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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 000-21250

The Gymboree Corporation

(650) 579-0600

      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 May 31, 2003, 29,441,282 shares of the registrant’s common stock were outstanding.

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Part I — FINANCIAL INFORMATION

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See notes to condensed consolidated financial statements.

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THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to condensed consolidated financial statements.

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THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (“Gymboree”), 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 February 1, 2003.

      The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, 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 to the current year presentation.

      The results of operations for the thirteen weeks ended May 3, 2003 are not necessarily indicative of the operating results that may be expected for the year ending January 31, 2004.

      Gymboree accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Had the Company recorded compensation expense or income for its stock option plans and purchase plan, based on the fair value method consistent with the method of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, net income and net income per share would have been as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The fair value of option grants and shares issued under the purchase plan are estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

      Basic net income per share is calculated by dividing net income for the period by the weighted average common shares outstanding for that period. Diluted net income per share includes the effects 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 summarizes the incremental shares from these potentially dilutive securities, calculated using the treasury stock method.

      Anti-dilutive options and warrants to purchase 1,662,996 and 571,149 shares of common stock were excluded from the above computations of weighted average shares for the 13 weeks ended May 3, 2003 and May 4, 2002, respectively.

      Comprehensive income, which includes net income, foreign currency translation adjustments and fluctuations in the fair market value of certain derivative financial instruments, is as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Gymboree operates two reportable segments, retail stores and Play & Music. Corporate overhead and income taxes are included in the retail stores segment. The following table provides the summary financial data of each reportable segment.

      Net retail sales from international subsidiaries amounted to $12.1 million and $11.1 million in the first quarter of 2003 and 2002, respectively. Long-lived assets held by international subsidiaries amounted to $6.8 million and $8.7 million as of May 3, 2003 and May 4, 2002, respectively.

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INDEPENDENT ACCOUNTANTS’ REPORT

Board of Directors and Stockholders of The Gymboree Corporation

      We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of May 3, 2003 and May 4, 2002, and the related condensed consolidated statements of income and cash flows for the three-month periods then ended. These condensed consolidated financial statements are the responsibility of the Company’s management.

      We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

      Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

      We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of The Gymboree Corporation as of February 1, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 14, 2003 (April 24, 2003 as to Note 5), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 1, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

      The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The discussion in this report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, future cash generated from operations and future cash needs. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and our actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise and marketing activity, gross margin achievement, our ability to manage inventory levels, general economic conditions, competitive market conditions, trade restrictions, instability in countries where our merchandise is manufactured and the other factors described in this document. When used in this document, the words “believes”, “expects”, “estimates” or “anticipates” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K for fiscal year 2002 and our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.

Results of Operations

      The following table sets forth selected statement of income data expressed as a percentage of net sales:

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Thirteen weeks ended May 3, 2003 compared to thirteen weeks ended May 4, 2002

      Net retail sales in the first quarter of 2003 increased to $136.1 million from $129.6 million in the same period last year, an increase of $6.5 million or 5.0%. This increase was attributable to a 2% increase in comparable store sales combined with an increase in store sales from new and relocated stores. Management attributes the sales increase to the consistent delivery of a strong and focused product offering supported by strong customer service, which resulted in an increase in the average transaction value, offset in part by a lower volume of transactions. The number of stores open at the end of the quarter was 589, compared to 577 open as of the end of the same period last year. As of May 3, 2003, Gymboree operated 541 stores in the United States (including 13 Janie and Jack stores), 24 stores in Canada, and 24 stores in Europe.

      Play & Music net sales in the first quarter of 2003 decreased to $3.4 million from $4.0 million in the same period last year, a decrease of $0.6 million or 15.0%. The decrease was primarily due to a decrease in the number of international franchises sold during the first quarter of 2003 as compared to the same period last year.

      Gross profit for the first quarter of 2003 increased 2.9% to $58.8 million from $57.2 million in the same period last year, an increase of $1.6 million. As a percentage of net sales, gross profit decreased 0.6 percentage points to 42.2% in the first quarter of 2003 from 42.8% in the same period last year. The decrease in gross profit as a percentage of net sales was attributable to an increase in promotional activity in our retail stores and lower gross margins from our Janie and Jack division, which is still in its development phase.

      Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, decreased to $46.9 million in the first quarter of 2003 from $47.4 million in the same period last year, a decrease of $0.5 million or 1.0%. As a percentage of net sales, SG&A expenses decreased 1.9 percentage points to 33.6% in the first quarter of 2003 from 35.5% in the same period last year. The lower SG&A expenses in the first quarter of 2003 were primarily due to a decrease in marketing expenses due to a shift from external to in-store advertising and a decrease in travel expenses resulting from the SARS outbreak and the war in Iraq.

      Net foreign exchange losses totaled $226,000 during the first quarter of 2003 compared to gains of $342,000 in the same period last year. These losses resulted primarily from foreign currency fluctuations on inter-company transactions between our United States operations and foreign subsidiaries.

      Interest income increased to $194,000 in the first quarter of 2003 from $94,000 in the same period last year due to interest earned on higher cash and cash equivalent balances on a quarter-over-quarter basis, offset in part by lower interest rates. Interest expense of $57,000 was incurred in the first quarter of 2003, compared to $295,000 for the same period last year. The decrease was due to lower average borrowings and lower interest rates.

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      Our effective tax rate for the first quarters of 2003 and 2002 was 38.5%.

