1 FORM 11-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-21250 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Gymboree 401(k) Plan B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Gymboree Corporation 700 Airport Boulevard Suite 200 Burlingame, CA 94010-1912 SIGNATURE The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. GYMBOREE 401(k) PLAN Date: August 18, 1999 By /s/ L. H. Meyer --------------------------- L. H. Meyer 1 of 15 2 GYMBOREE 401(k) PLAN FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 2 of 15 3 GYMBOREE 401(k) PLAN Financial Statements and Supplemental Schedules Years ended December 31, 1998 and 1997 TABLE OF CONTENTS Independent Accountants' Report......................................4-5 Consent of Independent Accountants.....................................6 Financial Statements: Statements of Net Assets Available for Plan Benefits...................7 Statement of Changes in Net Assets Available for Plan Benefits, With Fund Information for the Year Ended December 31, 1998.............8 Statement of Changes in Net Assets Available for Plan Benefits, With Fund Information for the Year Ended December 31, 1997.............9 Notes to Financial Statements.........................................10 Consent of Independent Accountants....................................15 3 of 15 4 To the Participants and Plan Administrator of Gymboree 401(k) Plan INDEPENDENT ACCOUNTANTS' REPORT We have audited the financial statements and supplemental schedules of Gymboree 401(k) Plan (the Plan) as of December 31, 1998 and 1997, and for the years then ended, as listed in the accompanying table of contents. These financial statements and supplemental schedules are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Plan's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The supplemental information included in Schedule G - Financial Schedules does not disclose 5% reportable transactions. Disclosure of this information is required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information included in Schedule G - Financial Schedules (IRS Form 5500) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information in Schedule G is the responsibility of the Plan's management. The fund information in the statement of changes in net assets available for plan benefits is presented for purposes of additional analysis rather than to present the changes in net 4 of 15 5 assets available for plan benefits for each fund. The supplemental information in Schedule G and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion except for the omission of the information discussed in the preceding paragraph, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. MOHLER, NIXON & WILLIAMS Accountancy Corporation Campbell, California August 18, 1999 5 of 15 6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the use of our name on our report, dated August 18, 1999, with respect to the financial statements of the Gymboree 401(k) Plan for the years ended December 31, 1998 and 1997, included in the Annual Report on Form 11-K which is filed electronically with the Securities and Exchange Commission. MOHLER, NIXON & WILLIAMS Accountancy Corporation Campbell, California August 18, 1999 6 of 15 7 GYMBOREE 401(k) PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, --------------------------- 1998 1997 ---------- ---------- Investments, at fair value $4,319,889 $3,201,278 Investments, at contract value 184,530 ---------- ---------- Net assets available for plan benefits $4,319,889 $3,385,808 ========== ========== See independent accountants' report and accompanying notes to financial statements. 7 of 15 8 GYMBOREE 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION For the year ended December 31, 1998 ------------------------------------ Net assets available Participants' Withdrawals Dividends for plan benefits at Employer's contributions/ and and December 31, 1997 contribution rollovers distributions interest -------------------- ------------ -------------- ------------- ---------- Merrill Lynch Funds $3,095,372 Van Kampen: Enterprise Fund -- $ 22,244 $ 154,401 ($446,495) $ 12,286 Emerging Growth Fund -- 36,619 242,364 (41,495) Corporate Bond Fund -- 8,683 60,690 (15,267) 1,623 Stable Value Fund -- 46,545 372,155 (49,602) 15,741 American Value Fund -- 20,472 139,034 (28,552) International Magnum Fund -- 10,564 64,967 (175,107) Value Fund -- 14,957 82,694 (116,064) 4,249 Putnam: The George Putnam Fund of Boston -- 246 5,263 Investors Fund -- 1,007 14,114 (190) 42,136 Voyager Fund -- 718 10,088 34,495 Diversified Income Fund -- 238 3,314 (11) 388 New Opportunities Fund -- 449 8,237 (108) 15,267 International Growth Fund -- 86 5,028 (77) 20,009 Stable Value Fund -- 1,430 11,000 (18) 19 The Gymboree Stock Fund 193,076 6,039 31,677 (11,936) 20,070 Participant loans 97,360 (12,174) 4,226 ---------- --------- ---------- --------- -------- Total $3,385,808 $ 170,297 $1,205,026 ($897,096) $170,509 ========== ========= ========== ========= ======== For the year ended December 31, 1998 ------------------------------------ Net appreciation (depreciation) Increase Net assets available in fair value of Net loan Administrative Transfers (decrease) in for plan benefits at investments activities fees in (out) net