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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 APRIL 29, 2000
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)
<TABLE>
<S> <C>
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)
</TABLE>
(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 31, 2000: 27,600,556
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations............. 3
Condensed Consolidated Balance Sheets....................... 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 11
Item 2. Changes in Securities and Use of Proceeds................... 11
Item 3. Defaults Upon Senior Securities............................. 11
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Other Information........................................... 12
Item 6. Exhibits.................................................... 12
Signatures........................................................... 13
Exhibit Index........................................................ 14
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------
APRIL 29, MAY 1,
2000 1999
--------- --------
<S> <C> <C>
Net sales................................................... $100,632 $125,711
Cost of goods sold, including buying and occupancy
expenses.................................................. (80,105) (76,524)
-------- --------
Gross profit.............................................. 20,527 49,187
Selling, general and administrative expenses................ (43,728) (42,383)
Play and music income, net.................................. 748 590
-------- --------
Operating income (loss)................................... (22,453) 7,394
Foreign exchange gains, net................................. 24 89
Net interest income......................................... 50 112
-------- --------
Income (loss) before income taxes......................... (22,379) 7,595
Income tax benefit (expense)................................ 8,616 (2,810)
-------- --------
Net income (loss)......................................... $(13,763) $ 4,785
======== ========
Income (loss) per share:
Basic..................................................... $ (0.56) $ 0.20
Diluted................................................... (0.56) 0.20
Weighted average shares outstanding:
Basic..................................................... 24,402 24,258
Diluted................................................... 24,402 24,417
Number of stores at end of period........................... 605 584
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
APRIL 29, JANUARY 29, MAY 1,
2000 2000 1999
--------- ----------- --------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents................................ $ 23,386 $ 40,274 $ 33,148
Accounts receivable...................................... 4,976 4,920 8,652
Merchandise inventories.................................. 43,083 47,103 60,519
Prepaid expenses and deferred taxes...................... 9,535 7,382 7,953
-------- -------- --------
Total current assets............................. 80,980 99,679 110,272
-------- -------- --------
Property and Equipment
Land and buildings....................................... 9,943 9,943 9,943
Leasehold improvements................................... 88,930 88,019 84,665
Furniture, fixtures and equipment........................ 107,818 108,606 98,135
-------- -------- --------
206,691 206,568 192,743
Less accumulated depreciation and amortization........... (72,390) (69,123) (51,927)
-------- -------- --------
134,301 137,445 140,816
Lease Rights, Deferred Taxes and Other Assets.............. 10,072 3,794 4,243
-------- -------- --------
Total Assets..................................... $225,353 $240,918 $255,331
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt........................ $ 594 $ 583 $ 554
Accounts payable......................................... 17,168 18,596 14,370
Accrued liabilities...................................... 22,407 23,275 18,644
-------- -------- --------
Total current liabilities........................ 40,169 42,454 33,568
-------- -------- --------
Long Term Liabilities
Long term debt, net of current portion................... 10,725 10,877 11,271
Deferred rent and other liabilities...................... 29,517 29,125 37,509
-------- -------- --------
Total Liabilities................................ 80,411 82,456 82,348
-------- -------- --------
Stockholders' Equity
Common stock, including excess paid-in capital ($.001 par
value: 100,000,000 shares authorized 24,401,886,
24,401,604 and 24,265,920 shares outstanding at April
29, 2000, January 29, 2000 and May 1, 1999,
respectively)......................................... 27,807 27,807 27,107
Retained earnings........................................ 116,794 130,557 145,942
Accumulated other comprehensive income (loss) --
Foreign currency translation adjustments.............. 341 98 (66)
-------- -------- --------
Total stockholders' equity....................... 144,942 158,462 172,983
-------- -------- --------
Total Liabilities and Stockholders' Equity....... $225,353 $240,918 $255,331
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------
APRIL 29, MAY 1,
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(13,763) $ 4,785
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 5,956 5,522
Deferred income taxes.................................. (7,596) 1,398
Loss on disposal of property and equipment............. 248 167
Change in assets and liabilities:
Accounts receivable.................................. (58) (841)
Merchandise inventories.............................. 4,263 13,452
Prepaid expenses and other assets.................... (833) (1,043)
Accounts payable..................................... (1,428) (7,472)
Other liabilities.................................... 393 993
Accrued liabilities.................................. (868) 366
-------- --------
Net cash provided by (used in) operating activities.... (13,686) 17,327
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (3,061) (12,066)
-------- --------
Net cash used in investing activities.................. (3,061) (12,066)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock............................. -- 252
Payments on long term debt.................................. (141) (175)
-------- --------
Net cash provided by (used in) financing activities.... (141) 77
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (16,888) 5,338
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 40,274 27,810
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 23,386 $ 33,148
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
THE GYMBOREE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of The
Gymboree Corporation and our wholly-owned subsidiaries ("Gymboree") as of and
for the periods ended April 29, 2000 and May 1, 1999 have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
January 29, 2000.