Financial Condition

      Cash provided by operating activities for the thirteen weeks ended May 3, 2003 was $4.0 million compared to $18.4 million in the same period last year. This decrease was primarily due to changes in working capital items, including a decrease in accounts payable and accrued liabilities of $14.9 million. This decrease was offset by an increase in income before depreciation and amortization of $1.4 million and a decrease in the provision for deferred income taxes of $2.4 million.

      Cash used in investing activities for the thirteen weeks ended May 3, 2003 was $5.0 million and consisted primarily of capital expenditures for information technology improvements, the relocation and/or expansion of certain existing stores, and the opening of new stores. Capital expenditures were $5.3 million in the first quarter of 2003 and $4.0 million in the same period last year. Gymboree estimates that capital expenditures during 2003 will be approximately $33 million, and will primarily be used to open 15-20 new Gymboree stores as well as 15-18 new Janie and Jack stores, relocate selected Gymboree stores and to continue the systems infrastructure improvements.

      Cash provided by financing activities for the thirteen weeks ended May 3, 2003 totaled $749,000 compared to $1.1 million in the same period last year. This decrease was due to fewer stock option exercises in the first quarter of 2003 compared to the same period last year.

      Cash and cash equivalents were $60.1 million at May 3, 2003, a decrease of $0.5 million from February 1, 2003. Working capital as of May 3, 2003 was $87.1 million compared to $76.7 million as of February 1, 2003.

      Gymboree has a secured revolving credit facility which provides for borrowings of up to $60 million. This credit facility expires in September 2003. Gymboree intends to renew or replace this credit facility on substantially similar terms.

      Gymboree anticipates that cash generated from operations, together with existing cash resources and funds available from current and future credit facilities, will be sufficient to satisfy Gymboree’s cash needs through 2003.

      Gymboree is the guarantor on lease agreements for 14 of the 19 Zutopia stores sold to The Wet Seal in 2000 and a Play & Music site sold to a franchisee in 2002. The guarantees on the Zutopia store leases are effective until the leases expire, which occurs through 2009. The guarantee on the Play & Music site is effective until November 30, 2003. The lease guarantees require that Gymboree make all required lease payments upon default by the current tenants. Gymboree’s maximum potential amount of future payments under the guarantees approximates $15.2 million, excluding amounts that would be payable based on a percentage of sales, as such amounts cannot be estimated. Gymboree does not have recourse against The Wet Seal, Inc. or the Play & Music franchisee in case of non-performance. The following table reflects a summary of our lease guarantees as of May 3, 2003.

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. The term of the forward exchange contracts is generally less than one year. 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 dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

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      The tables below summarize by major currency the notional amounts and fair values of our forward foreign exchange contracts in U.S. dollars as of May 3, 2003 and May 4, 2002.

Item 4.     Controls and Procedures

      Our Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for Gymboree. Such officers have concluded (based upon their evaluation of the effectiveness of the design and operation of these controls and procedures as of a date within 90 days of the filing of this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by Gymboree in this report is accumulated and communicated to our management, including our principal executive officers as appropriate, to allow timely decisions regarding required disclosure. The Certifying Officers also have indicated that there were no significant changes in Gymboree’s internal controls or in other factors that could significantly affect such internal controls subsequent to the date of their evaluation.

Part II — OTHER INFORMATION

Item 1.     Legal Proceedings

      Gymboree was named as a defendant in a lawsuit relating to sourcing of products from Saipan (Commonwealth of the Northern Mariana Islands). A complaint was filed on January 13, 1999 in the U.S. District Court, Central District of California, by various unidentified worker plaintiffs against Gymboree and approximately 25 other parties. The case was transferred to the U.S. District Court for the District of Hawaii and then subsequently transferred to the U.S. District Court for the District of the Northern Mariana Islands. The plaintiffs sought class-action status and alleged, 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 at factories in Saipan that make products for us. The plaintiffs sought injunctive relief as well as actual and punitive damages. Gymboree has agreed to a settlement with the plaintiffs and has placed in escrow a settlement payment of $165,606. In April 2003, the court granted final approval of the settlement.

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Item 6.     Exhibits and Reports on Form 8-K

      (a)     Exhibits

      (b)     Reports on Form 8-K

      On March 20, 2003, we filed a current report on Form 8-K in connection with our fourth quarter and 2002 results, which provided a separate presentation of revenues from retail operations and Play & Music operations for the two years ending February 1, 2003.

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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)

	By:	/s/ MYLES MCCORMICK

	Myles McCormick
	Chief Financial Officer and Principal Financial and Accounting Officer

Date: June 13, 2003

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CERTIFICATIONS

      I, Lisa Harper, certify that:

      1.     I have reviewed this quarterly report on Form 10-Q of The Gymboree Corporation;

      2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

      4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a)     Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      b)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      c)     Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the board of directors (or persons performing equivalent functions):

      a)     All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	By:	/s/ LISA HARPER

	Lisa Harper
	Chief Executive Officer and
	Chairman of the Board

Date: June 13, 2003

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CERTIFICATION

      I, Myles McCormick, certify that:

      1.     I have reviewed this quarterly report on Form 10-Q of The Gymboree Corporation;

      2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

      4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a)     Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      b)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      c)     Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the board of directors (or persons performing equivalent functions):

      a)     All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	By:	/s/ MYLES MCCORMICK

	Myles McCormick
	Chief Financial Officer and
	Principal Financial and Accounting Officer

Date: June 13, 2003

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Exhibit Index

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