assets December 31, 1998 --------------- ---------- -------------- -------- ---------- ----------------- Merrill Lynch Funds ($3,095,372) ($3,095,372) $ -- Van Kampen: Enterprise Fund $ 204,075 ($19,033) ($405) 72,927 -- Emerging Growth Fund 13,390 (2,963) (1,201) (246,714) -- Corporate Bond Fund 612 (3,406) (52,935) -- Stable Value Fund 2,758 (61,787) (325,810) -- American Value Fund 178 1,047 (384) (131,795) -- International Magnum Fund 47,744 (7,346) (99) 59,277 -- Value Fund (1,329) (1,743) (15) 17,251 -- Putnam: The George Putnam Fund of Boston 56 5,565 5,565 Investors Fund 107,724 1,531,027 1,695,818 1,695,818 Voyager Fund 15,393 465,021 525,715 525,715 Diversified Income Fund (694) 62,623 65,858 65,858 New Opportunities Fund 39,751 438,379 501,975 501,975 International Growth Fund 23,829 651,074 699,949 699,949 Stable Value Fund 2,798 556,024 571,253 571,253 The Gymboree Stock Fund (168,836) 1,308 (977) (122,655) 70,421 Participant loans 93,923 85,975 183,335 --------- -------- -------- ----------- ----------- ---------- Total $ 287,449 $ -- ($2,104) $ - $ 934,081 $4,319,889 ========= ======== ======== =========== =========== ========== See independent accountants' report and accompanying notes to financial statements 8 of 15 9 GYMBOREE 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION For the year ended December 31, 1997 --------------------------------------------- Net assets available Participants' Withdrawals Dividends for plan benefits at Employer's contributions/ and and December 31, 1996 contribution rollovers distributions interest -------------------- ------------ -------------- ------------- ---------- Merrill Lynch: Capital Fund $337,858 $20,629 $122,197 ($56,955) $35,527 Growth Fund 1,195,396 75,793 440,149 (302,033) 125,237 Global Allocation Fund 598,540 34,129 203,527 (175,159) 88,166 Retirement Preservation Trust Fund 166,070 9,746 92,546 (58,383) 10,256 CMA Money Fund 59,700 The Gymboree Stock Fund 149,748 10,451 66,146 (61,254) 94 Participant loans 112,635 (63,711) 8,323 Receivables 38,114 Payables (49,119) ---------- -------- -------- --------- -------- Total $2,608,942 $150,748 $924,565 ($717,495) $267,603 ========== ======== ======== ========= ======== For the year ended December 31, 1997 ------------------------------------ Net appreciation (depreciation) Increase Net assets available in fair value of Net loan Transfers (decrease) in for plan benefits at investments activities in (out) net assets December 31, 1997 --------------- ---------- -------------- ------------- --------------------- Merrill Lynch: Capital Fund $39,410 $ 4,702 ($22,890) $142,620 $ 480,478 Growth Fund 108,116 (27,082) 5,276 425,456 1,620,852 Global Allocation Fund (22,705) (367) (714) 126,877 725,417 Retirement Preservation Trust Fund (17,611) (18,094) 18,460 184,530 CMA Money Fund 24,395 24,395 84,095 The Gymboree Stock Fund 26,624 245 1,022 43,328 193,076 Participant loans 40,113 (15,275) 97,360 Receivables (38,114) (38,114) -- Payables 49,119 49,119 -- -------- -------- -------- -------- ---------- Total $151,445 $ -- $ -- $776,866 $3,385,808 ======== ======== ======== ======== ========== See independent accountants' report and accompanying notes to financial statements. 9 of 15 10 GYMBOREE 401(k) PLAN NOTES TO FINANCIAL STATEMENTS December 31, 1998 and 1997 NOTE 1 - THE PLAN AND ITS SIGNIFICANT ACCOUNTING POLICIES: The following description of the Gymboree 401(k) Plan (the Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. The Plan is a defined contribution plan that was established in 1992 by the The Gymboree Corporation (the Company) to provide benefits to eligible employees. The Plan covers all full-time employees of the Company who have completed one year of service and are age 21 or older. Effective December 1, 1998, the Company amended and restated the Plan and Trust Agreement designating Putnam Fiduciary Trust Company (Putnam) successor trustee of the Plan. The Plan administrator believes that the Plan is currently designed and operated in compliance with the applicable requirements of the Internal Revenue Code and the provisions of the Employee Retirement Income Security Act (ERISA). ADMINISTRATION - The Company has appointed an Administrative Committee (the Committee) to manage the operation and administration of the Plan. Concurrent with the appointment of Putnam as successor trustee, the Committee designated Putnam to replace Van Kampen American Capital as custodian and third-party administrator. Substantially all expenses incurred for administering the Plan are paid by the Company. INVESTMENTS - Plan assets are invested in mutual funds and Gymboree Corporation common stock, The Gymboree Stock Fund, based solely on instructions received from participants. For the year ended December 31, 1997, Merrill Lynch Pierce Fenner and Smith (Merrill Lynch) was custodian of Plan assets and Plan investments included five mutual funds sponsored by Merrill Lynch. Effective January 1, 1998, Plan assets were transferred to the custody of Van Kampen American Capital (Van Kampen) and Merrill Lynch investment funds were replaced with seven new funds sponsored by Van Kampen. In conjunction with the appointment of Putnam as successor trustee of the Plan on December 1, 1998, Van Kampen funds were replaced with seven new funds sponsored by Putnam. 10 of 15 11 Plan investments in mutual funds as well as The Gymboree Stock Fund are valued at fair value as of the last day of the Plan year, as measured by quoted market prices. VESTING - Participants are immediately vested in their entire account balance. INCOME TAXES - The Plan has been amended since receiving its latest favorable determination letter dated June 1995. However, the Company intends that the Plan continue to qualify under the applicable requirements of the Internal Revenue Code and related state statutes, and is exempt from federal income and state franchise taxes. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES - The Plan provides for various investment options in any combination from among seven different Putnam mutual funds as well as The Gymboree Stock Fund. Investment securities are exposed to various risks, such as interest rate, market fluctuations and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants' account balances and the amounts reported in the statements of net assets available for plan benefits and the statements of changes in net assets available for plan benefits. NOTE 2 - PARTICIPATION AND BENEFITS: PARTICIPANT CONTRIBUTIONS - Participants may elect to have the Company contribute a percentage, from 1% to 20%, of their eligible pre-tax compensation up to the amount allowable under current income tax regulations. Participants who elect to have the Company contribute a portion of their compensation to the Plan agree to accept an equivalent reduction in taxable compensation. Contributions withheld are invested in accordance with the participant?s direction and are allocated to funds in 1% increments. 11 of 15 12 Participants are also allowed to make rollover contributions of amounts received from other tax-qualified employer-sponsored retirement plans. Such contributions are deposited in the appropriate investment funds in accordance with the participant's direction and the Plan's provisions. EMPLOYER CONTRIBUTIONS - The Company is allowed to make discretionary matching contributions as defined in the Plan and as approved by the Board of Directors. In 1998 and 1997, the Company matched 50% of each eligible participant's contribution up to a maximum of $500. PARTICIPANT ACCOUNTS - Each participant's account is credited with the participant's contribution, Plan earnings or losses and an allocation of the Company's contribution. Allocation of the Company's contribution is based on participant contributions. PAYMENT OF BENEFITS - Upon termination, the participant or beneficiary will receive the benefits in a lump-sum amount equal to the value of the participant's account. The Plan allows for automatic lump-sum distribution of participant account balances that do not exceed $5,000. LOANS TO PARTICIPANTS - The Plan allows participants to borrow not less than $1,000 and up to the lesser of $50,000 or 50% of their account balance. The loans are secured by the participant's account balance. Such loans bear interest at rates established by the Committee and must be repaid to the Plan within a five-year period, unless the loan is used for the purchase of a residence in which case the maximum repayment period may be extended. The Committee establishes the specific terms and conditions of such loans. NOTE 3 - PLAN TERMINATION AND/OR MODIFICATION: The Company intends to continue the Plan indefinitely for the benefit of its employees; however, it reserves the right to terminate and/or modify the Plan at any time by resolution of its Board of Directors and subject to the provisions of ERISA. 12 of 15 13 NOTE 4 - INVESTMENTS: The following table includes the contract or fair values of investments and investment funds that represent 5% or more of the Plan's net assets at December 31: 1998 1997 ---------- ---------- Putnam: The George Putnam Fund of Boston $ 5,565 Investors Fund 1,695,818 Voyager Fund 525,715 Diversified Income Fund 65,858 New Opportunities Fund 501,975 International Growth Fund 699,949 Stable Value Fund 571,253 Merrill Lynch: Capital Fund $ 480,478 Growth Fund 1,620,852 Global Allocation Fund 725,417 Retirement Preservation Trust Fund 184,530 CMA Money Market Fund 84,095 The Gymboree Stock Fund 70,421 193,076 Participant loans 183,335 97,360 ---------- ---------- Total investments at contract or fair value $4,319,889 $3,385,808 ========== ========== NOTE 5 - PARTY IN INTEREST TRANSACTIONS: As allowed by the Plan, participants may elect to invest a portion of their accounts in the common stock of the Company. The aggregate investment in Company common stock at December 31, 1998 and 1997 was as follows: 1998 1997 -------- -------- Number of shares 11,045 7,053 Cost $224,931 $191,372 Fair value $ 70,421 $193,076 13 of 15 14 NOTE 6 - YEAR 2000 COMPLIANCE (UNAUDITED): The Plan, as with most users of computer software, was required to modify significant portions of its internally used software to enable it to function properly in the year 2000. In addition, the Plan must also insure that its service providers are in compliance with the year 2000 issue. Since the Plan uses mainly third-party software and service providers, it does not anticipate a problem in resolving the year 2000 issue in a timely manner. 14 of 15