FOR IMMEDIATE RELEASE:

	Investor Relations contact:
	Marc Passalacqua
	Tel: 415-278-7933
	investor_relations@gymboree.com
	Media Relations contact:
	Tel: 415-278-7493
	media_relations@gymboree.com

 

The Gymboree Corporation Reports Third Quarter 2013 Results

 

San Francisco, Calif., December 12, 2013 – The Gymboree Corporation (the “Company”) today reported consolidated financial results for its quarter ended November 2, 2013.

 

Net sales for the quarter were $309.8 million, a decrease of 0.5% compared to $311.5 million in net sales for the same quarter last year. Comparable sales for the quarter decreased 4% versus the same quarter last year.

 

Gross profit for the quarter was $123.5 million, or 39.8% of net sales, compared to $125.6 million, or 40.3% of net sales, for the same quarter last year. Excluding purchase accounting adjustments of $2.6 million and $3.1 million for the third quarter of this year and last year, respectively, relating to the November 2010 acquisition of the Company by Giraffe Holding, Inc., an entity majority-owned by investment funds sponsored by Bain Capital Partners, LLC (the “Acquisition”), gross profit was $126.0 million, or 40.7% of net sales, and $128.7 million, or 41.3% of net sales, for the third quarter of this year and last year, respectively (see Exhibit D).

 

SG&A expense for the quarter was $111.2 million, or 35.9% of net sales, compared to $99.0 million, or 31.8% of net sales, in the same quarter last year. Results for the third quarter of this year and last year include $2.1 million and $5.3 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments, and other adjustments. Excluding these expenses, SG&A expense for the third quarter of this year and last year was $109.1 million, or 35.2% of net sales, and $93.8 million, or 30.1% of net sales, respectively (see Exhibit D).

 

Net loss for the quarter was $24.4 million compared to net income of $4.9 million for the same quarter last year.

 

 

Net loss attributable to The Gymboree Corporation before interest, income taxes and depreciation and amortization, adjusted for other items (“Adjusted EBITDA”), decreased 27.7% to $33.9 million for the quarter compared to $46.9 million for the same quarter last year. Adjusted EBITDA is not a performance measure under GAAP. See “Non-GAAP Financial Measures” below. A reconciliation of net income (loss) attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit D of this press release.

 

Balance Sheet Highlights

 

There were $24.0 million in borrowings outstanding under the ABL as of the end of the quarter and approximately $165.9 million of undrawn availability.

 

Cash at the end of the quarter was $19.1 million compared to $42.6 million at the end of the same quarter last year, reflecting the pay down of approximately $25 million of the term loan and the repurchase of $54.0 million in notes since the end of the third quarter last year.

 

Capital expenditures for the fiscal year to date were $35.2 million, with the majority of the cash used to fund the opening of 70 new stores during the year.

 

Inventory balances at the end of the quarter were $222.4 million compared to $255.7 million at the end of the same quarter last year. Compared to the same quarter last year, inventory cost on a per square foot basis was down 20% this quarter, while inventory units on a per square foot basis were down mid teens in the quarter.

 

Fiscal 2013 Business Outlook

 

Full Year

 

For the fiscal year ending February 1, 2014, the Company now expects Adjusted EBITDA to be in the range of $125 million to $130 million. Comparable sales are now expected to be down mid single digits compared to last year. Based on this guidance, the Company still expects to generate sufficient cash flow to service its debt and invest in the business to drive long term growth.

 

New Stores

 

The Company plans to open approximately 85 new stores during the fiscal year, with the majority being Crazy 8 stores.

 

Capital Expenditures

 

The Company anticipates capital expenditures of approximately $50 million during the fiscal year.

 

Non-GAAP Financial Measures

 

The Company defines "Adjusted EBITDA" as net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax expense (benefit), and depreciation and amortization ("EBITDA") adjusted for other items, including loss on extinguishment of debt, non-cash share-based compensation, loss on disposal/impairment of assets and sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the Acquisition.

 

 

Adjusted EBITDA is a non-GAAP measure but is considered an important supplemental measure of the Company's performance and is believed to be frequently used by securities analysts, investors and other interested parties in the evaluation of similar retail companies. Adjusted EBITDA is not a presentation made in accordance with GAAP and the Company's computation of Adjusted EBITDA may vary from others in the industry. Adjusted EBITDA should not be considered an alternative to operating income or net income, as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. See Exhibit D for a reconciliation of Adjusted EBITDA to net loss attributable to The Gymboree Corporation.

