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 AUGUST 1, 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 August 29, 1998: 24,172,134
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TABLE OF CONTENTS
Page
Number
------
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
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................ 14
Item 2. Changes in Securities and Use of Proceeds................ 14
Item 3. Defaults Upon Senior Securities.......................... 14
Item 4. Submission of Matters to a Vote of Security Holders...... 14
Item 5. Other Information........................................ 14
Item 6. Exhibits................................................. 14
SIGNATURES ............................................................... 15
EXHIBIT INDEX ............................................................ 16
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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)
13 WEEKS ENDED 26 WEEKS ENDED
------------------------- -------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
--------- --------- --------- ---------
Net Sales $ 99,789 $ 71,684 $ 202,895 $ 156,924
Cost of goods sold, including
buying and occupancy expenses (66,471) (41,232) (128,082) (87,526)
--------- --------- --------- ---------
Gross Profit 33,318 30,452 74,813 69,398
Selling, general and administrative expenses (34,999) (24,011) (70,835) (50,316)
Play program income 334 103 761 102
--------- --------- --------- ---------
Operating income (loss) (1,347) 6,544 4,739 19,184
Currency transaction gain (loss) (124) 0 145 0
Interest income 147 722 376 1,732
--------- --------- --------- ---------
Income (loss) before income taxes (1,324) 7,266 5,260 20,916
Income taxes 494 (2,688) (1,943) (7,739)
--------- --------- --------- ---------
Net income (loss) $ (830) $ 4,578 $ 3,317 $ 13,177
========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.03) $ 0.19 $ 0.14 $ 0.53
Diluted (0.03) 0.19 0.14 0.53
Weighted average shares outstanding:
Basic 24,164 24,302 24,136 24,642
Diluted 24,164 24,621 24,214 25,023
Number of stores at end of period 495 401 495 401
See notes to condensed consolidated financial statements.
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THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Assets August 1, January 31, August 2,
1998 1998 1997
--------- ----------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 19,247 $ 17,870 $ 4,776
Investments 0 18,642 46,011
Accounts receivable 8,583 5,184 4,988
Merchandise inventories 91,355 75,293 56,840
Prepaid expenses and other 5,966 4,467 1,599
--------- --------- ---------
Total current assets 125,151 121,456 114,214
--------- --------- ---------
PROPERTY AND EQUIPMENT
Land and buildings 9,949 10,405 810
Leasehold improvements 70,218 58,082 56,515
Furniture, fixtures and equipment 80,014 66,819 57,119
--------- --------- ---------
160,181 135,306 114,444
Less accumulated depreciation and amortization (37,702) (30,934) (24,391)
--------- --------- ---------
122,479 104,372 90,053
OTHER ASSETS 3,778 3,372 1,296
--------- --------- ---------
Total Assets $ 251,408 $ 229,200 $ 205,563
========= ========= =========
Liabilities and Stockholders' Equity
CURRENT LIABILITIES
Short-term borrowings $ 10,000 $ 0 $ 0
Trade accounts payable 34,712 26,046 18,604
Accrued liabilities 15,967 15,781 10,973
Income taxes payable 2,466 8,039 6,239
--------- --------- ---------
Total current liabilities 63,145 49,866 35,816
--------- --------- ---------
DEFERRED RENT AND OTHER 24,663 21,624 17,379
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Common stock, including excess paid-in capital
($.001 par value: 100,000,000 shares authorized
24,171,770, 24,015,096 and 24,595,553 shares
outstanding at August 1, 1998, January 31, 1998
and August 2, 1997, respectively) 25,058 23,109 39,928
Restricted stock deferred compensation 0 (337) (337)
Unrealized change in value of investments 0 28 136
Cumulative translation adjustment 283 (32) (307)
Retained earnings 138,259 134,942 112,948
--------- --------- ---------
Total stockholders' equity 163,600 157,710 152,368
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 251,408 $ 229,200 $ 205,563
========= ========= =========
See notes to condensed consolidated financial statements.
