continue to generate lower product costs in the fourth quarter of fiscal 2006 but does not expect the year over year improvement in gross margin to be as significant as that experienced in the first three quarters of fiscal 2006.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $77.2 million in the third quarter of fiscal 2006 from $61.0 million in the same period last year. As a percentage of net sales, SG&A expenses increased 1.4 percentage points to 35.8% in the third quarter of fiscal 2006 from 34.4% in the same period last year. SG&A expense in the third quarter of fiscal 2006 includes approximately $7.1 million of charges related to the closure of the Janeville division (primarily related to approximately $6.9 million in asset impairment) and $1.7 million in share-based compensation expense as a result of the adoption of FASB Statement No. 123(R). Excluding these two items, SG&A as a percentage of sales for the third quarter of fiscal 2006 decreased 2.7 percentage points to 31.7% compared to the same period last year. SG&A savings as a percentage of sales for the third quarter of fiscal 2006 were generated from leveraging depreciation and store compensation, reduced repair and maintenance costs and lower operating supplies cost, partially offset by increased costs related to our additional marketing initiatives and corporate compensation. In addition, SG&A as a percentage of sales improved as a result of a $2.3 million legal settlement charge recorded in the third quarter of fiscal 2005.

Other Income, Net

Other income increased to $1.1 million in the third quarter of fiscal 2006 from $0.5 million in the same period last year, primarily due to an increase in net interest income due to higher investment balances coupled with higher interest rates.

Income Taxes

The Company’s effective tax rate for the third quarter of fiscal 2006 and 2005 was 40.9% and 46.7%, respectively. Income tax expense for the 13 weeks ended October 28, 2006 includes an increase in the state effective tax rate, as well as the adjustment of estimated income tax expense to match the fiscal 2005 federal and foreign tax returns filed during the quarter. Income tax expense for the 13 weeks ended October 29, 2005 includes $1.9 million of additional expense related to the establishment of valuation allowances for certain tax assets, an election to take bonus depreciation resulting in the impairment of an existing deferred tax asset and the adjustment of estimated income tax expense to match the final fiscal 2004 tax return filed in October 2005.

 

17


Table of Contents

Discontinued Operations

The income reported for the discontinued United Kingdom and Ireland operations in the third quarter of fiscal 2005 primarily represents the recognition of the cumulative foreign currency translation losses in connection with the liquidation of the United Kingdom and Ireland entities offset by income tax benefits primarily from the reconciliation of financial accounting records to the fiscal 2004 income tax return filed in the quarter.

Results of Operations

Thirty-nine weeks ended October 28, 2006 compared to thirty-nine weeks ended October 29, 2005

Net Sales

Net retail sales for the 39 weeks ended October 28, 2006 increased to $552.1 million from $464.6 million in the same period last year, an increase of $87.5 million, or 18.8%. Comparable store sales increased 14% over the same period last year. This increase was primarily driven by strong product acceptance resulting in increased full price selling, and effective direct mail marketing and promotional events. Non-comparable store sales increased due to net store and square footage growth of 46 stores and approximately 104,000 square feet, respectively. There were 709 stores open at the end of the period compared to 663 as of the end of the same period last year.

Play & Music net sales for the 39 weeks ended October 28, 2006 increased to $8.0 million from $7.5 million in the same period last year. This increase was primarily due to franchise fees associated with new international franchise agreements, higher domestic franchise resales, and an increase in product and equipment sales.

Gross Profit

Gross profit for the 39 weeks ended October 28, 2006 increased to $261.6 million from $193.2 million in the same period last year. As a percentage of net sales, gross profit for the 39 weeks ended October 28, 2006 increased 5.8 percentage points to 46.7% from 40.9% in the same period last year. Gross profit for the 39 weeks ended October 28, 2006 includes approximately $3.1 million of expenses related to the closure of the Janeville division. Excluding this item, gross profit as a percentage of sales for the 39 weeks ended October 28, 2006 increased 6.4 percentage points to 47.3% from 40.9% in the same period last year. This increase was primarily due to the reduction in product costs resulting from the Company’s product cost reduction strategies, improved full price selling and the leveraging of buying and occupancy expenses. In the fourth quarter of fiscal 2006, the Company will continue the implementation of its product cost reduction strategies which focus on improved coordination of product design, merchandising and development, as well as greater efficiencies in product sourcing. The Company expects to continue to generate lower product costs in the fourth quarter of fiscal 2006 but does not expect the year over year improvement in gross margin to be as significant as that experienced in the first three quarters of fiscal 2006.