The accompanying interim condensed 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. INCOME TAXES
Our effective tax rates in the first quarters of fiscal 2000 and 1999 were
38.5% and 37%, respectively.
3. EARNINGS (LOSS) PER SHARE
Basic EPS is calculated by dividing net income (loss) for the period by the
weighted average common shares outstanding for that period. Diluted EPS takes
into account the effect of dilutive instruments, such as stock options, and uses
the average share price for the period in determining the number of incremental
shares that are to be added to the weighted average number of shares
outstanding.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------------
APRIL 29, 2000 MAY 1, 1999
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Shares used to compute basic EPS................... 24,402 24,258
Add: effect of dilutive securities................. -- 159
------ ------
Shares used to compute diluted EPS................. 24,402 24,417
====== ======
</TABLE>
Options to purchase weighted average shares totaling 455 for the thirteen
weeks ended April 29, 2000 were not included in the computation of diluted
income (loss) per share because to do so would have been antidilutive.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), which includes net income (loss) and foreign
currency translation adjustments, is as follows:
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------------
APRIL 29, 2000 MAY 1, 1999
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................. $(13,763) $4,785
Other comprehensive income (loss).................. 243 (426)
-------- ------
Total comprehensive income (loss).................. $(13,520) $4,359
======== ======
</TABLE>
6
<PAGE> 7
THE GYMBOREE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. FOREIGN CURRENCIES
Assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at the exchange rates effective on the balance sheet date. Translation
adjustments resulting from this process are recorded as other comprehensive
income. Revenues, costs of sales, expenses and other income are translated at
average rates of exchange prevailing during the year.
During the first quarter of fiscal 2000, Gymboree entered into forward
foreign exchange contracts to reduce exposure to foreign currency exchange risk
related to certain inter-company loans and inventory purchases denominated in
foreign currencies. The net gains and losses between the forward foreign
exchange contracts and inter-company loans and inventory purchases are included
in net income.
As of April 29, 2000, the notional amounts of Gymboree's forward foreign
contracts to hedge British pounds sterling, Canadian dollars, and Japanese yen
were $13.5 million, $13.6 million, and ($0.6) million, respectively. The fair
value of the contracts was approximately $256 thousand as of April 29, 2000.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities at fair value and is
effective for Gymboree in fiscal 2001. Management does not believe that the
adoption of this statement will have a significant effect on the consolidated
financial statements of Gymboree.
7. COMMON STOCK
In May 2000, Gymboree issued 3,198,670 shares at $2.97 apiece for a total
of $9.5 million, net of issuance costs. The shares are restricted from sale
until November 2000. In connection with the issuance of the shares, the
purchasers received warrants to purchase 479,803 shares of Gymboree stock at
$2.97 per share. These warrants are exercisable over three years. Total Gymboree
shares issued to related parties were 1,717,172 shares, with warrants to
purchase 257,576 shares.
8. LINE OF CREDIT
As of April 29, 2000, Gymboree had an overall credit line of $50 million
that may be used for issuance of commercial letters of credit and up to $8
million of standby letters of credit and up to $15 million for cash advances. As
of April 29, 2000, approximately $21.1 million was available pursuant to such
lines. This facility is scheduled to expire July 31, 2000. Gymboree uses these
lines primarily to support letters of credit which fund its foreign sourcing of
merchandise inventories. The credit facility contains certain financial
covenants, which require Gymboree to maintain a minimum tangible net worth and
meet certain ratios. Additionally, the facility contains restrictions on capital
expenditures. As of April 29, 2000, Gymboree was not in compliance with the
minimum tangible net worth covenant. The bank waived non-compliance with such
covenant.
On May 31, 2000, Gymboree's current bank approved, subject to the execution
and delivery of a definitive agreement, a three-year secured credit facility.
