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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
 
    For the quarterly period ended October 30, 2004
 
OR
 
o
   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
incorporation or organization)		   (IRS Employer
Identification No.)
 
500 Howard Street,
San Francisco, California		  
94105
(Address of principal executive offices)   (Zip code)

(415) 278-7000

(Registrant’s telephone number, including area code)

700 Airport Boulevard, Suite 200, Burlingame, California 94010-1912

(Former address, if changed since last report)

          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 þ          No o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

          As of November 27, 2004, 30,965,401 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

             
Page
Number
 PART I FINANCIAL INFORMATION
  Financial Statements        
     Condensed Consolidated Balance Sheets     2  
     Condensed Consolidated Statements of Income     3  
     Condensed Consolidated Statements of Cash Flows     4  
     Notes to Condensed Consolidated Financial Statements     5  
     Report of Independent Registered Public Accounting Firm     10  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     11  
  Quantitative and Qualitative Disclosures about Market Risk     16  
  Controls and Procedures     16  
 PART II OTHER INFORMATION
  Legal Proceedings     18  
  Exhibits     18  
 Signatures     19  
 Exhibit Index        
 EXHIBIT 10.58
 EXHIBIT 10.59
 EXHIBIT 10.60
 EXHIBIT 10.61
 EXHIBIT 15
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1
 EXHIBIT 32.2

1

Table of Contents

Part I — FINANCIAL INFORMATION

 
Item 1. Financial Statements

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
                             
October 30, January 31, November 1,
2004 2004 2003
(In thousands, except share data)
(Unaudited)
ASSETS
Current Assets
                        
 
Cash and cash equivalents
  $ 64,608     $ 89,553     $ 56,463  
 
Accounts receivable
    19,215       11,168       7,542  
 
Merchandise inventories
    91,706       73,017       81,832  
 
Prepaid expenses
    3,295       2,865       8,319  
 
Deferred taxes
    293       1,126       2,030  
 
Current assets of discontinued operations
    4,373       6,396       6,908  
     
     
     
 
   
Total current assets
    183,490       184,125       163,094  
     
     
     
 
Property and Equipment
                        
 
Land and buildings
    10,375       10,375       10,371  
 
Leasehold improvements
    141,648       105,185       103,141  
 
Furniture, fixtures and equipment
    150,144       133,364       127,977  
     
     
     
 
      302,167       248,924       241,489  
 
Less accumulated depreciation and amortization
    (156,070 )     (140,026 )     (134,544 )
     
     
     
 
      146,097       108,898       106,945  
Deferred Taxes
    8,537       4,607       5,067  
Lease Rights and Other Assets
    1,522       1,253       712  
     
     
     
 
 
Total Assets
   $ 339,646     $ 298,883     $ 275,818  
     
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
                        
 
Accounts payable
  $ 38,245     $ 33,318     $ 34,195  
 
Income tax payable
    —       8,011       5,207  
 
Accrued liabilities
    43,372       25,775       25,047  
 
Current liabilities of discontinued operations
    5,127       1,714       2,554  
     
     
     
 
   
Total current liabilities
    86,744       68,818       67,003  
     
     
     
 
Long-Term Liabilities
                        
 
Deferred rent and other liabilities
    30,412       26,317       20,814  
     
     
     
 
 
Total Liabilities
     117,156       95,135       87,817  
     
     
     
 
Stockholders’ Equity
                        
 
Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized, 30,830,374, 30,203,149 and 29,801,652 shares outstanding at October 30, 2004, January 31, 2004 and November 1, 2003, respectively)
    64,752       58,460       54,335  
 
Retained earnings
    157,809       145,805       134,617  
 
Accumulated other comprehensive loss
    (71 )     (517 )     (951 )
     
     
     
 
   
Total stockholders’ equity
    222,490       203,748       188,001  
     
     
     
 
 
Total Liabilities and Stockholders’ Equity
   $ 339,646     $ 298,883     $ 275,818  
     
     
     
 

See notes to condensed consolidated financial statements.