 

18


Table of Contents

Selling, General and Administrative Expenses

SG&A expenses increased to $207.2 million in the 39 weeks ended October 28, 2006 from $170.9 million in the same period last year. As a percentage of net sales, SG&A expenses increased 0.8 percentage points to 37.0% in the 39 weeks ended October 28, 2006 from 36.2% in the same period last year. SG&A expense for the 39 weeks ended October 28, 2006 includes approximately $7.1 million of charges related to the closure of the Janeville division, $5.4 million in share-based compensation expense as a result of the adoption of FASB Statement No. 123(R), and a charge of $3.7 million related to the retirement of the Company’s former Chairman and Chief Creative Officer, offset by approximately $500,000 of benefit arising from the finalization of payments to be made under a previously accrued wage and hour lawsuit. Excluding these four items, SG&A as a percentage of sales decreased 2.0 percentage points in the 39 weeks ended October 28, 2006 to 34.2% compared to the same period last year. SG&A savings as a percentage of sales for the 39 weeks ended October 28, 2006 were generated from leveraging depreciation and store compensation, reduced repair and maintenance costs and lower operating supplies costs, partially offset by increases in costs related to our additional marketing initiatives and corporate compensation. In addition, SG&A as a percentage of sales improved as a result of a $2.3 million legal settlement charge recorded in the third quarter of fiscal 2005.

Other Income, Net

Other income increased to $4.1 million in the 39 weeks ended October 28, 2006 from $1.0 million in the same period last year primarily due to an increase in net interest income due to higher investment balances coupled with higher interest rates. In addition, the Company received and recorded income of approximately $400,000 from the settlement of the class action antitrust litigation against Visa/Mastercard in the second quarter of fiscal 2006.

Income Taxes

The Company’s effective tax rate for the 39 weeks ended October 28, 2006 and October 29, 2005 was 38.8% and 45.5%, respectively. The actual fiscal 2006 effective rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations and the Company’s overall level of earnings in fiscal 2006. Additional factors which may impact the Company’s fiscal 2006 income tax rate include the potential resolution of outstanding tax contingencies and the reassessment of certain valuation allowances based on actual fiscal 2006 results. Income tax expense for the 39 weeks ended October 29, 2005 includes $1.9 million of additional expense related to the establishment of valuation allowances for certain tax assets, an election to take bonus depreciation resulting in the impairment of an existing deferred tax asset and the adjustment of estimated income tax expense to match the final fiscal 2004 tax return filed in October 2005.

Discontinued Operations

Income reported for the discontinued United Kingdom and Ireland operations in the 39 weeks ended October 29, 2005 primarily represents favorable adjustments to previous lease termination accruals based on actual settlements in connection with the liquidation of the United Kingdom and Ireland entities.

 

19


Table of Contents

Seasonality

The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year. These historical quarterly trends may not continue in the future.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies and estimates affecting the application of those accounting policies since the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006, except as follows.

Share-based compensation: In fiscal 2006, the Company adopted FASB Statement No. 123(R) using the modified prospective transition method and began accounting for stock-based compensation using a fair-valued based recognition method. Under the provisions of FASB Statement No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair-value of the award and is expensed ratably over the requisite service period of the award. Determining the appropriate fair-value model and calculating the fair value of share-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected term and forfeiture rates. The Company develops its estimates based on historical data and market information, which can change significantly over time.

The Company uses the Black-Scholes option valuation model to value employee share-based awards. The Company estimates stock price volatility based on an average historical volatility of its stock. Expected term and forfeiture rate assumptions are also derived from historical data, giving consideration to expectations of future employee behavior. The Company recognizes compensation expense primarily using the straight-line amortization method. Had the Company used alternative valuation methodologies or assumptions, the amount it expensed for share-based awards could be significantly different.