This facility will expire three years after the signing of the credit agreement.
The terms of the commitment provide for an overall credit line of $60 million
that may be used for issuance of commercial and standby letters of credit and
cash advances up to $20 million, limited to eligible inventory and receivables.
The interest rate will be based on the bank's Reference Rate or LIBOR (London
Interbank Offered Rate) plus a pre-determined spread. The credit facility will
be secured by a lien on merchandise inventories and other selected assets.
7
<PAGE> 8
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
statement of operations 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
THIRTEEN PERCENTAGE CHANGE
WEEKS ENDED IN DOLLAR AMOUNTS
------------------- FROM 1999 TO 2000
APRIL 29, MAY 1, -----------------
2000 1999 13 WEEKS
--------- ------ -----------------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% -20%
Cost of goods sold, including buying and
occupancy expenses...................... (79.6) (60.9) 5%
----- -----
Gross profit............................ 20.4 39.1 -58%
Selling, general and administrative
expenses................................ (43.4) (33.7) 3%
Play and music income, net................ 0.7 0.5 27%
----- -----
Operating income (loss)................. (22.3) 5.9 -404%
Foreign exchange gains, net............... 0.0 -- -73%
Net interest income....................... 0.1 0.1 -55%
----- -----
Income (loss) before income taxes....... (22.2) 6.0 -395%
Income tax benefit (expense).............. 8.5 (2.2) -407%
----- -----
Net income (loss)....................... (13.7)% 3.8% -388%
===== =====
Number of stores at end of period......... 605 584
</TABLE>
THIRTEEN WEEKS ENDED APRIL 29, 2000 COMPARED TO THIRTEEN WEEKS ENDED MAY 1, 1999
Net Sales
Net sales in the first quarter of fiscal 2000 totaled $100.6 million
compared to $125.7 million in the same period last year. During the first
quarter of fiscal 2000, we opened one Canadian store and closed one U.S. store.
Comparable store sales decreased 24% or $28.3 million in the first quarter. The
decline in comparable store sales was primarily due to lower average store
inventory in 2000 vs. 1999 and the lack of coordinated outfits in 2000 that
reduced average transaction values.
Gross Profit
Gross profit for the thirteen weeks ended April 29, 2000 decreased 58% to
$20.5 million from $49.2 million in the same period last year. As a percentage
of net sales, gross profit was 20.4% in the first quarter of 2000 compared to
39.1% in the same period last year. The decrease in gross profit as a percentage
of net sales was primarily due to increased markdowns taken in 2000 that lowered
our gross margin as well as a loss of leverage on occupancy expense due to a
decrease in comparable store sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") principally consists
of non-occupancy store expenses, corporate overhead and distribution expenses.
For the first quarter of 2000, SG&A expenses increased to 43.4% of net sales,
compared to 33.7% of net sales in the same period last year. The increase in
total SG&A expenses, as a percentage of net sales, was primarily attributable to
the loss of leverage associated with significant comp sales declines in 2000 and
approximately $2.0 million in severance expense incurred in connection with our
recently departed senior management.
8
<PAGE> 9
Play and Music Income, Net
Play and Music income, net increased 27% to $748,000 during the first
quarter of fiscal 2000 from $590,000 in income for the same period last year,
due primarily to new franchise sales, enrollment growth in both franchised and
corporate centers and increased play product sales.
Foreign Exchange Gains
Net foreign exchange gains totaled $24,000 during the first quarter of 2000
compared to $89,000 in the first quarter of 1999. These gains resulted from
currency fluctuations in inter-company transactions between our United States
operations and foreign subsidiaries.
Net Interest Income
Interest income decreased to $364,000 for the first quarter of 2000 from
$453,000 for the first quarter of 1999. Interest expense of $314,000 was
incurred for the first quarter of 2000 as compared to $341,000 incurred in the
first quarter of 1999. Our interest expense relates to long term debt incurred
in 1998.
Income Tax
Our effective tax rates for the first quarters of fiscal 2000 and 1999 were
38.5% and 37%, respectively.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash used in operating activities was $13.7 million compared to cash
provided by operating activities of $17.3 million in the prior year. This change
was primarily due to the net loss for the period, an increase in deferred taxes,
and changes in working capital items.