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THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
26 WEEKS ENDED
-----------------------
AUGUST 1, AUGUST 2,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,317 $ 13,177
Adjustments to reconcile net income to net cash provided by /
(used in) operating activities:
Depreciation and amortization 8,755 5,925
Provision for deferred income tax (58) 584
Tax benefit from exercise of stock options 240 1,440
Loss on disposal of property and equipment 985 958
Other 317 109
Change in assets and liabilities:
Accounts receivable (3,412) (651)
Inventories (16,062) (7,862)
Prepaid expenses and other assets (1,846) (496)
Accounts payable 8,665 (3,346)
Income tax payable (5,573) (391)
Deferred liabilities 3,040 2,808
Accrued liabilities 195 (1,214)
-------- --------
Net cash provided by/(used in) operating activities (1,437) 11,041
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27,871) (26,349)
Proceeds from sales of assets 24 0
Proceeds from sale of investments 18,614 36,263
-------- --------
Net cash provided by/(used in) investing activities (9,233) 9,914
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 2,047 5,791
Repurchase of common stock 0 (29,997)
Proceeds from short-term debt borrowings 10,000 0
-------- --------
Net cash provided by/(used in) financing activities 12,047 (24,206)
-------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,377 (3,251)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,870 8,027
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,247 $ 4,776
======== ========
See notes to condensed consolidated financial statements.
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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 its wholly-owned subsidiaries (the "Company") as of
and for the periods ended August 1, 1998 and August 2, 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 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. 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 second quarter of fiscal 1998
was 37%, consistent with the same period last year.
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 condensed consolidated balance sheets, statements
of operations or cash flows. Comprehensive income and its components are as
follows:
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------- -------------------------------
AUGUST 1, 1998 AUGUST 2, 1997 AUGUST 1, 1998 AUGUST 2, 1997
-------------- -------------- -------------- --------------
Net income (loss) $ (830) $ 4,578 $ 3,317 $ 13,177
Unrealized gain (loss) on investments 0 123 (28) (83)
Cumulative translation adjustments 326 (232) 315 (308)
-------- -------- -------- --------
Total comprehensive income (loss) $ (504) $ 4,469 $ 3,604 $ 12,786
======== ======== ======== ========
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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. The Company will continue to engage in
these financial instrument transactions in an attempt to reduce exposure to
foreign currency fluctuations.
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.
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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:
AS A PERCENTAGE OF NET SALES
------------------------------------------------ PERCENTAGE CHANGE
THIRTEEN TWENTY-SIX IN DOLLAR AMOUNTS
WEEKS ENDED WEEKS ENDED FROM 1997 TO 1998
---------------------- ---------------------- -----------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 13 26
1998 1997 1998 1997 WEEKS WEEKS
--------- --------- --------- --------- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0% 39% 29%
Cost of goods sold, including
buying and occupancy expenses (66.6) (57.5) (63.1) (55.8) 61 46
----- ----- ----- -----
Gross Profit 33.4 42.5 36.9 44.2 9 8
Selling, general and administrative
expenses (35.1) (33.5) (34.9) (32.1) 46 41
Play program income 0.3 0.1 0.4 0.1 224 646
----- ----- ----- -----
Operating income (loss) (1.4) 9.1 2.4 12.2 (121) (75)
Currency transaction gain (loss) (0.1) 0.0 0.1 0.0 N/A N/A
Interest income 0.1 1.0 0.2 1.1 (80) (78)
----- ----- ----- -----
Income (loss) before income taxes (1.4) 10.1 2.7 13.3 (118) (75)
Income taxes 0.5 (3.7) (1.0) (4.9) 118 75
----- ----- ----- -----
Net income (loss) (0.9)% 6.4% 1.7% 8.4% (118)% (75)%
===== ===== ===== =====
Number of stores at end of period 495 401 495 401
THIRTEEN WEEKS ENDED AUGUST 1, 1998 COMPARED TO THIRTEEN WEEKS ENDED AUGUST 2,
1997
NET SALES
Net sales in the second quarter of fiscal 1998 increased 39% to $99.8
million compared to $71.7 million in the same period last year. Sales for the
additional 60 stores opened in fiscal 1998 contributed $6.8 million of the
increase in net sales. Stores opened prior to fiscal 1998, but not qualifying as
comparable stores, in addition to the fifteen stores that were expanded in
fiscal 1998, contributed $11.3 million of the increase in net sales. Comparable
store net sales increased 16% in the second quarter and contributed $10.0
million of the increase in net sales. The increase in comparable store net sales
was primarily attributable to promotional pricing.
GROSS PROFIT
Gross profit for the thirteen weeks ended August 1, 1998 increased 9% to
$33.3 million from $30.5 million in the same period last year. As a percentage
of net sales, gross profit was 33.4% in the second quarter of 1998 compared to
42.5% in the same period last year. Gross profit as a percentage of net sales
was adversely affected by the high degree of promotional activity during the
thirteen weeks ended August 1, 1998. As the Company continues to reduce
inventories, gross profit as a percentage of net sales is likely to remain below
fiscal 1997 levels.
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RESULTS OF OPERATIONS (CONTINUED)
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 35.1% of net sales in the second quarter of fiscal 1998,
compared to 33.5% of net sales in the same period last year. The increase in S,
G&A was primarily attributable to the funding of the Company's international
expansion into the United Kingdom, Ireland and Japan, start-up expenses for the
development of the new retail concept, and increased distribution costs.
The Company expects total S, G&A expenses, as a percentage of net sales, to
remain above last year levels 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 into Canada, the United Kingdom and Ireland. The Company
has decided, however, to defer its expansion into Japan and Hong Kong. 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 losses were $0.1 million during the second
quarter 1998. This loss 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 second quarter of
fiscal 1997.
INTEREST INCOME
Interest income decreased 80% to $147,000 during the second quarter of 1998
from $722,000 during the second quarter of the prior year. The decrease in
interest income was due to the decrease in cash, cash equivalents, and
investments during the second quarter of 1998 as compared to the same period in
1997 which was primarily the result of two stock repurchases completed during
fiscal 1997 for a total of $50.0 million. This trend of declining interest
income is expected to continue for the foreseeable future.
INCOME TAX
The Company's effective tax rate for the second quarter of fiscal 1998 was
37%, consistent with the same period last year.
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RESULTS OF OPERATIONS (CONTINUED)
TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED
AUGUST 2, 1997
NET SALES
Net sales for the twenty-six weeks ended August 1, 1998 increased 29% to
$202.9 million compared to $156.9 million in the same period last year. Sales
for the additional 60 stores opened in fiscal 1998 contributed $9.5 million of
the increase in net sales. Stores opened prior to fiscal 1998, but not
qualifying as comparable stores, in addition to the fifteen stores that were
expanded in fiscal 1998, contributed $25.3 million of the increase in net sales.
Comparable store net sales increased 8% in the twenty-six weeks ended August 1,
1998. The increase in comparable store net sales was primarily attributable to
promotional pricing and contributed $11.2 million of the increase in net sales.
GROSS PROFIT
Gross profit for the twenty-six weeks ended August 1, 1998 increased 8% to
$74.8 million from $69.4 million in the same period last year. As a percentage
of net sales, gross profit was 36.9% in the first six months of fiscal 1998
compared to 44.2% in the same period last year. The decrease in gross profit as
a percentage of net sales was attributable to a significant increase in the
promotional pricing of merchandise and increases in occupancy expenses
attributable to larger domestic stores and higher rents paid in Europe during
the first half of fiscal 1998 as compared to the same period last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
S, G&A increased to 34.9% of net sales in the twenty-six weeks ended August
1, 1998 compared to 32.1% of net sales in the same period last year. The
increase in S, G&A was primarily attributable to the funding of the Company's
international expansion into Canada, the United Kingdom, Ireland, Japan and Hong
Kong, start-up expenses for the development of the new retail concept, and
increases in distribution costs due to the opening of a new distribution center
in Dixon, California and the closure of the existing facility located in
Hayward, California. Other increases in S, G&A included marketing, expenses
associated with direct mail and other promotional campaigns.
FOREIGN EXCHANGE TRANSACTIONS
Foreign exchange transaction gains were $0.1 million for the twenty-six
weeks ended August 1, 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
twenty-six weeks ended August 2, 1997.
INTEREST INCOME
Interest income decreased 78% to $376,000 from $1.7 million in the prior
year. The decrease in interest income was due to the decrease in cash, cash
equivalents, and investments during the first half of 1998 as compared to the
same period in 1997 which was primarily the result of two stock repurchases
completed during fiscal 1997 for a total of $50.0 million.
INCOME TAX
The Company's effective tax rate in the first six months of fiscal 1998 was
37%, consistent with the same period last year.
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $1.4 million compared to cash provided
by operating activities of $11.0 in the prior year. The use of cash in operating
activities was primarily due to lower net income and increased working capital.
Cash used in investing activities of $9.2 million resulted from $27.9
million in capital expenditures related primarily to new store openings, as well
as relocations and/or expansion of certain existing stores offset by $18.6
million generated from sales of marketable securities.
Cash provided by financing activities of $12.0 million was primarily due to
$10.0 million of short-term borrowings.
The combined balances of cash, cash equivalents and investments were $19.2
million at August 1, 1998, a decrease of $17.2 million from January 31, 1998.
Working capital as of August 1, 1998 was $62.0 million compared to $71.6 million
at the end of fiscal 1997. The decrease in working capital was primarily due to
increases in current liabilities.
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 stores and the remodeling or expansion
of approximately 20 to 30 existing stores.
At the end of the second quarter of fiscal 1998, the Company had a line of
credit that allowed up to $70 million in unsecured letters of credit (of which
$11 million can be used for standby letters of credit) and up to $30 million in
borrowings through the end of November, up to $15 million in borrowings during
the month of December, and no borrowings thereafter until the expiration of the
agreement on May 31, 1999. As the borrowing capacity is reduced, the amount
available for unsecured letters of credit is increased. The interest rate for
any borrowings is the Bank of America NT&SA's reference rate or the LIBOR rate
plus 0.75 percentage points. The Company uses these lines primarily to support
letters of credit which fund its foreign sourcing of merchandise inventories. As
of August 1, 1998, $20.0 million was available in borrowings. In addition, under
this same facility, the Company may engage in up to $50 million in foreign
exchange contracts, of which $28 million was available at August 1, 1998.
The Company continues to explore a number of financing alternatives,
however, the Company anticipates that cash generated from operations, together
with its existing cash resources and funds that are expected to be available
from its current and planned future credit facilities, will be sufficient to
satisfy its cash needs through at least fiscal 1998.
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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, and future comparable store net sales, inventory, expense, earnings
and liquidity levels. There can be no assurance that actual results will not
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. 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:
COMPETITION
The children's apparel segment of the specialty retail business is becoming
more competitive. The Company competes on a national level with GapKids (a part
of The Gap, Inc.) and certain leading department stores as well as certain
discount retail chains such as Kids `R' Us (a division of Toys `R' Us, Inc.).
Gymboree also competes with a wide variety of local and regional specialty
stores and with certain other retail chains. The continued success of the
Company is contingent upon its ability to compete.
INVENTORY LEVELS
The Company is taking steps to reduce inventories and to pursue new
merchandising and marketing initiatives, including a higher level of promotional
activity. This is likely to cause gross profit as a percentage of net sales to
continue to remain below fiscal 1997 levels for the balance of fiscal 1998.
INTERNATIONAL EXPANSION
During the second quarter of fiscal 1998, the Company opened one additional
store in Canada, bringing the number of stores in Canada to thirteen and also
opened two stores in the United Kingdom, bringing the total number of stores in
the United Kingdom and Ireland to thirteen. For the remainder of fiscal 1998,
the Company plans to further its international expansion in Canada, the United
Kingdom and Ireland. 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 has
decided, however, to defer its expansion into Japan and Hong Kong.
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.
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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 buy or sell foreign currencies.
Balance at
August 1, 1998
($ in millions)
---------------
Irish Punts 0.4
British Pounds Sterling 13.0
Canadian Dollars 9.0
-----
Total $22.4
=====
There were no open currency contracts at the end of the second quarter last
year.
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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
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
10.24 Amendment No. 7 to the Amended and Restated Line of Credit
Agreement with Bank of America, dated June 26, 1998.
10.25 Amendment No. 8 to the Amended and Restated Line of Credit
Agreement with Bank of America, dated August 14, 1998.
11 Computation of Net Income per Share
27 Financial Data Schedule
14
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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)
September 15, 1998 By: /s/ GARY WHITE
- -------------------- --------------------------------------------
Date Gary White
President and Chief Executive Officer
(Principal executive officer of the registrant)
September 15, 1998 By: /s/ ESTHER L. KOCH
- -------------------- --------------------------------------------
Date Esther L. Koch
Vice President, Finance and
Corporate Controller
(Principal financial and accounting officer
of the registrant)
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EXHIBIT INDEX
Exhibit
Number Description Page No.
10.24 Amendment No. 7 to the Amended and Restated Line
of Credit Agreement with Bank of America, dated
June 26, 1998
10.25 Amendment No. 8 to the Amended and Restated Line
of Credit Agreement with Bank of America, dated
August 14, 1998
11 Computation of Net Income per Share
27 Financial Data Schedule
16