Recently Issued Accounting Standards

In June 2006, FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109,” which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company will adopt the provisions of FIN 48 as of the beginning of the first quarter of fiscal 2007, as required. The Company is currently in the process of determining the effect, if any, the adoption of FIN 48 will have on its consolidated financial statements.

 

20


Table of Contents

In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” This guidance indicates that the materiality of a misstatement must be evaluated using both the rollover and iron curtain approaches. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, while the rollover approach quantifies a misstatement based on the amount of the error originating in the current year income statement. The Company will adopt SAB No. 108 as of the beginning of the first quarter of fiscal 2007, as required. The Company is currently in the process of determining the effect, if any, the adoption of SAB 108 will have on its consolidated financial statements.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $25.5 million at October 28, 2006, a decrease of $6.5 million from January 28, 2006. Marketable securities were $97.6 million at October 28, 2006, a decrease of $17.4 million from fiscal 2005 year end. Working capital as of October 28, 2006 was $140.9 million compared to $171.3 million as of January 28, 2006.

Net cash provided by operating activities for the 39 weeks ended October 28, 2006 was $79.4 million compared to $53.8 million in the same period last year. The increase was primarily due to an increase in operating income of $32.2 million.

Net cash used in investing activities for the 39 weeks ended October 28, 2006 was $8.7 million compared to $52.6 million in the same period last year. Net cash used in investing activities for the 39 weeks ended October 28, 2006 consisted of $26.1 million in capital expenditures for the opening of 51 new stores, relocation, remodeling and/or expansion of 36 existing stores, and for store openings and relocations currently in progress, offset by $17.4 million in net marketable securities sales. The Company estimates that capital expenditures during the remainder of fiscal 2006 will be approximately $10 million, which will primarily be used to relocate, remodel or expand 3 Gymboree stores, open 3 new Gymboree stores, 5 new Gymboree Outlet stores and 3 new Janie and Jack shops, as well as to expand the Company’s distribution center and continue the investment in the Company’s website and systems infrastructure upgrade and replacement. In the second quarter of fiscal 2006, the Board of Directors approved the expansion of the Company’s distribution center in Dixon, California by approximately 161,000 square feet. The project, which commenced in October 2006, is estimated to cost approximately $15 million (including building and equipment) and is expected to be completed in the third quarter of 2007. In October 2006, the Company entered into an agreement with a third party vendor for the design and construction of the expanded facility. The agreement requires the Company to pay approximately $9.5 million, subject to adjustment based on changes to construction orders, payable monthly based on work completed.

Net cash used in financing activities for the 39 weeks ended October 28, 2006 was $77.4 million compared to cash provided by financing activities of $2.7 million in the same period last year. This decrease was primarily due to stock repurchases of $110 million offset by proceeds from stock option exercises of $25.7 million.

On October 4, 2006, the Board of Directors authorized the Company to proceed with the closure of its Janeville division (17 stores), as a result of the division’s inability to achieve the level of financial performance expected by management and the desire to focus existing

 

21


Table of Contents

resources on other opportunities. The Company expects all Janeville stores to be closed in the fourth quarter of fiscal 2006. The Company anticipates recording incremental charges related to the closure of approximately $13.2 million, before income taxes, in fiscal 2006. Of the total charges relating to the planned closure, approximately $5.7 million will result in cash expenditures. As of October 28, 2006, approximately $1.2 million of these cash expenditures have been incurred.

The Board of Directors previously authorized the Company to utilize up to $110 million to purchase shares of the Company’s outstanding common stock. As of October 17, 2006, the Company completed its share repurchase program, having purchased a total of 3,277,654 shares of Company stock at a cost of $110 million. The Company retired the repurchased shares.

The Company has an unsecured revolving credit facility for borrowings of up to $70 million. The credit facility expires in August 2008 and provides the Company with the option to increase the credit facility up to $80 million if certain financial covenants are met. The credit facility may be used for the issuance of documentary and standby letters of credit, working capital and capital expenditure needs. The credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. As of October 28, 2006, the Company was in compliance with these covenants. As of October 28, 2006, $56.5 million of documentary and standby letters of credit were outstanding, and no borrowings were outstanding. The maximum amount of documentary and standby letters of credit outstanding during the quarter was $62.6 million.