Cash used in investing activities totaled $3.1 million and was related to
capital expenditures primarily for new store openings, as well as the relocation
and/or expansion of certain existing stores. Gymboree estimates that capital
expenditures during 2000 will be between $12.0 and $15.0 million, which will
primarily be used to open approximately 10 new domestic and international
stores, to expand approximately 10 existing stores and update the store fronts
of approximately 150 stores.
Cash and cash equivalents were $23.4 million at April 29, 2000, a decrease
of $16.9 million from January 29, 2000. Working capital as of April 29, 2000 was
$40.8 million compared to $57.2 million at the end of fiscal 1999.
As of April 29, 2000, Gymboree had an overall credit line of $50 million
that may be used for issuance of commercial letters of credit and up to $8
million of standby letters of credit and up to $15 million for cash advances. As
of April 29, 2000, approximately $21.1 million was available pursuant to such
lines. This facility is scheduled to expire July 31, 2000. Gymboree uses these
lines primarily to support letters of credit which fund its foreign sourcing of
merchandise inventories. The credit facility contains certain financial
covenants, which require Gymboree to maintain a minimum tangible net worth and
meet certain ratios. Additionally, the facility contains restrictions on capital
expenditures. As of April 29, 2000, Gymboree was not in compliance with the
minimum tangible net worth covenant. The bank waived non-compliance with such
covenant.
On May 31, 2000, Gymboree's current bank approved, subject to the execution
and delivery of a definitive agreement, a three-year secured credit facility.
This facility will expire three years after the signing of the credit agreement.
The terms of the commitment provide for an overall credit line of $60 million
that may be used for issuance of commercial and standby letters of credit and
cash advances up to $20 million, limited to eligible inventory and receivables.
The interest rate will be based on the bank's Reference Rate or LIBOR (London
Interbank Offered Rate) plus a pre-determined spread. The credit facility will
be secured by a lien on merchandise inventories and other selected assets.
9
<PAGE> 10
In May 2000, Gymboree issued 3,198,670 shares at $2.97 apiece for a total
of $9.5 million, net of issuance costs. The shares are restricted from sale
until November 2000. In connection with the issuance of the shares, the
purchasers received warrants to purchase 479,803 shares of Gymboree stock at
$2.97 per share. These warrants are exercisable over three years. Total Gymboree
shares issued to related parties were 1,717,172 shares, with warrants to
purchase 257,576 shares.
We anticipate that cash generated from operations, together with our
existing cash resources and funds available from current and future credit
facilities, will be sufficient to satisfy our cash needs through at least fiscal
2000.
Factors that May Affect Future Performance
The discussion in this 10-Q report contains certain forward-looking
statements, including statements regarding future net sales and net income,
future inventory levels, future comparable store net sales, future S,G&A
expenses, future interest income, planned capital expenditures, planned store
expansions and closings, international expansion and future cash needs. Such
forward-looking statements, in particular, and Gymboree's business and operating
results, in general, involve risks and uncertainties. Actual results may differ
significantly from the results discussed in the forward-looking statements.
Future operating results will depend upon many factors, including general
economic conditions, levels of competition, growth in the children's apparel
market, our ability to meet our financing and working capital needs, the
availability of suitable new store locations, the ability to develop and
successfully source new merchandise, our ability to rebuild our historic
customer base, consumer acceptance of our products, our ability to capture
satisfactory margins on our product sales, our success in planning and
allocating appropriate inventory levels, the ability to hire and train qualified
sales associates, our success in creating merchandise displays that attract
customers and encourage them to make purchases, the level of our investment in
new concepts, the integration of our management team, and the ability to
successfully identify and respond to emerging children's fashion trends and
effectively monitor and control costs. There can be no assurance that we will be
able to effectively realize our plans for future growth.
Gymboree's sales and profitability depend upon our ability to rebuild
demand by our customers for our products and services. We believe that our
future success will depend in large part upon our ability to anticipate, gauge
and respond in a timely manner to consumer demands and fashion trends and upon
the appeal of our products. There can be no assurance that the demand for
Gymboree's apparel or accessories will be rebuilt or that we will be able to
anticipate, gauge and respond to changes in fashion trends. If demand for our
apparel and accessories does not increase or if we were to misjudge fashion
trends, our business, financial condition and results of operations could be
materially and adversely affected.