2

Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                     
13 Weeks Ended 39 Weeks Ended
October 30, November 1, October 30, November 1,
2004 2003 2004 2003
(In thousands, except per share data)
(Unaudited)
Net sales:
                               
 
Retail
  $ 152,619     $ 140,864     $ 410,466     $ 373,635  
 
Play & Music and Other
    2,989       2,894       8,241       9,002  
     
     
     
     
 
   
Total net sales
    155,608       143,758       418,707       382,637  
Cost of goods sold, including buying and occupancy expenses
    (92,799 )     (83,355 )     (250,387 )     (225,808 )
     
     
     
     
 
   
Gross profit
    62,809       60,403       168,320       156,829  
Selling, general and administrative expenses
    (54,306 )     (46,730 )     (151,984 )     (133,181 )
     
     
     
     
 
 
Operating income
    8,503       13,673       16,336       23,648  
Other income, net
    69       19       451       354  
     
     
     
     
 
 
Income from continuing operations before income taxes
    8,572       13,692       16,787       24,002  
Income tax benefit (expense)
    338       (5,203 )     (2,661 )     (9,121 )
     
     
     
     
 
 
Income from continuing operations, net of income tax
    8,910       8,489       14,126       14,881  
Loss from discontinued operations, net of income tax
    (3,419 )     (174 )     (3,350 )     (364 )
     
     
     
     
 
Income before cumulative effect of change in accounting principle
    5,491       8,315       10,776       14,517  
Cumulative effect of change in accounting principle, net of income tax
    —       —       1,228       —  
     
     
     
     
 
 
Net income
  $ 5,491     $ 8,315     $ 12,004     $ 14,517  
     
     
     
     
 
Basic per share amounts:
                               
Income from continuing operations, net of income tax
  $ 0.29     $ 0.29       0.46     $ 0.50  
Loss from discontinued operations, net of income tax
    (0.11 )     (0.01 )     (0.11 )     (0.01 )
Cumulative effect of change in accounting principle, net of income tax
    —       —       0.04       —  
     
     
     
     
 
Net income
  $ 0.18     $ 0.28       0.39     $ 0.49  
     
     
     
     
 
Diluted per share amounts:
                               
Income from continuing operations, net of income tax
  $ 0.28     $ 0.28       0.45     $ 0.48  
Loss from discontinued operations, net of income tax
    (0.11 )     (0.01 )     (0.11 )     (0.01 )
Cumulative effect of change in accounting principle, net of income tax
    —       —       0.04       —  
     
     
     
     
 
Net income
  $ 0.18     $ 0.27       0.38     $ 0.47  
     
     
     
     
 
Weighted average shares outstanding:
                               
 
Basic
    30,801       29,687       30,657       29,518  
 
Diluted
    31,346       30,837       31,355       30,764  

See notes to condensed consolidated financial statements.

3

Table of Contents

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                       
39 Weeks Ended
October 30, November 1,
2004 2003
(In thousands)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Net income
  $ 12,004     $ 14,517  
Adjustments to reconcile net income to net cash provided by operating activities:
               
 
Loss from discontinued operations, net of income tax
    3,350       364  
 
Cumulative effect of change in accounting principle, net of income tax
    (1,228 )     —  
 
Depreciation and amortization
    20,368       19,097  
 
Deferred income tax benefit
    (3,097 )     (230 )
 
Loss on disposal of property and equipment
    451       201  
 
Tax benefit from exercise of stock options
    2,856       770  
 
Change in assets and liabilities:
               
   
Accounts receivable
    (5,429 )     (222 )
   
Merchandise inventories
    (20,189 )     (19,216 )
   
Prepaid expenses and other assets
    (815 )     (163 )
   
Accounts payable
    4,831       7,074  
   
Income tax payable
    (9,639 )     (7,586 )
   
Accrued liabilities
    17,661       1,208  
   
Deferred and other liabilities
    4,154       315  
     
     
 
 
Net cash provided by continuing operations
    25,278       16,129  
 
Net cash provided by discontinued operations
    4,552       1,518  
     
     
 
     
Total net cash provided by operating activities
    29,830       17,647  
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Capital expenditures
    (58,040 )     (24,586 )
Proceeds from sale of assets and other
    141       600  
     
     
 
 
Net cash used in investing activities
    (57,899 )     (23,986 )
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Proceeds from issuance of stock
    3,436       3,495  
     
     
 
 
Net cash provided by financing activities
    3,436       3,495  
     
     
 
Effect of exchange rate fluctuations on cash
    (312 )     (1,321 )
     
     
 
Net Decrease in Cash and Cash Equivalents
    (24,945 )     (4,165 )
CASH AND CASH EQUIVALENTS:
                
Beginning of Period
    89,553       60,628  
     
     
 
End of Period
  $ 64,608     $ 56,463  
     
     
 
NON-CASH INVESTING ACTIVITIES:
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