 

Webcast and Conference Call Information

 

The Gymboree Corporation will host a conference call to discuss its third quarter fiscal 2013 results today at 1:00 p.m. Pacific Time/4:00 p.m. Eastern Time. To listen live over the internet, please log on to www.gymboree.com, click on "Company Information" at the bottom of the page, go to "Investors & Media" and then "Conference Calls & Webcasts." A replay of the call will be available two hours after the broadcast through midnight PT, Thursday, December 19, 2013, at 855-859-2056, passcode 10055574.

 

About The Gymboree Corporation

 

The Gymboree Corporation’s specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of November 2, 2013, the Company operated a total of 1,319 retail stores: 633 Gymboree® stores (583 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 164 Gymboree Outlet stores (162 in the United States and 2 in Puerto Rico), 139 Janie and Jack® shops and 383 Crazy 8® stores in the United States. The Company also operates online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 708 franchised and Company-operated Gymboree Play & Music® centers in the United States and

41 other countries.

 

 

Forward-Looking Statements

 

The foregoing financial information for the third fiscal quarter ended November 2, 2013 is unaudited and subject to quarter-end and year-end adjustments.  This press release contains forward-looking statements, including those relating to The Gymboree Corporation's anticipated future financial performance, such as those relating to its comparable sales growth, Adjusted EBITDA, capital expenditures, cash flows and new store openings. Actual results could vary materially as a result of a number of factors, including the ongoing volatility in the commodities market for cotton, uncertainties relating to high levels of unemployment and consumer debt, volatility in the financial markets, general economic conditions, holiday spending levels and patterns, the Company’s ability to anticipate and timely respond to changes in trends and consumer preferences and customer reactions to new merchandise, service levels and new concepts, competitive market conditions, success in meeting the Company's delivery targets, the Company's promotional activity, gross margin achievement, the Company's ability to appropriately manage inventory, effects of future embargos from countries used to source product, the Company’s ability to attract and retain key personnel and other qualified team members, and other factors, including those discussed under “Risk Factors” in “Item 1A, Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013 filed with the Securities and Exchange Commission (“SEC”) on May 2, 2013, and its subsequent SEC filings. The forward-looking statements contained in this press release reflect the Company's expectations as of the date hereof, and the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by the Company that its plans or objectives will be achieved. The Company undertakes no obligation to update the information provided herein.

 

Gymboree, Janie and Jack, Crazy 8, and Gymboree Play & Music are registered trademarks of The Gymboree Corporation.

 

###

 

EXHIBIT A

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

                       

		13 Weeks Ended								39 Weeks Ended
		November 2, 2013				October 27, 2012				November 2, 2013				October 27, 2012
		(in thousands)
Net sales:
Retail		$	297,352			$	299,965			$	857,173			$	847,195
Gymboree Play & Music			6,821				6,390				19,409				17,981
Retail Franchise			5,665				5,163				16,955				12,845
Total net sales			309,838				311,518				893,537				878,021
Cost of goods sold, including buying and occupancy expenses			(186,370	)			(185,915	)			(542,010	)			(541,406	)
Gross profit			123,468				125,603				351,527				336,615
Selling, general and administrative expenses			(111,199	)			(99,016	)			(317,351	)			(286,350	)
Operating income			12,269				26,587				34,176				50,265
Interest income			41				42				143				146
Interest expense			(20,483	)			(21,312	)			(61,352	)			(64,163	)
Loss on extinguishment of debt			(834	)			-				(834	)			(1,237	)
Other income (expense), net			853				86				751				(4	)
(Loss) income before income taxes			(8,154	)			5,403				(27,116	)			(14,993	)
Income tax (expense) benefit			(16,244	)			(493	)			(9,455	)			10,007
Net (loss) income			(24,398	)			4,910				(36,571	)			(4,986	)
Net loss attributable to noncontrolling interest			413				1,211				700				2,835
Net (loss) income attributable to The Gymboree Corporation		$	(23,985	)		$	6,121			$	(35,871	)		$	(2,151	)

 

 

EXHIBIT B

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		November 2, 2013				February 2, 2013				October 27, 2012
		(in thousands)
Current assets
Cash and cash equivalents		$	19,079			$	33,328			$	42,586
Accounts receivable			32,485				27,542				27,232
Merchandise inventories			222,414				197,935				255,722
Prepaid income taxes			1,815				2,903				5,165
Prepaid expenses			19,986				17,341				6,539
Deferred income taxes			11,721				31,383				38,660
Total current assets			307,500				310,432				375,904
Property and equipment, net			209,267				205,325				205,486
Goodwill			898,983				898,966				899,097
Other intangible assets			576,744				580,641				585,277
Deferred financing costs			34,067				40,040				43,018
Other assets			12,604				7,809				5,816
Total assets		$	2,039,165			$	2,043,213			$	2,114,598
Current liabilities
Accounts payable		$	87,323			$	90,133			$	88,824
Accrued liabilities			113,472				90,443				101,573
Line of credit			24,000				-				-
Current obligation under capital lease			492				-				-
Total current liabilities			225,287				180,576				190,397
Long-term liabilities
Long-term debt			1,113,668				1,138,455				1,192,383
Long-term obligation under capital lease			3,532				-				-
Lease incentives and other deferred liabilities			49,772				40,104				38,955
Unrecognized tax benefits			12,416				7,848				7,685
Deferred income taxes			217,908				234,593				235,935
Total liabilities			1,622,583				1,601,576				1,665,355
Stockholders' equity			416,582				441,637				449,243
Total liabilities and stockholders' equity		$	2,039,165			$	2,043,213			$	2,114,598

 

 

EXHIBIT C

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		39 Weeks Ended
		November 2, 2013				October 27, 2012
		(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(36,571	)		$	(4,986	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on extinguishment of debt			834				1,237
Depreciation and amortization			34,825				43,776
Amortization of deferred financing costs and accretion of original issue discount			5,112				5,216
Interest rate cap contracts - adjustment to market			742				182
Loss on disposal/impairment of assets			5,662				2,090
Deferred income taxes			2,969				(12,986	)
Share-based compensation expense			4,417				3,220
Other			40				1,685
Change in assets and liabilities:
Accounts receivable			4,382				(2,317	)
Merchandise inventories			(24,264	)			(45,850	)
Prepaid income taxes			1,223				(769	)
Prepaid expenses and other assets			(5,144	)			(1,021	)
Accounts payable			(2,807	)			9,785
Accrued liabilities			17,344				70
Lease incentives and other deferred liabilities			14,522				12,547
Net cash provided by operating activities			23,286				11,879
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(35,213	)			(31,902	)
Other			(235	)			(584	)
Net cash used in investing activities			(35,448	)			(32,486	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Term Loan			-				(17,698	)
Proceeds from ABL facility			79,000				-
Payments on ABL facility			(55,000	)			-
Repurchase of notes			(24,760	)			-
Payments of deferred financing costs			-				(1,347	)
Payments on capital lease			(78	)			-
Investment by affiliate of Parent			-				2,400
Dividend payment to Parent			(7,475	)			-
Capital contribution received by noncontrolling interest			6,506				1,595
Net cash used in financing activities			(1,807	)			(15,050	)
Effect of exchange rate fluctuations on cash and cash equivalents			(280	)			333
Net decrease in cash and cash equivalents			(14,249	)			(35,324	)
CASH AND CASH EQUIVALENTS:
Beginning of period			33,328				77,910
End of period		$	19,079			$	42,586

 

 

EXHIBIT D

 

THE GYMBOREE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

ADJUSTED EBITDA: 

"The Company defines ""Adjusted EBITDA"" as net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax expense (benefit), and depreciation and amortization (""EBITDA"") adjusted for other items, including gain or loss on extinguishment of debt, non-cash share-based compensation, loss on disposal/impairment of assets, sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the ""Acquisition""), non-recurring and unusual items.

 

Adjusted EBITDA is not a performance measure under U.S. generally accepted accounting principles (""GAAP""), but is considered an important supplemental measure of the Company's performance and is believed to be used frequently by securities analysts, investors and other interested parties in the evaluation of similar retail companies. Adjusted EBITDA is not a presentation made in accordance with GAAP and the Company's computation of Adjusted EBITDA may vary from others in the industry. Adjusted EBITDA should not be considered an alternative to operating income or net income, as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

 

The table below provides a reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA (in thousands):

 

		13 Weeks Ended								39 Weeks Ended
		November 2, 2013				October 27, 2012				November 2, 2013				October 27, 2012
Net (loss) income attributable to The Gymboree Corporation		$	(23,985	)		$	6,121			$	(35,871	)		$	(2,151	)
Reconciling items (a):
Interest expense			20,483				21,312				61,352				64,163
Interest income			(41	)			(32	)			(114	)			(116	)
Income tax expense (benefit)			15,917				(776	)			9,202				(11,051	)
Depreciation and amortization (b)			10,874				14,727				34,156				43,467
Non-cash share-based compensation expense			1,443				303				4,417				3,220
Loss on disposal/impairment on assets			3,712				827				5,583				2,090
Loss on extinguishment of debt			834				-				834				1,237
Other (c)			775				-				3,238				-
Acquisition-related adjustments (d)			3,890				4,409				11,882				13,288
Adjusted EBITDA		$	33,902			$	46,891			$	94,679			$	114,147
(a) Excludes amounts related to noncontrolling interest, which are already excluded from net (loss) income attributable to The Gymboree Corporation.
(b) Includes the following (in thousands):
Amortization of intangible assets (impacts SG&A)		$	383			$	4,340			$	3,025			$	13,020
Amortization of below and above market leases (impacts COGS)			(348	)			(406	)			(1,110	)			(1,442	)
		$	35			$	3,934			$	1,915			$	11,578
(c) Other is comprised of a non-recurring change in reserves, restructuring charges, and executive-related hiring expenses.
(d) Includes the following (in thousands):
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)		$	2,217			$	2,293			$	6,675			$	6,925
Sponsor fees, legal and  accounting,  as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)			974				919				3,069				2,767
Decrease in net sales due to the elimination of deferred revenue related to the Company's co-branded credit card program in purchase accounting (impacts net sales)			699				1,197				2,138				3,596
		$	3,890			$	4,409			$	11,882			$	13,288

 

OTHER NON-GAAP FINANCIAL MEASURES:
		13 Weeks Ended								39 Weeks Ended
		November 2, 2013				October 27, 2012				November 2, 2013				October 27, 2012
Gross profit as reported		$	123,468			$	125,603			$	351,527			$	336,615
Acquisition-related adjustments			2,568				3,084				7,703				9,079
Adjusted gross profit excluding Acquisition-related adjustments (non-GAAP measure)		$	126,036			$	128,687			$	359,230			$	345,694

 

		13 Weeks Ended								39 Weeks Ended
		November 2, 2013				October 27, 2012				November 2, 2013				October 27, 2012
SG&A as reported		$	(111,199	)		$	(99,016	)		$	(317,351	)		$	(286,350	)
Acquisition-related adjustments			1,357				5,259				6,094				15,787
Other adjustments			775				-				3,238				-
			2,132				5,259				9,332				15,787
Adjusted SG&A excluding Acquisition-related and other adjustments (non-GAAP measure)		$	(109,067	)		$	(93,757	)		$	(308,019	)		$	(270,563	)

 

 

EXHIBIT E

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Unaudited)

 

		13 Weeks Ended November 2, 2013
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Net sales		$	305,639			$	5,395			$	(1,196	)		$	309,838
Cost of goods sold, including buying and occupancy expenses			(185,116	)			(1,297	)			43				(186,370	)
Gross profit			120,523				4,098				(1,153	)			123,468
Selling, general and administrative expenses			(107,471	)			(4,901	)			1,173				(111,199	)
Operating income (loss)			13,052				(803	)			20				12,269
Other non operating (expense) income, net			(21,140	)			717				-				(20,423	)
Loss before income taxes			(8,088	)			(86	)			20				(8,154	)
Income tax expense			(15,917	)			(327	)			-				(16,244	)
Net loss			(24,005	)			(413	)			20				(24,398	)
Net loss attributable to noncontrolling interest			-				413				-				413
Net loss attributable to The Gymboree Corporation		$	(24,005	)		$	-			$	20			$	(23,985	)

 

		39 Weeks Ended Novermber 2, 2013
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Net sales		$	882,264			$	15,027			$	(3,754	)		$	893,537
Cost of goods sold, including buying and occupancy expenses			(538,591	)			(3,868	)			449				(542,010	)
Gross profit			343,673				11,159				(3,305	)			351,527
Selling, general and administrative expenses			(308,233	)			(12,477	)			3,359				(317,351	)
Operating income (loss)			35,440				(1,318	)			54				34,176
Other non operating (expense) income, net			(62,163	)			871				-				(61,292	)
Loss before income taxes			(26,723	)			(447	)			54				(27,116	)
Income tax expense			(9,202	)			(253	)			-				(9,455	)
Net loss			(35,925	)			(700	)			54				(36,571	)
Net loss attributable to noncontrolling interest			-				700				-				700
Net loss attributable to The Gymboree Corporation		$	(35,925	)		$	-			$	54			$	(35,871	)

 

		13 Weeks Ended October 27, 2012
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Net sales		$	311,008			$	3,123			$	(2,613	)		$	311,518
Cost of goods sold, including buying and occupancy expenses			(185,529	)			(818	)			432				(185,915	)
Gross profit			125,479				2,305				(2,181	)			125,603
Selling, general and administrative expenses			(98,785	)			(2,328	)			2,097				(99,016	)
Operating income (loss)			26,694				(23	)			(84	)			26,587
Other non operating (expense) income, net			(21,265	)			81				-				(21,184	)
Income before income taxes			5,429				58				(84	)			5,403
Income tax benefit (expense)			776				(1,269	)			-				(493	)
Net income (loss)			6,205				(1,211	)			(84	)			4,910
Net loss attributable to noncontrolling interest			-				1,211				-				1,211
Net income attributable to The Gymboree Corporation		$	6,205			$	-			$	(84	)		$	6,121

 

		39 Weeks Ended October 27, 2012
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Net sales		$	876,430			$	8,322			$	(6,731	)		$	878,021
Cost of goods sold, including buying and occupancy expenses			(540,091	)			(2,262	)			947				(541,406	)
Gross profit			336,339				6,060				(5,784	)			336,615
Selling, general and administrative expenses			(283,987	)			(7,949	)			5,586				(286,350	)
Operating income (loss)			52,352				(1,889	)			(198	)			50,265
Other non operating (expense) income, net			(65,356	)			98				-				(65,258	)
Loss before income taxes			(13,004	)			(1,791	)			(198	)			(14,993	)
Income tax benefit (expense)			11,051				(1,044	)			-				10,007
Net loss			(1,953	)			(2,835	)			(198	)			(4,986	)
Net loss attributable to noncontrolling interest			-				2,835				-				2,835
Net loss attributable to The Gymboree Corporation		$	(1,953	)		$	-			$	(198	)		$	(2,151	)

 

 

EXHIBIT E (continued)

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(Unaudited)

 

		November 2, 2013
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Current assets		$	287,541			$	21,429			$	(1,470	)		$	307,500
Non-current assets			1,727,065				4,599				1				1,731,665
Total assets		$	2,014,606			$	26,028			$	(1,469	)		$	2,039,165
Current liabilities		$	218,665			$	7,916			$	(1,294	)		$	225,287
Non-current liabilities			1,397,034				262				-				1,397,296
Total liabilities		$	1,615,699			$	8,178			$	(1,294	)		$	1,622,583
Total stockholders' equity			398,907				-				(175	)			398,732
Noncontrolling interest			-				17,850				-				17,850
Total liabilities and stockholders' equity		$	2,014,606			$	26,028			$	(1,469	)		$	2,039,165

 

		February 2, 2013
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Current assets		$	303,344			$	11,553			$	(4,465	)		$	310,432
Non-current assets			1,730,865				1,916				-				1,732,781
Total assets		$	2,034,209			$	13,469			$	(4,465	)		$	2,043,213
Current liabilities		$	175,555			$	9,244			$	(4,223	)		$	180,576
Non-current liabilities			1,420,870				130				-				1,421,000
Total liabilities		$	1,596,425			$	9,374			$	(4,223	)		$	1,601,576
Total stockholders' equity			437,784				-				(242	)			437,542
Noncontrolling interest			-				4,095				-				4,095
Total liabilities and stockholders' equity		$	2,034,209			$	13,469			$	(4,465	)		$	2,043,213

 

		October 27, 2012
		Balance Before
		Consolidation of VIEs				VIEs*				Eliminations				As Reported
		(in thousands)
Current assets		$	366,563			$	13,270			$	(3,929	)		$	375,904
Non-current assets			1,737,460				1,234				-				1,738,694
Total assets		$	2,104,023			$	14,504			$	(3,929	)		$	2,114,598
Current liabilities		$	183,479			$	10,658			$	(3,740	)		$	190,397
Non-current liabilities			1,474,878				80				-				1,474,958
Total liabilities		$	1,658,357			$	10,738			$	(3,740	)		$	1,665,355
Total stockholders' equity			445,666				-				(189	)			445,477
Noncontrolling interest			-				3,766				-				3,766
Total liabilities and stockholders' equity		$	2,104,023			$	14,504			$	(3,929	)		$	2,114,598

 

* The Variable Interest Entities ("VIEs") includes the results of Gymboree (China) Commercial and Trading Co. Ltd. and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. While the Company does not control these two entities, they have been determined to be variable interest entities and their results have been consolidated by the Company.