Gymboree's future profitability is critically dependent on our ability to
achieve and manage potential future growth effectively. There can be no
assurance that Gymboree will be successful in increasing net sales or gross
profit in the future or that the rate of period-to-period net sales or gross
profit, if any, will not continue to decline. If our operations were to grow, of
which there can be no assurance, there could be increasing strain on other
resources, and Gymboree may experience serious operating difficulties, including
difficulties in hiring, training, managing an increasing number of employees,
difficulties in obtaining sufficient fabric and sourcing capacity to produce its
products, problems in upgrading its management information systems and delays in
product distribution shipments. There can be no assurance that Gymboree will be
able to manage future growth effectively. Any failure to manage growth
effectively could have a material adverse effect on our results of operations
and financial position.
Gymboree has operations in Europe and Canada, which expanded in 1999. As a
result, our business is subject to the risks generally associated with doing
business abroad, such as foreign governmental regulations, foreign consumer
preferences, currency fluctuations, political unrest, disruptions or delays in
shipments and changes in economic conditions in countries in which we operate
our stores. These factors, among others, could influence our ability to sell our
products in these international markets. If any such factors were to render the
conduct of business in a particular country undesirable or impractical, there
could be a material and adverse effect on Gymboree's results of operations and
financial position.
10
<PAGE> 11
During 1999, Gymboree opened 19 stores under our new Zutopia product line.
Zutopia involves 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, Gymboree needs to support the production, merchandising and promotion
of Zutopia. Our limited experience with marketing apparel to this demographic
segment could materially and adversely affect our ability to successfully
develop this product line.
Gymboree is developing a strategy to handle the planned conversion in 2002
of the Irish punt to the Euro.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Gymboree enters into forward foreign exchange contracts to hedge certain
inter-company loans and inventory purchases denominated in foreign currencies
(principally British pounds sterling, Canadian dollars, and Japanese yen). The
term of the forward exchange contracts is generally less than 90 days. The
purpose of our foreign currency hedging activities is to protect us from the
risk that the eventual dollar net cash inflow resulting from the repayment of
certain inter-company loans from our foreign subsidiaries and the dollar net
cash outflow resulting from inventory purchases will be adversely affected by
changes in exchange rates.
The table below summarizes by major currency the notional amounts and fair
values of our forward foreign exchange contracts in U.S. dollars as of April 29,
2000.
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
British pounds sterling................................. $13,484 $253
Canadian dollars........................................ 13,593 17
Japanese yen............................................ (645) (14)
------- ----
Total................................................... $26,432 $256
======= ====
</TABLE>
In the event Gymboree has borrowings under the line of credit, a higher
interest rate would have an adverse impact on Gymboree because the interest rate
is variable.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gymboree has been named as a defendant in a lawsuit relating to sourcing of
products from Saipan (Commonwealth of Northern Mariana Islands). A complaint was
filed on January 13, 1999 in Federal District Court, Central District of
California, by various unidentified worker plaintiffs against Gymboree and 25
other parties. Those unidentified worker plaintiffs seek class-action status and
allege, among other things, that Gymboree (and other defendants) violated the
Racketeer Influenced and Corrupt Organizations Act in connection with the labor
practices and treatment of workers of factories in Saipan that make product for
us. The plaintiffs seek injunctive relief as well as actual and punitive
damages. The case has now been transferred to Federal District Court, District
of Hawaii. Gymboree has agreed to a Settlement with the plaintiffs that would
require us to pay approximately $200,000; the Settlement does not take effect
until it is approved by the court. The Motion for Preliminary Approval by the
court is scheduled for July 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
11
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
On June 2, 2000, Lisa Harper, Gymboree's Senior Vice President and General
Merchandise Manager was named to the Board of Directors.
Corrections to the Proxy Statement for the 2000 Annual Meeting of
Shareholders:
(a) With regard to compensation reported for Ken Meyers, the inclusion of
$81,931 was listed as a moving reimbursement in 1998. This was a
typographical error. No such amount was paid.
(b) For the year 2000, Mr. Moldaw's base compensation as Chairman and CEO
will be $483,500.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
<TABLE>
<C> <S>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 29,
2000.
12
<PAGE> 13
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.
Date: June 12, 2000
THE GYMBOREE CORPORATION
(Registrant)
By: /s/ LAWRENCE H. MEYER
------------------------------------
Lawrence H. Meyer
Chief Financial Officer
(Principal financial and accounting
officer
of the registrant)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
14