There have been no material changes to the Company’s contractual obligations since its Annual Report on Form 10-K for the year ended January 28, 2006, except for the contractual commitment entered into for the design and construction of the expanded distribution center facility.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company enters into forward foreign exchange contracts to hedge certain inventory purchases. The term of the forward exchange contracts is generally less than one year. The purpose of the Company’s foreign currency hedging activities is to protect it from the risk that the eventual dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

The table below summarizes the notional amounts and fair values of the Company’s forward foreign exchange contracts in U.S. dollars.

 

     October 28, 2006
     Notional
Amount
   Fair
Value
Gain
   Weighted
Average
Rate
     (in thousands, except
weighted average rate data)

Canadian dollars

   $ 2,735    $ 41    $ 0.89
                

Total

   $ 2,735    $ 41   
                

 

22


Table of Contents
Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Operating Officer/Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on their evaluation, the Chief Executive Officer and the Chief Operating Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure them that information relating to the Company (including its consolidated subsidiaries) required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and Chief Operating Officer/Chief Financial Officer concluded as of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Operating Officer/Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company also maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). During the third quarter of fiscal 2006, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Part II – OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

The Company was served in a class action lawsuit filed against Gymboree Operations, Inc., a wholly owned subsidiary of the Company, in the Superior Court of Riverside County, California on April 21, 2005. The lawsuit alleged that Gymboree Operations failed to pay overtime wages and provide meal and rest breaks to its employees. As a result of mediation proceedings, the Company settled the action. The Court granted final approval of the settlement on June 12, 2006. In accordance with the final judgment and order of dismissal, the Company paid approximately $1.8 million in the third fiscal quarter of 2006.

 

23


Table of Contents
Item 1a. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended January 28, 2006, which could affect its business, prospects and results of operations.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase

On June 16, 2006, the Board of Directors authorized the Company to increase the aggregate dollar value of common stock that may be purchased under the share repurchase program by an additional $55 million (for an aggregate of $110 million). As of October 17, 2006, the Company completed its share repurchase program, having purchased a total of 3,277,654 shares of Company stock at a cost of $110 million. The Company retired the repurchased shares.

Stock repurchases for the quarter ended October 28, 2006, respectively, were as follows:

 

Period

   Total
Number
of Shares
Purchased
   Average
Price
Paid
per
Share
  

Total Number

of Shares

Purchased as

Part of Publicly

Announced Plans
or Programs

   Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs

July 30 - August 26

   243,211    $ 30.48    243,211    $ 25,460,000

August 27 - September 30

   203,000    $ 34.16    203,000    $ 18,524,000

October 1 - October 28

   410,879    $ 45.08    410,879    $ —  
               

Total, October 28, 2006

   857,090    $ 38.35    857,090    $ —  
               

 

24


Table of Contents
Item 6. EXHIBITS

 

10.58*    2004 Equity Incentive Plan
10.77    Standard Form of Agreement between Owner, The Gymboree Corporation, and Design/Builder, Panattoni Construction, Inc., dated September 11, 2006. (1)
15    Letter re: Unaudited Interim Financial Information
31.1    Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2    Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Blair W. Lambert Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the corresponding exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2006.

 

* Indicates management contract or compensatory plan or arrangement.

 

25


Table of Contents

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 thereunto duly authorized.

 

   

THE GYMBOREE CORPORATION

                      (Registrant)

  December 5, 2006     By:   /s/ Blair W. Lambert
  Date      

Blair W. Lambert

Chief Operating Officer and

Chief Financial Officer

(Principal Financial Officer)

 

26


Table of Contents

Exhibit Index

 

 

Exhibit
Number
  

Description

10.58*    2004 Equity Incentive Plan
10.77    Standard Form of Agreement between Owner, The Gymboree Corporation, and Design/Builder, Panattoni Construction, Inc., dated September 11, 2006. (1)
15    Letter re: Unaudited Interim Financial Information
31.1    Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2    Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Blair W. Lambert Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

 

(1) Incorporated by reference to the corresponding exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2006.

 

* Indicates management contract or compensatory plan or arrangement.

 

27

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki