<PAGE> 1
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 MAY 2, 1998
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 (IRS Employer Identification No.)
incorporation or organization)
700 AIRPORT BOULEVARD, BURLINGAME, CALIFORNIA 94010-1912
(Address of principal executive offices) (Zip code)
(650) 579-0600
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 X No
----- -----
Number of shares of common stock outstanding at May 29, 1998: 24,145,979
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income.......................... 3
Consolidated Balance Sheets................................ 4
Condensed Consolidated Statements of Cash Flows............ 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 11
Item 2. Changes in Securities...................................... 11
Item 3. Defaults upon Senior Securities............................ 11
Item 4. Submission of Matters to a Vote of Security Holders........ 11
Item 5. Other Information.......................................... 11
Item 6. Exhibits and Reports on Form 8-K........................... 11
SIGNATURES ........................................................... 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
NET SALES $103,106 $ 85,240
COST OF GOODS SOLD, INCLUDING
BUYING AND OCCUPANCY EXPENSES (61,627) (46,294)
-------- --------
GROSS PROFIT 41,479 38,946
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (35,787) (26,306)
PLAY PROGRAM INCOME - NET 392 0
-------- --------
OPERATING INCOME 6,084 12,640
CURRENCY TRANSACTION GAIN 271 0
INTEREST INCOME 229 1,010
-------- --------
INCOME BEFORE INCOME TAXES 6,584 13,650
INCOME TAXES (2,436) (5,051)
-------- --------
NET INCOME $ 4,148 $ 8,599
======== ========
NET INCOME PER SHARE:
BASIC $ 0.17 $ 0.34
FULLY DILUTED $ 0.17 $ 0.34
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 24,110 24,987
FULLY DILUTED 24,237 25,514
NUMBER OF STORES AT END OF PERIOD 464 380
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MAY 2, 1998 JAN. 31, 1998 MAY 3, 1997
----------- ---------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 12,786 $ 17,870 $ 7,725
INVESTMENTS 17,190 18,642 73,458
ACCOUNTS RECEIVABLE 8,996 5,184 4,654
MERCHANDISE INVENTORIES 74,744 75,293 36,568
PREPAID EXPENSES AND OTHER 5,387 4,467 1,553
--------- --------- ---------
TOTAL CURRENT ASSETS 119,103 121,456 123,958
--------- --------- ---------
PROPERTY AND EQUIPMENT:
LAND 810 810 0
BUILDING 10,729 9,595 0
LEASEHOLD IMPROVEMENTS 65,161 58,082 48,765
FURNITURE, FIXTURES AND EQUIPMENT 71,024 66,819 52,399
--------- --------- ---------
147,724 135,306 101,164
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (33,949) (30,934) (21,748)
--------- --------- ---------
113,775 104,372 79,416
OTHER ASSETS 4,380 3,372 1,158
--------- --------- ---------
TOTAL ASSETS $ 237,258 $ 229,200 $ 204,532
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $ 27,984 $ 26,046 $ 9,960
ACCRUED LIABILITIES 16,006 15,781 10,423
INCOME TAXES PAYABLE 7,038 8,039 7,407
--------- --------- ---------
TOTAL CURRENT LIABILITIES 51,028 49,866 27,790
--------- --------- ---------
DEFERRED RENT AND OTHER 24,160 21,624 16,008
STOCKHOLDERS' EQUITY:
COMMON STOCK, INCLUDING EXCESS PAID-IN CAPITAL
($.001 PAR VALUE: 100,000,000 SHARES AUTHORIZED
24,015,996, 24,015,096 AND 24,962,356 SHARES
OUTSTANDING AT MAY 2, 1998, JANUARY 31, 1998,
AND MAY 5, 1996, RESPECTIVELY) 23,024 23,109 52,762
RESTRICTED STOCK DEFERRED COMPENSATION 0 (337) (337)
RETAINED EARNINGS 139,046 134,938 108,309
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 162,070 157,710 160,734
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 237,258 $ 229,200 $ 204,532
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
----------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,148 $ 8,599
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,144 2,828
Non-cash compensation expenses 0 416
Loss on disposal of property and equipment 618 520
Provision for deferred income taxes (31) 397
Tax benefit from exercise of stock options 237 130
Cumulative translation adjustment (11) (76)
Change in assets and liabilities:
Accounts receivable (3,812) (318)
Merchandise inventories 549 12,411
Prepaid expenses and other assets (1,358) (311)
Accounts payable 1,937 (11,989)
Accrued liabilities 221 (1,578)
Income taxes payable (1,001) 776
Deferred rent and other 2,536 1,437
-------- --------
Net cash provided by operating activities 8,177 13,242
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (14,177) (12,178)
Proceeds from sales of assets 12 0
Proceeds from sales of investments 1,452 8,903
Unrealized gain/loss on investments (28) (207)
Acquisition of lease rights (535) 0
-------- --------
Net cash used in investing activities (13,276) (3,482)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 15 440
Repurchase of common stock 0 (10,502)
-------- --------
Net cash used by financing activities 15 (10,062)
-------- --------
Net decrease in cash and cash equivalents (5,084) (302)
CASH AND CASH EQUIVALENTS:
Beginning of quarter 17,870 8,027
-------- --------
End of quarter $ 12,786 $ 7,725
======== ========
OTHER CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 3,460 $ 3,787
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of The Gymboree
Corporation and its wholly-owned subsidiaries (the "Company") as of and for
the period ended May 2, 1998 and May 3, 1997 have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is recommended that these
financial statements 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 year ended January 31, 1998.
The accompanying interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented and necessary to
present fairly the results of operations, the financial position and cash
flows for the periods presented. All such adjustments are of a normal and
recurring nature. Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. MERCHANDISE INVENTORIES
Merchandise inventories are recorded under the retail method of
accounting and are stated at the lower of cost or market.
3. INCOME TAXES
The Company's effective tax rate in the first quarters of fiscal 1998
and 1997 was 37%.
4. COMPREHENSIVE INCOME
During the first fiscal quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS 130 requires the presentation, by major
components and as a single total, the change in the Company's net assets
during a period from non-owner sources. The adoption of this Statement
resulted in a change in financial statement presentation, but did not have
an impact on the Company's consolidated balance sheets, statements of
income or cash flows. Comprehensive income and its components for the first
quarters of fiscal 1998 and 1997 are as follows:
13 weeks ended
--------------------------
May 2, 1998 May 3, 1997
--------------------------
Net income $4,148 $8,599
Unrealized loss on investments (28) (207)
Cumulative translation adjustments (12) (75)
----- -----
Total Comprehensive Income $4,108 $8,317
===== =====
5. FINANCIAL INSTRUMENTS
Beginning in April, 1998, the Company entered into forward foreign
exchange contracts to reduce exposure to foreign currency exchange risk.
These contracts are designed as hedges of certain intercompany receivables
denominated in foreign currencies.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes annual and interim reporting standards for
operating segments of an enterprise and related disclosures about its
products, services, geographic areas and major customers. SFAS No. 131 is
effective for the Company's fiscal years ending after January 31, 1998.
Adoption of this standard will not impact the Company's consolidated
balance sheets, statements of income or cash flows, and any effect will be
limited to the form and content of its disclosures.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) selected
income statement data expressed as a percentage of net sales, (ii) the
percentage change from the same period of the prior year in such selected income
statement data and (iii) the number of stores open at the end of each such
period:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES PERCENTAGE CHANGE
FOR THE THIRTEEN WEEKS ENDED IN DOLLAR AMOUNTS
--------------------------------- FROM 1997 TO 1998 FOR
MAY 2, 1998 MAY 3, 1997 THE THIRTEEN WEEK PERIOD
----------- ----------- ------------------------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 21.0%
COST OF GOODS SOLD, INCLUDING
BUYING AND OCCUPANCY EXPENSES (59.8) (54.3) 33.1
----- ----- ------
GROSS PROFIT 40.2 45.7 6.5
SELLING, GENERAL AND (34.7) (30.9) 36.0
ADMINISTRATIVE
EXPENSES
PLAY PROGRAM INCOME-Net 0.4 0.0 n/a
----- ----- ------
OPERATING INCOME 5.9 14.8 (51.9)
CURRENCY TRANSACTION GAIN 0.3 0.0 n/a
INTEREST INCOME 0.2 1.2 (77.3)
----- ----- ------
INCOME BEFORE INCOME TAXES 6.4 16.0 (51.8)
INCOME TAXES (2.4) (5.9) (51.8)
----- ----- ------
NET INCOME 4.0% 10.1% (51.8%)
===== ===== ======
NUMBER OF STORES AT END OF PERIOD 464 380
</TABLE>
This Form 10-Q contains certain forward-looking statements reflecting the
Company's current expectations, including statements regarding anticipated store
openings and future comparable store net sales, gross profit, inventory levels,
levels of gross profit as a percentage of net sales, S,G&A expenses, earnings,
liquidity levels and the amendment of the Company's credit facility. Actual
results may vary materially from results projected in such forward-looking
statements as a result of a number of factors, including the factors listed
below under "Factors That May Affect Future Performance" and others.
7
<PAGE> 8
RESULTS OF OPERATIONS (CONTINUED)
THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 3, 1997
- ------------------------------------------------------------------------------
NET SALES
Net sales in the first quarter of fiscal 1998 increased 21% to $103.1
million compared to $85.2 million in the same period last year. Sales for the 29
stores opened in the first quarter of fiscal 1998 contributed $2.7 million of
the increase in net sales. Stores opened prior to fiscal 1998, but not
qualifying as comparable stores, in addition to nine stores that were expanded
in fiscal 1998, contributed $13.8 million of the increase in net sales.
Comparable store net sales increased 1% in the first quarter and contributed
$1.4 million of the increase in net sales.
GROSS PROFIT
Gross profit for the thirteen weeks ended May 2, 1998 increased 6.5% to
$41.5 million from $38.9 million in the same period last year. As a percentage
of net sales, gross profit was 40.2% in the first quarter of fiscal 1998
compared to 45.7% in the same period last year. The decrease in gross profit, as
a percentage of sales, was primarily due to higher markdowns taken in the first
quarter of 1998 coupled with increases in occupancy and buying costs
attributable to the increases in the number of larger stores and higher rents
paid in Europe.
The Company is taking steps to reduce inventories. This is likely to result
in gross profit as a percentage of net sales to continue to remain below fiscal
1997 levels for the balance of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("S,G&A"), which principally
consist of non-occupancy store expenses, corporate overhead and distribution
expenses, increased to 34.7% of net sales in the first quarter of fiscal 1998,
compared to 30.9% of net sales in the same period last year.
The increase of S,G&A expenses, as a percentage of net sales, was primarily
due to significantly higher international S,G&A expenses incurred for payroll,
marketing and travel in connection with Company's expansion into Europe and
Canada, the funding of the development of Gymboree in Japan and the internal
development of a Hong Kong sourcing office. Additional expenses incurred in the
opening of the Dixon, California, facility and the concurrent operation of the
Hayward, California, facility also contributed to the increases in S,G&A. Other
increases in S,G&A included marketing expenses associated with direct mail and
other promotional campaigns which took place during 1998 which did not occur in
1997.
The Company expects total S,G&A expenses, as a percentage of net sales, to
increase in the balance of fiscal 1998 due to funding of the development of the
Company's new retail concept, increased marketing efforts in the form of direct
mail, print and television advertising and continued S,G&A expense funding of
international expansion in Europe and Canada, planned entrance into the Japanese
market in 1999 or 2000 and costs associated with the establishment of the Hong
Kong sourcing office in late 1999. These higher expenses, combined with the
expected lower gross profit as a percentage of net sales are expected to result
in full year net earnings growth at a level less than those achieved in recent
years.
FOREIGN EXCHANGE TRANSACTIONS
Foreign exchange transaction gains were $0.3 million during the first
quarter 1998. This gain resulted from currency fluctuations in intercompany
transactions between the Company's U.S. operations and its foreign subsidiaries.
No foreign exchange gains or losses were incurred during the first quarter of
fiscal 1997.
8
<PAGE> 9
INTEREST INCOME
Interest income decreased to $229,000 during the first quarter of 1998 from
$1,010,000 during the first quarter of the prior year. The decrease in interest
income is primarily due to the decreases in cash, cash equivalents and
investment balances from the first quarter of 1997 due to two stock repurchases
completed during fiscal 1997 for a total of approximately $50.0 million. This
trend of declining interest income is expected to continue in the future.
INCOME TAX
The Company's effective tax rate in the first quarter of fiscal 1998 was
37% which is consistent with the prior year.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in the first quarter of 1998 of $8.2
million was primarily attributable to $4.1 million of net income, $4.1 million
of depreciation and amortization, $2.5 million increase in deferred liabilities,
$1.9 million increase in accounts payable, offset in part by a $3.8 million
increase in accounts receivable and a $1.3 million increase in prepaid expenses
and other assets. Cash used in investing activities of $12.7 million for the
first quarter of 1998 related primarily to $14.2 million in capital expenditures
for new store openings and the relocation and/or expansion of certain existing
stores, offset by $1.5 million from sales of certain marketable securities.
The combined balances of cash, cash equivalents and investments were $30.0
million at May 2, 1998, a decrease of $6.5 million from January 31, 1998.
Working capital as of May 2, 1998 was $68.0 million compared to $71.6 million at
the end of fiscal 1997. The Company's marketable securities consist largely of
short-to-medium term investment grade securities.
The Company estimates that capital expenditures during fiscal 1998 will be
between $50 million and $55 million, and will be principally used to fund the
opening of approximately 100 to 130 new domestic and international stores and to
remodel or expand approximately 30 to 40 existing stores.
The Company has no long term debt. At the end of fiscal 1997, the Company
had one line of credit that allowed up to $100 million in unsecured letters of
credit and up to $10 million in foreign exchange contracts. During the first
quarter of 1998, this line of credit agreement was amended. The amended facility
allows up to $74 million in unsecured commercial letters of credit, $11 million
in standby letters of credit, and $15 million in borrowings. In addition, under
this same facility, the Company may engage in up to $50 million in settlements
of foreign exchange contracts. The Company intends to seek further amendment of
the line of credit in order to increase the amount available for borrowings. The
Company uses these lines primarily to support letters of credit which fund its
foreign sourcing of merchandise inventories and to enter into foreign exchange
contracts. As of May 29, 1998, $28.0 million was available for unsecured
commercial letters of credit, $8.0 million was available for standby letters of
credit, $15.0 million was available in borrowings and $50 million was available
in settlements of foreign exchange contracts.
The Company is exploring a number of financing alternatives including an
increase in the amount available for borrowings under the line of credit. The
Company anticipates that cash generated from operations together with its
existing cash resources and funds available from its credit facility, as
proposed to be amended, will be sufficient to satisfy its cash needs through at
least fiscal 1998. However, there can be no assurance that the Company will
successfully negotiate an increase in available borrowings under the credit
facility, and the failure to do so could require the Company to seek additional
sources of debt or equity financing or adjust the planned levels of capital and
other cash expenditures as needed. Such financing may not be available or, if
available, may be on terms that are not favorable to the Company or its
stockholders.
9
<PAGE> 10
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
This Form 10-Q contains certain forward-looking statements reflecting the
Company's current expectations, including statements regarding anticipated store
openings, comparable store net sales, gross profit, inventory levels, levels of
gross profits as a percentage of net sales, S, G&A expense, earnings, liquidity
levels and the amendment of the Company's credit facility. Actual results may
vary materially from results projected in such forward-looking statements as a
result of a number of factors, including competitive market conditions, levels
of discretionary consumer spending, general economic conditions, the degree of
promotional pricing activity by the Company, inventory levels, and the ability
of the Company to successfully identify and respond to emerging children's
fashion trends, to effectively monitor and control costs, and to effectively
manage anticipated international and domestic growth.
The matters discussed in this Form 10-Q with respect to opening a new
retail concept are also forward looking statements that involve risk and
uncertainties, including no prior operating history, no prior history of market
acceptance, potentially higher expenses without corresponding revenue increases,
impact to earnings, ability to obtain new store sites, ability to obtain
adequate sources of merchandise, competition from other retailers and
uncertainties generally associated with apparel retailing. In addition, the
Company has recently hired several highly experienced executives to support the
production, merchandising and promotion of the products of this new retail
concept. The Company's limited experience with marketing apparel to this
demographic could materially and adversely affect its ability to introduce this
new retail concept successfully or to develop this concept's product line. Other
factors that may cause actual results to differ materially include those set
forth in the reports that the Company files from time to time with the
Securities and Exchange Commission.
Other factors that may affect future performance include the following:
INVENTORY LEVELS
The Company is taking positive steps to reduce inventories and to pursue
new merchandising and marketing initiatives, including a higher level of
promotional activity. This is likely to result in gross profit as a percentage
of net sales to continue to remain below fiscal 1997 levels for the balance of
fiscal 1998.
INTERNATIONAL EXPANSION
In fiscal 1998, the Company plans to further its international expansion in
Europe and Canada. During the first quarter of fiscal 1998, the Company opened
six additional stores in Europe and one in Canada, bringing the number of stores
in Europe and Canada to twelve and twelve, respectively. The success of this
planned expansion will depend upon a number of factors, including the
availability of suitable store locations, the ability to provide an adequate
supply of inventory and the ability to hire and train qualified employees, of
which there can be no assurance.
The Company will continue to fund the development of Gymboree in Japan with
a plan to open stores in that country in late 1999 or early 2000 and the opening
of a Hong Kong sourcing office, which will open in 1999.
NEW RETAIL CONCEPT
During the first quarter of 1998, the Company announced its plans to launch
a new retail concept. It is intended to broaden the Company's market by
introducing clothing stores targeted for children between the ages of 6 and 12
years old. This retail concept will offer apparel, footwear and accessories to
boys and girls within those ages. This new concept represents a significant
shift in concept, design and target market demographics from the Company's
traditional products. These products may have short life cycles, thereby
requiring more frequent product introductions than the Company's traditional
product line. Further, these products and the introduction of more products
could dilute the Company's image as a leading supplier of children's apparel in
the 0-7 age range and lead to a reduced demand for its existing products.
YEAR 2000
The Company has developed a plan to address Year 2000 issues. The plan
covers systems and vendor issues that will be encountered before, during and
after December 31, 1999. The systems portion of the plan includes a detailed
survey of the current systems and associated upgrades, as well as options
related to the replacement or reprogramming of current systems as would be
required to bring the Company's systems into compliance prior to the Year 2000.
The plan, which was developed to address vendor issues, covers product and
systems issues, and includes product certifications, systems integration,
systems testing and communication strategies. There can be no guarantee that the
systems of other companies on which the Company's systems rely will be converted
timely and would not have an adverse effect on the Company's systems. The Plan
however, offers a best effort approach to ascertain the readiness of the system
of key companies through the use of surveys and testing methodologies.
Customers are not likely to be affected by Year 2000 issues. The Company will
utilize both internal and external resources to test, remediate, and/or
replace the software.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into forward foreign exchange contracts to hedge certain
intercompany receivables denominated in foreign currencies (principally Irish
Punts, British Pounds Sterling, and Canadian Dollars). The term of the forward
exchange contracts is generally less than 90 days. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual dollar net cash inflow resulting from the repayment of certain
intercompany receivables from Gymboree's foreign subsidiaries will be adversely
affected by changes in exchange rates. However, the Company may not be able to
realize the benefits from these hedging activities due to the inherent risks
associated with fluctuation in foreign currency exchange rates.
The table below summarizes by major currency the contractual amounts of
Gymboree's forward exchange contracts in U.S. dollars. Foreign currency amounts
are translated at rates current at the reported date. The amounts represent the
U.S. dollar equivalent of commitments to sell foreign currencies.
<TABLE>
<S> <C>
($ in millions) Balance at May 2, 1998
- -------------- -----------------------
Irish Punts $ 4,214,100
British Pounds Sterling 7,351,520
Canadian Dollars 11,625,936
----------
Total $23,191,556
==========
</TABLE>
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 20, 1998 at which time
the stockholders voted on proposals as follows:
<TABLE>
<CAPTION>
Votes Against Abstentions
Votes for or Withheld and Non-Votes
--------- ----------- -------------
<S> <C> <C> <C>
Election of two Class II
Directors:
Gary White 21,455,703 407,247 N/A
Barbara L. Rambo 21,451,754 411,196 N/A
Ratify the appointment of
Deloitte & Touche LLP as
independent auditors for
fiscal 1998. 21,810,588 43,686 8,676
To approve proposed
amendments to the Company's
1993 Stock Option Plan 4,325,059 14,716,444 2,821,447
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
May 2, 1998.
11
<PAGE> 12
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)
June 16, 1998 By: /s/ Gary White
- --------------------- ---------------------------------------
Date Gary White
President and Chief Executive Officer
(Principal executive officer of the registrant)
June 16, 1998 By: /s/ Esther L. Koch
- --------------------- ---------------------------------------
Date Esther L. Koch
Vice President, Finance
and Corporate Controller
(Principal financial and accounting officer
of the registrant)
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
11 Computation of Net Income per Share 15
27 Financial Data Schedule --
</TABLE>
14
<PAGE> 1
EXHIBIT 11
THE GYMBOREE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
NET INCOME $4,148 $ 8,599
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING
DURING THE PERIOD:
COMMON STOCK 24,110 24,987
ADD INCREMENTAL SHARES FROM ASSUMED
EXERCISE OF STOCK OPTIONS 127 527
------- -------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 24,237 25,514
======= =======
FULLY DILUTED NET INCOME PER SHARE $ 0.17 $ 0.34
======= =======
BASIC NET INCOME PER SHARE $ 0.17 $ 0.34
======= =======
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000786110
<NAME> THE GYMBOREE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 12,786
<SECURITIES> 17,190
<RECEIVABLES> 8,996
<ALLOWANCES> 0
<INVENTORY> 74,744
<CURRENT-ASSETS> 119,103
<PP&E> 147,724
<DEPRECIATION> 33,949
<TOTAL-ASSETS> 237,258
<CURRENT-LIABILITIES> 51,028
<BONDS> 0
0
0
<COMMON> 23,024
<OTHER-SE> 139,046
<TOTAL-LIABILITY-AND-EQUITY> 237,258
<SALES> 103,106
<TOTAL-REVENUES> 103,498
<CGS> 61,627
<TOTAL-COSTS> 97,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,584
<INCOME-TAX> 2,436
<INCOME-CONTINUING> 4,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,148
<EPS-PRIMARY> 0.17<F1>
<EPS-DILUTED> 0.17
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
